Goals, be it OKRs, SMART goals or V2MOM, is a significant part of an organization's performance management system, so it's easy to want them to interact closely with performance reviews and appraisals. But what if this isn't always the best approach? What if tying performance reviews to goals can actually be counterproductive? 

If you aren't familiar with the negative consequences this brings, read more to find out!

Goals Vs. performance reviews: What's the purpose of these two?

Simply put, goals are where you want to be within a specific time frame, often used to track progress towards its objectives. Performance reviews, on the other hand, assess an individual's performance over a time period. 

Goals measure success, improve direction and focus on one's attention; performance reviews aim to identify strengths & areas of improvement, provide a space for constructive feedback/criticism and open communication between managers and the team, and help give objective inputs into talent decisions. 

So if goals are for measuring and performance reviews are for evaluating, why not tie them together? Continue reading…

What's wrong with tying goals and performance reviews?

More often than not, organizations try to use performance reviews to drive goal attainment, which further determines their pay raise or bonuses. They always reflect on performance over a given period of time; in most cases, it's always backward-looking. 

Is this effective? Quite the contrary.

Harvard Business Review calls this approach a blame-oriented culture, as there will always be a disconnect between the two for the following reasons:

Goals and reviews aren't two sides of the same coin

Well, goals & performance is not always black and white; sometimes, reaching a goal yet falling short in other areas of your job is possible. Or, you can still be a rockstar in the team even while failing to hit your targets. 

For example, if you met 80% of your goal, wouldn't it be more beneficial to get more context rather than just knowing if the goal is "achieved" or "missed"?

So evaluating a person's success based on these numbers is a terrible system. 

Goals are subjective

Each team member brings something unique to the table because you hired them for different purposes. So in the playfield of performance reviews, everyone must be assessed in the areas in which they excel and can improve.  

However, this carries a different meaning in different teams and within each team member. It depends on the person's experience, effort, role, working style, overall responsibility, number of projects they've undertaken, and goals achieved so far. 

Goals have interdependencies

Even if goals are set as individual, team and organizational goals; the ability of a person to complete his/her goal almost always relies on another person or team member. 

For example, a sales representative may have a goal of closing 15 sales a month which requires engagement in lead generation. In such an instance, the rep relies on another team member to bring in a stream of new leads. So their ability to reach their goal isn't entirely in their own hands. 

A review system must carefully look at interdependencies and each team member's role instead of focusing on the end result. 

Most issues stem from performance reviews being about individual employees, while OKRs are about the organization. While they help you highlight areas to improve goal attainment for the future, they'll never help you achieve your current goals. Instead, it's best to frequently check in on your goals and share updates to boost alignment. Check out Mesh’s handy templates & repositories to help you with your 1:1s. 

How to loop goals in performance reviews

So, where do we go from here? How can we make performance reviews and OKRs work together effectively?

The key is to discuss OKR-related behavior in performance reviews. It's best to make these conversations role-specific too. Let's go for some examples and points of discussion:

For managers and executives: 

• Do they proactively help their team to achieve their goals?
• Can they identify and focus on the right OKRs that align with your business goals?

For individuals:

• Are they taking ownership of initiatives and completing them on time?
• Are they actively leading objectives?

4 ways to approach performance reviews and goals 

1. Have accurate and fair performance reviews

To conduct effective performance reviews, they need to be fair. When people consider the outcome of their performance review to be fair, they are more likely to accept the result. 

But what makes them fair?

Firstly, you need to compare an employee's performance with their own performance instead of another employee's performance. This comparison can be made over a particular time period, say, Q2 to Q4. It will help you avoid things like bell curves or comparative evaluations. 

However, there's a pitfall here:

OKRs are inherently collaborative, where you set out and push yourself to accomplish your goals by collaborating with a group of people. So any evaluations based on the attainment of a collaborative OKR will be comparative evaluations. This eventually decreases the chance of your employee perceiving the review as fair. 

Moreover, as OKRs are rarely a solo endeavor, they're a poor measure of individual performance. A great quote from Intel's Andy Grove, often called the father of OKR, captures this idea perfectly. He says, "OKR is not a legal document upon which to base a performance review, but should be one input used to determine how well an individual is doing.

2. Use goals to innovate and not control

Another major issue of tying goals to employee evaluations is that it can start to be some sort of command and control management style. While this isn't intentional, it's inevitable when goals and performance reviews sit together. 

People see their OKRs alongside their performance reviews and start to draw conclusions. This doesn't just kill productivity and engagement but also stifles the growth and learning curve, risk-taking attitude, and creative thinking that your OKR culture needs to succeed. 

People are also prone to sandbagging, where they understate their ability to accomplish a goal by setting ambitionless goals. This reduces trust and social bonds, which are crucial for a team's success. Moreover, it helps you achieve a lot less with unambitious targets. With this, if you still tie compensation to performance reviews, the sandbagging effect will only worsen. 

3. Do not focus on outputs

Thirdly, OKRs should focus on outcomes, not outputs. While tying goals to performance reviews, you might want to cascade them down to individual employee levels to make evaluation easier. Managing this considerable amplification of OKRs can slow you down. Indeed, Rich Klau, a famous Googler, states on his youtube video to avoid employee-level OKRs. 

And 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 can become output-driven, which is not what OKRs are for. 

That's why in the Mesh platform, you can track those outputs or tasks related to your OKRs separately as Initiatives. 

4. Put your organization first when it comes to OKRs

One final issue is that it's all too easy to take your people rather than your organization as the starting point. Let's unpack that. 

Successful organizations do all workforce planning by putting their strategy over people. In simple terms, they work, hire and approach their next move with a strategy in place. 

Instead of asking, "do we have the right strategy to help our team work better?" ask yourself, "do we have the right people to accomplish our strategies?"

In fact, you could even use your OKRs to define whom you should hire next. 

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

Final thoughts

Even though there are a few critical issues with lumping employee evaluations and goals together, making OKR-related efforts one of the many inputs into your review system is a great way to stay on track. Remember the other valuable areas to discuss in your performance reviews, such as technical competencies like functional expertise, demonstration of values, the ability to execute tasks, and the list goes on…

So to conclude, decoupling OKRs and performance reviews give you the best chance of growing your people and company.