4 reasons why you shouldn't combine OKR & performance reviews

OKRs are a huge part of an organization’s performance management toolbox. It’s easy to want them to interact closely with other tools, namely performance reviews AKA appraisals. From there, it’s all too tempting to combine them in a software solution. But I’m very familiar with the negative consequences this brings, having worked at an employee performance management tool (Small Improvements) and now a business performance management tool (Perdoo). I’ll highlight the key issues of lumping employee evaluations and OKRs together, and outline what I’ve seen work instead.

Before we start, a quick note: Some companies try to use performance reviews to drive goal attainment. But performance reviews are really ineffective at doing this. Reviews always reflect on performance over a given period, so are always backward-looking. They can highlight areas to improve goal attainment in the future, but they’ll never help you achieve your current goals. Instead, try frequently checking in on your goals and sharing updates to boost alignment. Here’s proof this works.

The 4 main traps

Okay, let’s dive in. Many of these issues stem from performance reviews being about individual employees, whereas OKRs are about the business as a whole.

Unfair, inaccurate performance reviews

When employees consider the outcome of a performance review to be fair, they’re more likely to accept the result. So if you want effective performance reviews, they need to be fair. But what makes them fair? According to academics, you need to compare an employee’s performance with their own performance over a period of time, instead of other employees’ performance. Avoid things like bell curves and “comparative evaluations.”

The problem: OKRs are inherently collaborative. You set out what you need to accomplish to push you toward your ultimate goal, and then find the right people to collaborate and make that happen. Any evaluations based on the attainment of these collaborative OKRs will be comparative evaluations, so you’ll decrease the chance that the employee perceives the evaluation as fair.

What's more, as they’re rarely a solo-endeavor, OKRs are a poor measure of individual performance. Intel’s Andy Grove (often called the “Father of OKR”) captures this perfectly: “[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.”

Using OKRs to control, not innovate

Organizations that tie OKRs to employee evaluations start to use them as a command-and-control style of management. This might not be the intention, but this is inevitable when OKRs and performance reviews sit in one platform. An employee sees their OKRs alongside their performance reviews and starts to draw conclusions.

This kills engagement and productivity, but also stifles the learning, risk-taking, and creative cultures that your OKR program needs to succeed. Employees will also be prone to sandbagging (understating their ability to reach a goal) which reduces trust and social bonds that are crucial to team success. Meanwhile, you’re achieving a lot less with unambitious targets. If you’re tying compensation to performance reviews, this sandbagging effect is only made worse.

A focus on outputs

OKRs should focus on outcomes, not outputs. But when you’re tying OKRs to appraisals, you’re likely to cascade them down to the individual employee level to make evaluations “easy”. Managing the huge multiplication of OKRs slows you down a lot, as Spotify noted. Indeed, even Rick Klau (the Googler from the famous Youtube video on OKR) now recommends avoiding employee-level OKRs.

Most importantly, when setting goals at the employee level, it makes more sense to focus on what people need to do to achieve the outcomes that are so important for your business. Employee-level OKRs then become very output-driven – which is not what OKRs are for. That’s why Perdoo allows you to track those outputs or tasks related to your OKRs separately, as Initiatives.

Taking people, rather than your organization, as the starting point

Successful companies work, hire, and approach all workforce planning by starting with their strategy, not their people. They ask themselves “do I have the right people to execute the strategy?” not “do I have the right strategy to help my current employees work?” In fact, you can even use your OKRs to define who to hire next.

Within teams, it’s right to play to particular strengths, which can influence the tactics you use. But that’s not a sustainable way to grow the business as a whole.

Embedding OKRs in performance reviews

In this article, we've highlighted that OKR and employee performance management serve different purposes. While that stands true, we believe people are your most powerful resource — they drive the organization forward and will be the ones working directly on your OKRs. OKRs, therefore, provide great insight into an employee’s performance.

Looking to learn how to embed OKRs in your performance reviews? We recently wrote about the 3 ways you can best do this. Head over to our blog on How to embed OKRs in performance reviews to learn more.