HR-Glossar
Zielvereinbarung (target agreement)
How target agreements are built, what applies where pay depends on them and which distortions target systems regularly produce.
1. What is Zielvereinbarung (target agreement)?
A target agreement is the joint setting of objectives for a defined period, to the achievement of which feedback and frequently a variable pay component are tied.
Two forms are to be distinguished, and they work very differently in law. A pay-relevant target agreement is the basis of a claim to payment – it is therefore part of the pay system and subject to its rules. A non-pay-relevant target agreement is a pure leadership instrument with no direct financial consequence.
The word "agreement" is meant literally: objectives are set jointly, not imposed. Where the employer determines objectives alone, there is a target specification – which is then subject to review for reasonableness under Section 315 BGB and can be examined by the courts. A group cascade that arrives as a fixed number is a specification, not an agreement.
2. Origin and development
The concept goes back to management by objectives: instead of directing activities, results are agreed, and the route there is left to the employee. The thought is emancipatory – it puts self-direction in the place of instruction.
In practice something else has frequently developed from it: an annual administrative exercise in which objectives are formulated at the start, then barely looked at, and assessed at the end. Where a payment hangs on them, the conversation shifts as well – an understanding about priorities turns into a negotiation about metrics.
In law the labour courts have developed two lines that now shape the drafting. One concerns objectives never agreed: an employer that omits to agree objectives although the contract provides for them cannot later rely on none having been met. The other concerns the target specification: where the employer sets objectives unilaterally it must observe reasonable discretion – objectives that were unattainable from the outset are unreasonable.
3. Core principles and how it works
Agreement means jointly
Objectives are settled, not decreed. Where they are set unilaterally there is a target specification – with different legal consequences.
Target specifications fall under Section 315 BGB
They must accord with reasonable discretion and can be examined by the courts. An objective that was unattainable from the outset is unreasonable.
Objectives never agreed count against the employer
Where the contract provides for a target agreement and none comes about, payment cannot be refused on the ground that no objectives were met.
Agree in good time or nothing is steered
Objectives that only come into being during the period barely work any more. The agreement belongs at the start of the period.
Few, verifiable objectives
A system with many weighted individual objectives creates arithmetic and argument without steering any better.
What is measured gets optimised
That is the central distortion of every target system: it also steers what it does not capture – away from it. Measure closings alone and you get closings, not necessarily good ones.
Observe co-determination
The principles of remuneration and the design of performance-related pay are subject to co-determination under Section 87 BetrVG.
4. Who is Zielvereinbarung (target agreement) relevant for?
- Managers – their most widely used steering and feedback instrument.
- Employees with variable pay – for them part of their pay is at stake.
- HR – they design the system and carry the legal consequences of its gaps.
- Works councils – pay-relevant target systems are subject to co-determination.
- Management – target systems shape behaviour more strongly than mission statements.
5. How it differs from related terms
- Target agreement and target specification – one is settled jointly, the other unilaterally. Only the latter falls under Section 315 BGB. - Target agreement and bonus – the agreement is the instrument, the bonus the payment tied to it. - Target agreement and OKR – OKR is a target system that deliberately works without a link to pay, so that ambitious objectives become possible. Linking it to pay is regarded there as a design error. - Target agreement and employee conversation – the conversation is the frame, the agreement one possible content. Combining them usually harms both. - Target agreement and performance appraisal – an appraisal assesses behaviour and competencies, a target agreement results.
6. Variants and adaptations
Common arrangements:
- Quantitative objectives – revenue, volume, lead time. Easy to measure, strongly steering, prone to perverse incentives. - Qualitative objectives – project completions, quality improvements. Closer to what matters, harder to assess. - Team objectives – encourage cooperation, weaken individual attribution. - Mixed models – the most common case: individual, area and company objectives combined. - A target agreement with no link to pay – as a pure leadership instrument; unproblematic in law and often more effective, because the conversation does not become a negotiation.
7. Advantages and challenges
Advantages
- Makes expectations explicit instead of assuming them
- Creates a fixed occasion for feedback
- Moves the steering from the route to the result and so widens the room to act
- Visibly connects individual work with wider objectives
- Where linked to pay, an effective argument in recruiting skilled people
Challenges
- What is measured gets optimised – including at the expense of what is not measured
- Objectives never agreed count against the employer
- Unilateral specifications can be examined by the courts and are unreasonable if unattainable
- Linking to pay turns the conversation into a negotiation about metrics
- Annual objectives age quickly in fast-changing environments
- Elaborate weighting systems produce arithmetic rather than clarity
8. Best practices for implementation
Agree objectives before the period begins
In law, because objectives never agreed count against the employer. In practice, because an objective that appears in September no longer steers the year.
Three objectives rather than ten
Few, clearly verifiable objectives work harder than a weighted portfolio. They force prioritisation – which is the point.
Think the distortion through
For every objective, ask: what would someone do who set out to maximise exactly this – and what would they leave undone? That check takes minutes and prevents the typical side effects.
Separate conversation from negotiation
Where pay hangs on objectives, the objectives conversation becomes a negotiation. Separating the feedback and objectives conversations in time helps both purposes.
Provide for adjustment during the period
Where the circumstances change considerably, objectives should be capable of adjustment. Without a rule the dispute arises at year end.
9. Tips for employers and employees
For employers
- **Agree in good time** – objectives never agreed count against you
- **Unilateral specifications are reviewable** – Section 315 BGB; unattainable objectives are unreasonable
- **Observe co-determination** – Section 87 BetrVG for performance-related pay
- **Think perverse incentives through in advance** – what is measured gets optimised
For employees
- **Record objectives in writing** – oral understandings are hard to prove in a dispute
- **Check attainability** – an objective unattainable from the outset is unreasonable
- **Insist on a timely agreement** – it is your basis
- **Raise adjustment** – where the circumstances change considerably
10. Conclusion
The target agreement is a leadership instrument that becomes legally demanding as soon as pay hangs on it. Two rules then shape practice: objectives never agreed count against the employer, and a unilateral target specification is subject to review for reasonableness under Section 315 BGB – objectives that were unattainable are unreasonable. A group cascade that arrives late and as a fixed number engages both rules at once.
The harder question is not a legal one. Every target system also steers what it does not capture – away from it. Measure closings and you get closings; whether they are good ones is not measured. That distortion cannot be removed, but it can be contained: through few objectives rather than many, and through the question of what someone would do who set out to maximise exactly this one.
And a practical observation: where money hangs on objectives, a conversation about priorities becomes a negotiation about metrics. Anyone who needs both should separate them in time.
Sources
- Section 315 BGB – Determination of performance by one party (official English version) (opens in a new tab)
- Section 87 BetrVG – Co-determination rights in social matters (official English version) (opens in a new tab)
- Section 611a BGB – Contract of employment (official English version) (opens in a new tab)
- German Association for Human Resource Management (opens in a new tab)
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