OKRs are a huge part of an organization's performance management toolbox,
so it's easy to want them to interact closely with other tools, namely performance reviews or appraisals.
And from there it's all too tempting to combine them in a software solution.
But I'm pretty familiar with the negative consequences this brings
having worked at an employee performance management tool called Small Improvements,
and now a business performance management tool called Perdoo.
So what are the key issues of lumping employee evaluations and OKRs together? And what works instead?
One quick note before we dive in. Some companies try to use performance reviews to drive goal attainment.
But performance reviews are really ineffective at doing this
because they always reflect on performance over a given period — so always backward-looking.
They can highlight areas to improve goal attainment in the future
but they'll never help you achieve your current goals.
Instead, it's best to frequently check in on your goals and share updates to boost alignment.
Here's some research that proves this works.
Okay let's dive in.
Many of these issues stem from performance reviews being about individual employees.
Whereas OKRs are about the business as a whole.
When employees consider the outcome of a performance review to be fair they're more likely to accept the result.
So if you want effective performance reviews, they need to be fair.
But what makes them fair?
Well, according to academics you need to compare an employee's performance
with their own performance over a period of time instead of other employees' performance.
So that means avoiding things like bell curves and what researchers might call comparative evaluations.
Let's dive into comparative evaluations a bit.
The main problem is this: OKRs are inherently collaborative.
You set out what you need to accomplish to push you towards your Ultimate Goal.
And then you find the right people to collaborate and make that happen.
Any evaluations based on the attainment of these collaborative OKRs will be comparative evaluations.
So you'll decrease the chance that the employee perceives the evaluation as fair.
What's more, as OKRs are rarely a solo endeavor, they're a poor measure of individual performance.
There's this great quote from Intel's Andy Grove, often called the father of OKR,
which captures this idea perfectly.
He says "OKR is not a legal document upon which to base a performance review
but should be just one input used to determine how well an individual is doing."
The second major issue is that organizations that tie OKRs to employee evaluations can start to use
them as a sort of command and control style of management.
Now this might not be the intention but this is inevitable when OKRs and performance reviews sit together in one platform.
Employees see their OKRs alongside their performance reviews and start to draw conclusions.
This kills engagement and productivity but also stifles the learning, risk-taking, and creative cultures
that your OKR program needs to succeed.
Employees will also be prone to sandbagging, understating their ability to reach a goal
which reduces trust and social bonds that are crucial to team success.
Meanwhile, you're achieving a lot less with unambitious targets.
And if you're still tying compensation to performance reviews, this sandbagging effect is only made worse.
Thirdly OKRs should focus on outcomes not outputs.
But when you're tying OKRs to appraisals you'll likely want to cascade them down to the individual employee level to make evaluations easier.
Managing this huge multiplication of OKRs can slow you down a lot, and Spotify actually experienced
this exact problem. Indeed even Rick Klau, the Googler from the famous youtube video on OKR
now recommends avoiding employee-level OKRs.
And most importantly when setting goals at the employee level it makes more sense to focus on
what people need to do to achieve the outcomes that are so important for your business.
Employee-level OKRs can then become very output-driven, which is not what OKRs are really for.
And that's why in Perdoo, our OKR platform, you can track those outputs or tasks related to your OKRs separately as Initiatives.
One final issue is that it's all too easy to take your people
rather than your organization as the starting point. Let's unpack that.
Successful companies work, hire, and approach all workforce planning by starting with their strategy, not their people.
They ask themselves "Do I have the right people to execute the strategy?"
Not "Do I have the right strategy to help my current employees work?"
In fact, you could even use your OKRs to define who you should hire next.
Within teams it's right to play to particular strengths which can influence the particular tactics you use.
But that's not really a sustainable way to grow the business as a whole.
So where do we go from here? How can we embed OKRs in performance reviews effectively?
Here's what I've seen work for customers at both Perdoo and Small Improvements.
The key I think is to discuss OKR-related behaviors in performance review conversations.
It's best to make these behaviors role-specific too.
Let's go for some examples. For managers and executives you might discuss things like:
Are they able to identify the right OKRs to focus on?
Do they proactively help direct reports to achieve their goals on time?
Or for individual contributors: Are they willing and able to lead Objectives?
Do they complete initiatives on time?
Making OKR-related behaviors one of many inputs into your appraisal system is a great way to keep
them front and center.
But remember the other valuable areas to discuss in your performance reviews, like:
career aspirations, functional expertise, development areas for role success,
demonstration of values, ability to execute, the list goes on..
So to conclude, decoupling OKRs and performance reviews gives you the best chance of growing both your people and your company.