OKRs and performance evaluation are two different concepts. They can go hand in hand but should not be dependent on each other.
Consider a scenario where a company conducts its yearly performance evaluation based on how well the employees were able to achieve the OKRs assigned to them.
You might think, well, what is wrong with that! it is fair enough to calculate the success of an employee based on how fast and efficiently he was able to achieve his goals.
Sadly, most employees seem to disagree as they consider this method of evaluating employee performance ineffective.
The OKRs being aspirational in nature are set way ahead with the aim of pushing the employees to do the needed extra efforts to break their own pre-established goals and do something out-of-the-box to break the shell.
It is common for companies to link employees’ performance directly with the objectives assigned to them; however, the truth is that OKR is a management tool and not an evaluation tool.
This may seem like a perfect way to assess the contribution of individual employees to business growth, even though it is not. Using this evaluation strategy breeds discontent and creates unhealthy competition between employees.
Thus, OKRs should not be linked to either promotion or compensation in any sense.
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.
1It 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.”
2Results 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.
3Shifts 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.
4Makes 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.
5Impacts 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.
1Keep 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.
2Use 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.”
3Consider 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.
4Avoid 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.
5Acknowledge 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.
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.