Linking OKRs and performance evaluations seems logical on the surface. Two goal-setting frameworks working together—what could go wrong?
When combined, these systems create a fundamental conflict. OKRs thrive on ambitious, sometimes unreachable goals that align teams. Performance evaluations judge individual contributions that determine career advancement.
The result? People set easy-to-hit targets instead of challenging ones. When your next raise depends on meeting goals, why risk failure? The workplace becomes less open to experimentation, and breakthrough ideas rarely emerge in such environments.
Is it fair to judge individual performance on goals designed to stretch capabilities beyond comfortable limits? This mismatch undermines both frameworks’ effectiveness.
A Closer Look at OKRs
Alright, let’s break this down. OKR stands for Objectives and Key Results. It’s basically a way for teams and companies to set goals and figure out how to track progress toward them. Think of it as a roadmap that says, “Here’s where we’re headed, and here’s how we’ll know we’re getting there.”
The cool part about OKRs is that they’re not about judging individual performance. Instead, they’re all about aligning everyone’s efforts around big-picture goals. It’s like rallying the whole team toward a common mission rather than checking off individual tasks. Plus, they’re flexible, so if something changes, you can adapt without feeling stuck.
Understanding Performance Evaluation
Now, performance evaluation is a bit different. It’s more like a report card for your work. It’s when your manager looks at what you’ve been doing, how well you’ve been doing it, and where there’s room to grow. It’s structured, usually done on a regular basis, and focuses specifically on your role and responsibilities.
Unlike OKRs, performance evaluations are often linked to things like raises, promotions, or figuring out your next career steps. They’re more personal and can directly impact your growth in the company, while OKRs are more about team success. So, while both involve setting expectations, the focus and outcomes are pretty different.
Why it is not good to link OKRs and performance evaluation
OKRs have become an essential tool for organizations today. Hence, companies want to use them closely with other business tools to gain better outcomes.
In this context, integrating OKRs and performance evaluation is perhaps the most lucrative.
However, this can do more damage than good for the organization and the employees. Given below are the most common problems companies are likely to face by linking OKRs and performance evaluation.
1. It leads to unfair and inaccurate performance reviews
OKRs are collaborative by nature and push employees and teams to move out of their comfort zones. Evaluations based on these objectives do not offer an authentic performance report of individual employees.
Rather, it reflects the comparative evaluation of a group of people working together to fulfill common goals.
This makes the evaluation unfair and inaccurate for the employees. It also decreases the chances of employees accepting them. This is best explained by the following quote from Rick Klau, from Google.
“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 of their OKRs.”
2. Results in the creation of unusually modest and simple objectives
The primary aim of the OKR framework is to help companies set realistic and ambitious objectives. With the framework’s scope for failure, employees set difficult objectives even if they are not able to fulfill them. How to implement OKRs in a company
But, linking OKRs with performance evaluation eliminates this advantage. This is because failure to achieve the goal impacts the benefits employees get. This prevents them from setting goals that may be too difficult or too risky.
They then prefer setting modest and uninteresting goals that are easy to achieve. Despite being too trivial, fulfilling these goals assures proper bonuses and compensation for employees.
3. Shifts employees focus on their output rather than the outcome
When companies link OKRs with performance reviews, the objectives are cascaded down to individual employees for easy evaluation. This results in huge multiplication of OKRs at the employee level and makes managing them quite difficult.
Most importantly such cascading of objectives shifts the focus of teams and employees on the output at the individual level rather than the outcome at the organizational level. This negates the very essence of OKRs which are designed for setting common business objectives. Read this article about cascading okrs.
It also increases the competition between employees at individual levels and impacts team alignment.
4. Makes OKRs more controlling than innovative
OKRs aim to set objectives that are aspirational and motivate the employees to find innovative ways for fulfilling them. But when the objectives stop being ambitious, they become more controlling than inspiring innovation.
Linking performance evaluation with OKRs promotes the trend of setting easy-to-achieve objectives. This eliminates the need for employees to think out of the box and find more effective ways to fulfil the objectives.
Over time, this causes a decline in the performance efficiency of the employees. They become more focused on compensation and this prevents them from unlocking their true potential.
