OKRs and Performance Management: Strategic goal achievement is driven by teams
Why we don’t recommend tying individual performance management to OKRs.
You want OKRs to improve accountability and visibility, but when you explicitly link them to compensation or performance assessments you can get into trouble. OKR is a management tool, but the performance management process is typically owned by HR and centered around individuals. Strategic goal setting is normally driven by your Executive team, and alignment across the organization is managed by an Operations function such as a COO, CFO or Chief of Staff. Additionally, teams (not individuals) tackle the most important challenges and opportunities for the company. That’s not to say performance assessments shouldn’t take goal or OKR achievement into consideration, but when you tie individual performance to team-owned goals, you end up driving the wrong behavior in myriad ways.
How Employee or Individual Goals are Different from OKRs
“OKRs are not synonymous with employee evaluations. OKRs are about the company’s goals and how each employee contributes to those goals. Performance evaluations – which are entirely about evaluating how an employee performed in a given period – should be independent from their OKRs.” - Rick Klau, Google
Employee goals have long played an important role in performance management. For individuals, goals can:
Ensure that evaluations are fairer by removing personal opinions, subjectivity, and biases;
Set expectations by clearly articulating the purpose and how these actions will be measured;
Introduce accountability by defining the actions steps required to achieve these goals; and
Enhance professional and personal development through individually tailoring them.
But OKRs serve a very different purpose. Individuals’ performance goals are often about specific things that employees do rather than outcomes they generate. Good OKRs always measure outcomes, but most real outcomes – revenue, new customers – are a joint effort. So, if you want to assess someone’s performance based on goals they are solely responsible for, set them independently.
OKRs and Setting Direction
“OKR is a management tool, not an employee evaluation tool. As such, a building block of the OKR framework is to separate OKRs from compensation and promotions.” -Felipe Castro
The focus of OKRs is for setting direction on a company and team level. It’s not about evaluating individuals. Hence, we discourage discussing the completion of team OKRs when evaluating individuals. Instead, give your team members qualitative feedback on OKR-related behavior. For example, you can say things like "I liked how you often referred to our team OKRs when prioritizing your tasks" or "When deciding what to work on next, you could pay more attention to the team OKRs that are currently at risk."
Resist Creating Individual OKRs
We also encourage you to resist the influence of HR to create individual OKRs to enhance performance evaluations. Why? As already established, OKRs exist as a management tool to drive teams and not everybody is in a position to influence or contribute to growth or create innovative changes by themselves. In addition, as far as OKRs are concerned, less is absolutely more, i.e, the more OKRs you have, the harder it becomes to understand what people should focus on. The goal is to provide clarity and support team goal setting, while also to drive individual results and innovation.
Innovation and Performance Management
We achieve our objectives and drive innovation when we try new things, find new ideas and move in new directions. But you can't expect that to be successful 100 percent of the time. You want people to come up with crazy ideas, and within some boundaries, give them a try. Except, people are not going to feel confident enough, or safe enough, to do these things when they know that if they fail, miss, or don't achieve what they’re trying to do, then their pay, bonus or promotion is at risk. People will play it safe and you'll end up with mediocre to average results. So, while we don’t believe that an organization should pay for poor performance, we also want to reiterate that OKRs best contribute to performance evaluation in the context of how the individual has supported or enhanced the team they’re on.
If you want to encourage innovation, the focus must be on the achievement of individual actions and embracing failure. This is referred to as Adaptive Performance, which is the aspect of an individual's performance that sets them apart from their peers. People tend to understand that tactical performance is a focus on the numbers, targets, budgets and so on. But Adaptive Performance is the ability to deal with a big failure. To be creative and resilient. All of which can be integrated into someone’s overall evaluation. If they fail at something, what did they learn and how did they apply that learning?
“It 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.” -Andy Grove, Intel
OKRs are a tool for guiding teams and organizations to achieve the goals and outcomes they seek. Performance management reviews are for assessing the individuals’ ability to perform tasks that contribute to those outcomes. But that’s not all performance management processes accomplish, and not all individuals are in a position to impact growth on their own. So we want to discourage coupling OKR’s with performance management processes. And what we want to encourage is the following:
Use teamOKRs for goal setting, not performance appraisals.
Avoid the development of individual OKRs.
Encourage individualsto try new things even as they support the goals of the team.
Embrace Adaptive Performance and assessing failure.
And when needed, reach out to us, or schedule a Demo, and let’s talk about how Koan can be of assistance.