OKRs and Performance Management

One of the few areas that most OKR practitioners agree on is that we shouldn't use OKRs as a direct measure for performance management. Despite this it remains an alluring proposition. This guide is aimed at leaders who set performance management policy.

It doesn't come from a bad place. Measuring people against outcomes seems fair. It takes the subjectivity out of a discussion.

At review time we can simply ask how well did they do against their objectives?

Why is this a bad idea? Christina Wodtke, author of Radical Focus, puts it well in a blog post about OKR mistakes.

“The worst is probably conducting performance reviews based on whether or not you achieve your objectives. No one is ever going to set a stretch goal or try anything really difficult if they think it’s going to interfere with their ability to pay rent and feed their family.”

While Measure What Matters has flaws on this point it is clear and helpful.

“For companies moving to continuous performance management, the first step is blunt and straightforward: Divorce compensation (both raises and bonuses) from OKRs. These should be two distinct conversations, with their own cadences and calendars.” Doerr, John. Measure What Matters (p. 181).

In summary I see four issues with connecting OKRs and Performance Management.

Leaders should set goals in collaboration with the people trying to achieve them. If you know the goal will impact your compensation there is an inevitable tendency to sandbag, and set low targets. When this happens we’re limiting aspiration for our goals.

Great outcomes usually require collaboration. This means individuals are rarely solely responsible for achieving OKRs on their own. On the flip side, someone might be doing a great job, but if the team lacks skills, or we are held back by dependency delays, the individual is not in control of their own fate. This is unfair.

Some organisations avoid the dependency trap by setting individual OKRs. This causes bigger issues. It becomes near impossible to keep things aligned, especially if the team pivots. If a team of 8 are working on a collective OKR, leaders would need to create 8 individual OKRs that align. People then focus on the individual goal over the collective. If the team pivots, all 8 OKRs must be rewritten. A time-consuming and distracting process.

Setting goals is tricky. The areas we can have the biggest business impact are often the ones we know least about. The less you know about a domain, the harder it is to set meaningful goals. You can either aim low, not the greatest recipe for success, or you can aim high and risk painful performance management discussions. Direction of travel is often the best indicator in the early stages of an unknown domain.

If we choose to tightly couple OKRs and performance we risk

• Reduced ambition
• Metric gaming
• Misaligned incentives
• Erosion of trust as people see the unfairness

It would be unfair to advise you what not to do, without sharing what I think you should do.

In summary I advise: OKRs = outcomes, performance = behaviours/skills. Clearly outcomes are influenced by performance.

My first strongly held view is that managers need to hold regular supportive performance conversations with their team members. Coaching does far more to improve performance than appraising. These conversations should be held frequently, a weekly 30 mins meeting works well.

When you do make the feedback more formal, do it more frequently, quarterly is a good cadence. When you do the annual review there should be no surprises for anybody.

Naturally the desired outcomes need to be part of the performance discussion. Here are the questions I’d recommend asking.

How did the team do? This requires a holistic view. Was the goal aspirational or considered highly achievable in a well known domain? What unexpected internal and external challenges did we encounter?

What did the individual contribute? Did they choose the ‘best’ course of action given the context? Did they demonstrate evidence of learning? Did they collaborate effectively as a good team player? Did they help keep the team focused on outcomes?

How did they perform their individual tasks? Where there are tasks they were solely responsible for, did they complete them effectively? Did they follow the behaviours expected in our culture? Did they do what they said they would do?

A year in the life for a line manager might be:

Weekly or bi-weekly coaching and development calls Quarterly performance reviews, enriched with peer feedback Annual development and performance reviews

Weak performance should never come as a surprise at review time!

The advantage is that when used well, you can improve performance, which is the real goal of performance management.

I have seen this approach work effectively on a few occasions. Where this is the case organisations have spent a lot of time and effort to build the coaching skills of line managers.

At one B2C company I worked with, OKRs coupled with pay were leading to sandbagging and ambitious goals were avoided. When they decoupled the two, aspiration gradually returned. Teams began to focus on learning and bolder goals, safe in the knowledge that good performance would still be rewarded even if highly aspirational goals weren’t quite met. Most importantly outcomes improved.

The outcome is a higher performing team, but what gets lost is an easy performance management system that carries an illusion of fairness.

Performance management is one of the strongest signals of culture in any organisation. The way leaders give feedback, recognise contribution, and reward behaviour tells people what really matters.

In contrast, OKRs are a lever for strategic alignment and ambition. Keeping these systems distinct ensures that culture and strategy both get reinforced in the right way.

How we grade people for performance and bonuses is a deeper question than I can address here, but will depend on the culture and needs of the organisation.

Alternative approaches for comparison include:

• Calibration sessions which provide balance across teams
• 360 degree feedback balances the manager perspective with peer and team perspective
• Well defined competency frameworks make expectations explicit and consistent

The challenge is creating something both lightweight and fair.

Keep the two systems distinct. Use OKRs to drive ambition and focus. Use performance conversations to build capability and confidence. Done this way, they don’t compete, they reinforce. That’s how you build both stronger teams and stronger outcomes.