5. Impacts the collaboration and team alignment
Linking OKRs with performance evaluation has a deeply negative impact on employee collaboration. It makes employees more focused on fulfilling their individualistic objectives.
So, they feel less inclined to cooperate and collaborate with their co-workers. As the trend continues it impacts team alignment, which is an essential aspect of the OKR framework.
Poor team alignment leads to lower goal fulfilment, which, in turn, impacts business productivity and growth.
Best practices for using OKRs with performance evaluation
Linking OKRs with performance evaluation is not recommended due to the above-discussed reasons. Yet there may be some situations where businesses may be forced to use the two in combination.
In such cases, companies should follow the best practices given below to avoid any conflict of interest.
1. Keep the two processes separate
To start with companies should maintain the individuality of both OKR and performance evaluation even while using them together. Some ways to ensure the same include setting a different cadence for OKR and salary review cycles.
Similarly, companies should consider holding OKR reviews and performance reviews with a gap of at least one month between the two. This helps employees to stay focused on each process without interference from the other.
2. Use OKRs as one of the factors for performance evaluation
It is ok to use OKR objective fulfilment as one of the many factors for conducting the performance evaluation of employees.
Then also companies should factor in the difficulty level of the objective, the level of success achieved, and their importance to the organization.
This will help in creating a more realistic, accurate, and fair report for individual employees. The following quote by Andy Groove from Intel sums up this situation the best.
“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.”
3. Consider employee behaviors for effective performance evaluation
To keep the performance reviews fair and accurate, companies should consider the behavior of the employees regarding the OKR objectives.
They should verify employee enthusiasm for fulfilling the goals, their contribution beyond their expertise level, and their collaboration with other employees. This provides a clear understanding of the efforts and passion of the employees towards actual goal fulfillment.
It also helps companies to learn about the actual contribution of employees towards ensuring organizational growth.
4. Avoid using formulas to link the two tools
An important best practice for companies to follow while using OKRs and performance evaluation together is to avoid binding them in a formula. Using formulas to link OKRs with performance reviews makes the whole process ineffective.
This is because such formulas focus only on goal completion to calculate performance. Several other factors play an equally important role in determining the actual contribution of each employee. So, using OKR-based formulas makes performance evaluation a mere formality.
5. Acknowledge the subjective nature of performance evaluation
Companies need to accept the fact that evaluating the performance of employees is a subjective process.
This is because the performance of individual employees depends on various subjective factors during a given time.
This is one of the reasons why performance evaluation is a continuous process. Any changes in the impacting factors are reflected directly in the performance of the employee.
Acknowledging this single fact can make the process more authentic and trustworthy for the employees.
Summing up
OKRs and performance evaluation both serve different purposes within an organization. Linking them closely together can undermine the benefits of both.
Companies should work to find a middle ground to use both tools together.
OKRs can help establish the perfect setting for effective performance evaluation and management. Using the two together in the right manner can help drive the organization forward on the path to success.
Can OKRs and performance evaluations be linked effectively?
While it’s possible to use OKRs and performance evaluations together, linking them directly often leads to issues like reduced innovation, unrealistic goal-setting, and unfair performance assessments. It’s better to keep them separate, but OKRs can be one of the factors in performance reviews.
Why should OKRs not be tied to performance evaluations?
OKRs are designed to be aspirational and push teams toward ambitious goals, while performance evaluations focus on individual accomplishments. Linking the two can encourage employees to set easy, achievable goals, thus undermining the core purpose of OKRs to foster innovation and growth.
What are some best practices when using OKRs and performance evaluations together?
To avoid conflicts, companies should keep OKRs and performance reviews separate by maintaining different cycles for both. You can also factor OKRs into performance reviews, but it should not be the sole determining factor. Employee behavior and collaboration should also be considered in the evaluation process.
How can organizations manage both OKRs and performance evaluations without causing confusion?
Organizations should set clear boundaries between OKRs and performance evaluations by separating the review cycles and avoiding formulas that link the two. Regularly reviewing both processes and considering the subjective nature of performance can help create a fairer and more effective evaluation system.
