OKRs and Performance Management: Differences to Know

OKRs are a goal management framework for teams and companies, while performance management focuses on helping individuals develop their careers. Although often confused, OKRs and performance management are distinct, parallel tracks used for different purposes.

How to Use OKRs

Leaders should evaluate OKRs by:

• Focusing on company organization, departments, and teams

• Increasing goal completion through transparency, collaboration, focus, and self-organization

• Completing a quarterly OKR cycle on time

• Fostering open communication

Leaders should never tie OKRs to compensation. If your employees feel the pressure of achieving OKRs or they could lose out on pay, they may choose easier targets instead of setting ambitious goals. When OKRs are tied to employee compensation, leaders might see:

• Under-promising by workers who set lower goals so they can achieve them easily

• Underperformance in general because of too much work to do

• Reliance on outdated management by objectives (MBO) frameworks

• Unfair assessments of individuals versus team performance

• Lack of ambition from employees

• Reluctance to share honest progress in OKRs

• Shorter cycles clash between OKRs (quarterly) and performance management (yearly)

Companies might never achieve their true aspirational and ambitious OKRs if staff feel like they are setting the bar too high, but by design, teams should be hitting 60-80% of the goal set.

How to Use Performance Management

A traditional employee performance management evaluation differs from OKRs in these ways:

• Focusing on individual behavior, growth, career path, skill development, and compensation

• Entailing annual reviews in a formal setting between an employee and a supervisor

• Using performance management as a basis for compensation and promotion

• Having a confidential process among management, HR, and the employee

Why Should OKRs and Performance Management Remain Separate?

OKRs focus on team goals while performance management focuses on individual goals. While OKRs are ambitious and aspirational, performance management is an evaluation of individual performance.

OKRs typically focus on collective team metrics that cannot be traced to an individual, like increasing sales, revenue growth, new customer adoption, reducing churn, or reducing costs, etc. 

Performance management is specifically focused on the individual employee and is kept private between a manager and employee. Performance management is also run annually, while OKRs are run quarterly.

How Do OKRs and Performance Management Align?

The key is to recognize that OKRs and performance management can inform each other at every stage of the cycle. Look for these ways to align both:

• In the planning stage, individual goals should align with team OKRs when a person’s performance is tied to a group goal.

• In the monitoring stage, OKR check-ins help determine if the team is on track to meet goals, while weekly one-on-ones see if individuals contribute effectively to team goals.

• In the review stage, performance management should reference the progress made in OKRs as one point among many while assessing the person’s individual performance.

• In the reward stage, employees should receive extra perks based on their contribution to the team effort, collaboration, development, and their judgment, but never solely tied directly to OKR attainment.

OKR vs. MBO

OKRs replace the “management by objectives” (MBO) framework that was tied to more traditional performance management.

MBO used these methods:

• Top-down goal setting

• Annual evaluations

• Objectives tied to compensation

• In line with annual employee reviews

Now, business moves much more swiftly and must contend with more complexity and unpredictability. These factors favor the OKR model:

• Goals come from all stakeholders involved in the process

• Quarterly evaluations with continuous, weekly check-ins to measure progress

• Objectives tied to company goals rather than compensation

• Inform quarterly, continuous employee evaluations as part of a larger picture for each individual

Why Should Companies Migrate Away From Traditional Performance Management?

Performance management models had three main drawbacks, none of which help in a modern business setting wherein businesses must be agile enough to compete:

• Feedback to employees arrived too late, especially if an event happened several months before it was brought up at an end-of-year evaluation.

• Preparing for annual performance reviews took a lot of time and resources because there were a lot of items to cover.

• Employees believed annual performance reviews were demotivating, with a lot of negative emotions tied to numerical scores and a lack of timely recognition.

Enter the continuous performance management model that replaces older methods of employee evaluation.

What Is Continuous Performance Management?

Continuous performance management, also called agile performance management, provides a more people-centered method of motivating, assessing, and improving employee performance. This model creates trust, employee ownership of goals and development, and supportive collaboration.

Here are four advantages of CPM in an agile business environment:

1. Shorter cycles that encourage feedback and honest discussions when they’re most relevant and fresh in people’s minds, allowing employees to adjust quickly.

2. Less employee time is spent on quicker and shorter evaluations, saving staff costs when preparing for lengthy meetings.

3. Focus on employee development and improvement rather than demotivation and negativity.

4. Fosters a collaborative environment to create high-performing teams along with productive individuals.

The trick is to scale CPM in a way that makes the process repeatable.

4DX Methodology for OKR Performance Management

The 4 Disciplines of Execution (4DX) helps leaders establish execution systems at scale for OKR performance management. The four disciplines covered include:

1. Focus on ambitious, crucial goals that require significant effort from teams to impact the company’s success.

2. Act on lead measures and focus on activities that drive results in real time, which means having software in place to track results.

3. Maintain a scoreboard that keeps progress visible as a motivational tool, and update the scoreboard regularly.

4. Assess progress being made, celebrate wins, and adjust as needed through regular reviews with teams.

Part of the 4DX methodology is the 80/20 rule, where 20 percent of your efforts lead to 80 percent of the output. Keep that in mind when setting up OKR performance management.

Scaling OKRs

When translating 4DX to OKR performance management, keep in mind these four areas:

1. Narrowing the focus to two very important goals, or wildly important goals (WIGs), per cycle to have the most significant impact on your business.

2. Track progress continuously to keep leaders and teams focused on the right things.

3. Use a visual scoreboard since OKRs are transparent as a motivational and accountability tool.

4. Review progress among teams every week to keep them on track to meet quarterly OKR goals.

KPIs vs. OKRs

One reason agile systems fail is that leaders focus on KPIs instead of OKRs. The major difference is that KPIs measure what happened in the past. OKRs focus on methodically reaching a goal within a specified time frame.

Pitfalls of OKRs

OKR performance management can get out of hand quickly with some common pitfalls such as:

1. Too many objectives, which dilute attention from one or two high-impact goals

2. Lack of alignment or buy-in from teams, which demotivates them and leads to failed execution

3. Irregular check-ins without consistent reviews could lead to momentum loss, overlooked issues, and missed opportunities for course correction.

4. Vague goals or outcomes, making them difficult to measure or track progress

Let Brev Do the Heavy Lifting of OKR Performance Management for You

For many organizations, the challenge of OKRs and performance management is putting in the necessary work and time to keep employees moving forward on target and informing management when goals are off target early. Brev makes that possible with an AI OKR software  for enterprises. Brev connects with your current tools and meetings to capture critical decisions, commitments, and risks so everyone can stay up to date across hundreds of teams within the company.

Let Brev operate as your company brain while keeping OKRs top of mind. Request a free demo  or start your free trial with Brev today.