Performance management and OKRs are separate entities with their own distinct strengths. You want OKRs to improve accountability and visibility, but when you explicitly link them to compensation or performance assessments you can get into trouble.
OKRs are a management tool designed for, and by, teams within a business. Performance management is an assessment process typically designed for individuals and overseen by Human Resources or some other hierarchical office.
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.
In this blog, we’ll encourage a few distinct practices to make the most of OKRs and performance management:
- Use team OKRs for goal setting, not performance appraisals.
- Avoid the development of individual OKRs.
- Encourage individuals to try new things even as they support the goals of the team.
- Embrace Adaptive Performance and assessing failure.
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
Individual or 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
- Enhance professional and personal development through individually tailoring them
But OKRs serve a very different purpose. OKRs focus on broad outcomes, while Performance Management focuses on specific tasks.
Good OKRs always measure outcomes, not outputs, 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.
Resist Mixing OKR and Performance Management
“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
OKR and Performance Management guide goal achievement in different ways. For starters, they frame projects differently.
In terms of setting direction, OKRs focus on collaborative goals for the team, while Performance management goals focus on the evaluation of individuals and are usually tied to compensation.
Because they’re set up so differently, it’s important to run OKR and Performance Management campaigns on parallel tracks – in other words, don’t keep them as separate campaigns.
Individual feedback is useful for team members within the context of OKRs, but make sure the feedback is related to the OKR. For example, you can say things like:
- "Thank you for referring to our team OKRs when prioritizing your tasks"
- "When deciding what to work on next, you could pay more attention to the team OKRs that are currently at risk."
Don’t create individual OKRs to enhance performance evaluations. Why?
- Not everybody is in a position to influence or contribute to growth or create innovative changes by themselves. OKRs exist as a management tool for teams.
- You want relatively few OKRs, to keep priorities clear and comprehensible. 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.
OKR vs Performance Management: Differences in Ambition
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. OKRs are meant to be ambitious and encourage teams to set bold outcomes, while performance management goals are a little more conservative and promote tactical performance. If you want people to come up with crazy ideas, and within some boundaries, OKRs are a great option.
People are much more likely to experiment with bold new methods when they know that failure is an accepted part of the process. If their goal achievement is directly tied to their paycheck or dreams of promotion, people are much more likely to play it safe. The danger there is that you’ll end up with mediocre goals.
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, KPIs, and so on. But Adaptive Performance is the ability to deal with 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.
If you have any questions, or would like to learn more about Koan, let’s talk about how to streamline your strategic goals.