The Withheld Bonus That Destroys Trust
Decisions about variable compensation can either strengthen or destroy company culture. And yet most organizations keep managing them the wrong way, often catastrophically so.
The story I want to start from happened recently. A woman receives a terrible message from her partner, telling her that after “careful consideration” he doesn’t see a future with her. She is emotionally devastated and, understandably, turns that pain into distraction from her work focus. Her manager notices this and uses it against her in December, when it is time to decide the annual bonus.
“You’ve been distracted from work priorities,” he tells her. No bonus for her this year.
This story, however, is not an exception. It’s the symptom of a much broader problem in how organizations handle performance management and compensation. The problem is called “linked systems bias”: when evaluation systems, bonuses, and individual judgments are merged into a single mechanism that is confused, opaque, and highly subjective.
Let’s look at what doesn’t work, why OKRs are central in this context, and how to build a better system.
What’s not working today
Management by Objectives (MBO) was introduced by Peter Drucker in 1954 as a revolutionary approach to performance management. The original idea was solid: align individual goals with organizational goals, measure progress transparently, and evaluate accordingly.
The problem is what happened next.
Many companies turned MBO into a control tool rather than an alignment tool.
Goals were tied directly to compensation. Evaluations became binary: 100% = success, everything else = failure. Managers were given wide discretion in how they interpreted results.
The outcome? Subjectivity, arbitrariness, and loss of trust.
The data is clear:
38% of employees do not understand how their compensation is calculated
62% do not understand how bonus decisions are made and perceive strong arbitrariness
Discretionary withholding of bonuses significantly increases turnover, even with the same level of performance
53% of employees believe that performance evaluations are based on subjective opinions, not objective data
The three failures of MBO when used for compensation
When MBO is used primarily to justify bonuses and salary increases, three structural problems emerge.
1. Subjectivity rules
In traditional MBO systems, the manager decides everything:
which goals are “realistic”
what “making progress” actually means
whether a person “deserves” the bonus or not
Research on bias in performance evaluations shows that when the manager has full discretion, they tend to:
be more lenient with people they like
be harsher with people they don’t like
Not because of real performance differences, but due to cognitive biases, emotional state, and personal relationships.
Recency bias is particularly harmful: what happens in the last few months (or weeks) weighs more than 11 months of solid work. A tough period in December can erase an entire year of results.
2. No peer perspective
In traditional MBO systems, goals are defined privately between manager and direct report:
no comparison with similar roles
no feedback on collaboration and teamwork
no cross-functional context
The manager becomes the sole judge, with no counterbalance.
3. Binary success incentivizes “gaming”
When the bonus is directly tied to achieving goals, people lower the bar.
They don’t set ambitious goals; they set “safe” goals.
If 100% is success and 99% is failure, the organization gets:
less innovation
less collaboration
overall lower performance
The hidden cost of the current system
Arbitrary performance management destroys engagement and retention. The pattern is always the same:
Perception of injustice and immediate disengagement
It’s not the amount of the bonus that makes the difference, but the implicit message: “Here, decisions are arbitrary.”Disengagement and active turnover
People don’t wait for the next review cycle. They start looking elsewhere.The culture hardens
Colleagues are watching. They realize the rules are not clear. Trust erodes.Collaboration collapses
Why help a colleague if credit is not recognized? Why share ideas?Internal politics increases
People start managing the manager’s perception instead of solving real problems.
The economic impact is enormous:
Replacement cost for an employee: 1.5–2x their annual salary
Cost of low engagement: around -15% productivity
A 30-person team with an average salary of €60k can lose over €270,000 per year just from turnover and disengagement
Why OKRs are different
Here is a fundamental distinction that many companies don’t understand: OKRs are not a performance evaluation tool.
Let’s say it clearly: OKRs must never be used to determine bonuses or individual ratings.
When companies link OKRs and compensation:
they destroy the framework
they damage culture
they incentivize defensive behaviors
What OKRs really are
OKRs should be:
Transparent: visible to the whole organization
Collaborative: defined with peer input and cross-functional alignment
Aspirational: 60–70% achievement is considered success
Separate from compensation: because they are meant for learning, not control
Used correctly, OKRs create strategic clarity, not individual judgments.
The right framework for performance evaluation
Evaluation should be based on five distinct components, not fused into a single system.
1. Objective metrics and measurable outcomes
Examples:
Reducing churn from 8% to 5%
Increasing feature adoption from 12% to 34%
18 training sessions delivered
These are data, not opinions.
2. Calibrated evaluation by the manager
The manager evaluates, but:
by comparing notes with other managers
using historical data
referring to criteria defined in advance
3. 360° feedback
Essential to assess:
collaboration
reliability
communication
day-to-day behavior
It must be:
anonymous
structured
used first for development, then for compensation
4. Clear criteria communicated in advance
Example:
60% individual results
20% team results
20% behaviors (360°)
Written. Explained. Shared.
5. Human, respectful communication
Bonus decisions must be communicated:
in person
with data
with clarity
leaving room for dialogue
This is where, in the initial story, the manager completely failed.
How to implement the system
Phase 1: Separate the systems (90 days)
Stop using MBO/OKRs directly for bonuses
Clarify what is used for learning and what is used for evaluation
Define the compensation philosophy
Phase 2: Transparency (60 days)
Publish bonus criteria
Train managers
Communicate to the entire organization
Phase 3 – Pilot 360° (Q1)
One pilot team
External providers
Iteration
Phase 4 – Scale (Q2+)
Full rollout
Calibration sessions
Regular surveys on perceived fairness
Fairness is not simple, but it is essential
The woman from the initial story is now looking for a new job. She tells everyone what happened.
The company didn’t just lose one person. It lost trust, reputation, and future.
Arbitrary bonus decisions are not a minor HR issue. They are an existential threat to company culture.
Solving this requires three things:
Separating the systems (OKRs, performance management, compensation)
Multiple sources of input
Transparency and humanity
It’s not theory. This is how you build organizations where people want to stay and do their best.
If, while reading this article, you recognized yourself in one or more of the situations described (bonuses perceived as arbitrary, unclear evaluations, managers struggling to give feedback, OKRs generating tension instead of alignment), it is very likely that the problem is not in the people, but in the system.
Every week we talk to CEOs, founders, and HR leaders facing these same dynamics:
performance management systems that do not generate trust
messy OKRs or OKRs used as control tools
bonuses that, instead of motivating, create frustration and turnover
For this reason we offer a free, no-obligation introductory conversation: a confidential space to analyze your specific context, understand where friction is generated, and assess whether, and how, to intervene.
