Sure, the other demons in the community knew of his failure, but it was Vicky who pulled the power move and forced Michael to give her command to prevent her from contacting Shawn and telling him what a disaster the whole project had been.
Now, she’s in a gooey cocoon and Shawn is left none the wiser of Michael’s failures, with his future promotion still a go.
It’s certainly in Michael’s best interest to do some double-crossing, and it feels a little too convenient that his master plan for helping the humans escape going to the actual Bad Place just so happened to frame Vicky.