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OKRs and Performance Management: What to Know

7 min read
OKRs and Performance Management

While objectives and key results (OKRs) can improve accountability and visibility, fully combining them with performance management can deter progress and encourage wrong behaviors. However, this doesn't mean you should entirely forgo OKRs during performance management. Instead, learn how to align OKRs and performance management to ensure they serve organizational needs. To help you achieve this, this article will cover everything you need to know about making OKRs and performance management work for your business. 

What is the difference between OKRs and performance management?

OKRs are a goal management framework designed for and by teams. On the other hand, performance management is an assessment process designed for individuals and overseen by Human Resources or another hierarchical entity. Let’s break these down a bit more to better understand their individual components. 

 

What are OKRs? 

Unlike performance management, OKRs focus on setting ambitious stretch goals for teams and the broader organization. This goal-setting methodology consists of objectives (i.e., qualitative descriptions of what you want to achieve) and key results (i.e., metrics that gauge progress towards objectives). These can be altered as your company’s environment changes. For the best results, structure your OKRs using the following formula: 

OKR formula: We will [objective] as measured by [these key results].

 

What is performance management? 

Performance management is used to align employees and managers to ensure that employees’ actions serve organizational goals. The performance management cycle involves four steps: planning, monitoring, reviewing, and rewarding performance. 

During the planning stage , managers work with employees to establish individual goals in line with overall business objectives. These goals are personalized to suit each employee’s skillsets and competencies. 

Next, the monitoring stage involves regularly tracking employees’ goal progress through weekly 1-on-1s or monthly/quarterly progress updates. This allows managers to check in on employees’ performance and help them overcome issues, enabling them to advance toward their goals.  

Thirdly, the reviewing stage is essentially a retrospective meeting where managers look back at employees’ performance at the end of the quarter or year. During this meeting, managers assess whether employees achieved their goals, how they went about them, and if they received enough support from the organization. 

Lastly, the rewarding stage involves compensating employees based on how well they’ve achieved their goals. This is one of the most important stages of performance management as it keeps employees motivated and productive while they work to achieve their goals. 

Why you shouldn’t mix OKRs and performance management

As we’ve discussed, OKRs and performance management are different in nature which means your OKRs shouldn’t completely dictate your performance management (and vice versa). Here are several reasons why: 

 

OKRs and performance management have different scopes  

Employee goals have always been vital to performance management because they:  

  • Ensure evaluations are fair by removing personal opinions, subjectivity, and biases 
  • Provide accountability by defining the actions required to achieve these goals 
  • Set expectations by clearly outlining the primary purpose and means of measurement  
  • Enhance professional and personal development  

On the other hand, OKRs focus on impact as opposed to individual tasks, emphasizing outcomes instead of outputs. As most real outcomes (e.g., revenue, new customers) require joint efforts, it’s hard to assess individual performance using OKRs. With this in mind, large organizations function best when they set OKRs for teams or the entire company rather than individuals. However, smaller teams and one-person departments may benefit from individual OKRs. Most commonly though, some separation between OKRs and individual performance management is necessary. 

 

“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 

 

OKRs inspire innovation while performance management prioritizes attainment 

OKRs are designed to be ambitious and encourage teams to set bold outcomes. Conversely, performance management goals are more conservative and promote tactical performance.  

If you want employees to come up with cutting-edge ideas, set OKRs. These inspire teams to try innovative things and walk in uncharted waters. However, when working towards OKRs, it’s important to remind employees that failure is an accepted part of the process.  

With performance management, however, employees’ goal achievement can be directly tied to their paycheck or promotion. This can cause some employees to set safer goals that they know they can meet or exceed instead of stretch goals that can have a bigger impact on the company. To avoid this, use OKRs and performance management for their intended uses rather than entangling them which can impact employee and company performance.  

See how OKRs can help your organization innovate below:

 

OKRs require collaboration while performance management doesn’t

When looking at goal achievement, OKRs and performance management work in opposing ways. When establishing direction, OKRs largely focus on collective goals (except in small companies or one-person departments). In contrast, performance management evaluates individual goals. As they’re set up so differently, it’s essential to run OKR and performance management campaigns separately but on parallel tracks. In other words, coordinate OKRs and performance management in your organization while acknowledging their contrasting takes on collaboration.  

How to align OKRs with your performance management cycle

As OKRs and performance management have different takes on measuring performance, you must distinguish them to accurately depict what’s happening inside your business. Let’s look at ways to successfully integrate OKRs at every stage of your performance management cycle. 

OKRs and the planning stage 

When looking to incorporate OKRs into your performance management cycle, avoid setting individual OKRs if you have bigger teams or a larger organization. There are several reasons for this: 

  • Individual OKRs can slow down your organization, adding time-consuming admin work, check-ins, and meetings that deter teams away from organizational goals 
  • Not everyone can contribute to growth or innovation on their own 
  • The more OKRs you have, the harder it becomes to understand what’s prioritized 
  • With individual OKRs, employees will prioritize their own goals over the company’s, resulting in a shift from group thinking to individual thinking 

 

OKRs and the monitoring stage 

OKRs are meant to be flexible, where you adapt objectives or key results to fit your organization’s environment. As such, integrating OKRs into performance management requires you to embrace adaptive performance management. 

With adaptive performance management, you alter individual goals, objectives, and behaviors to the changing work environment. These changes can be brought on by external (e.g., technological, political, international, sociocultural, economic) or internal factors (e.g., interpersonal relationships, technical resources, infrastructure, operational capabilities). As such, adaptive performance ensures you’re able to deal with failure and incorporate feedback, leading to improved creativity, resilience, and problem-solving skills. 

You should also keep an eye on your organization’s OKR progress during the monitoring stage to ensure employee performance contributes to OKRs. But keep in mind that OKR progress depends not only on individuals, but also on team sizes, employees’ preferences, and the frequency of check-ins. 

 

OKRs and performance reviews 

Individual feedback is essential for employees' success — but make sure this feedback is also related to organizational OKRs. This helps you consistently recalibrate employees’ efforts towards wider OKRs. For example, you can say things like:  

  • "Thank you for referring to our OKRs when prioritizing your tasks." 
  • "When deciding what to work on next, you could pay more attention to the team OKRs currently at risk." 

While you shouldn’t totally tie OKRs and performance reviews together, you can use OKRs to see how employees spearhead goal-related outcomes and outputs. This can help you assess how employees contribute to the activities that impact your organization’s OKRs. As such, you can combine OKRs and performance reviews during quarterly retrospectives, where you review employees’ performance and use your company’s OKRs as a guiding light. 

 

OKRs and the rewarding stage 

When you combine OKRs and rewards — where employees are judged based on how much progress (in %) has been made towards their team goals — employees are less likely to help their team members and more likely to focus on their own performance. This forgoes a fundamental aspect of OKRs: their cooperative nature.  

Additionally, as only 60-80% of key results are meant to be accomplished, mixing OKRs with compensation makes employees prioritize rewards over creating ambitious goals. This results in lazy OKRS and a lack of innovation. 

As performance management is risk-averse and often tied to compensation — while OKRs are aspirational and collaborative — OKRs are never supposed to be linked with rewards. 

 

“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

Final thoughts on OKRs and performance management

OKRs can guide teams and organizations towards aspirational goals, while performance management assesses individuals’ abilities to perform tasks and generate desired outputs. While acknowledging the differences between the two frameworks is essential, aligning OKRs and performance management can streamline organizational success. Using the best practices highlighted in this article, you can coordinate OKRs and performance management to facilitate organizational success and ongoing growth.

 


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