OKRs represent the priorities of your organization, and they focus teams and what matters most. They capture the progress that we're making together. And they're not meant to judge the performance of an individual. Being great at your role may mean you have a higher likelihood of reaching your OKRs, and meeting your OKRs may mean you're well-qualified for the role you're in. Because of this, OKRs don't make great carrots or sticks. If a person isn't graded against their OKRs, how do you know if they're good at their job? Let's go over some of the main differences between OKRs and performance reviews: First, OKRs are not the sum of all things. They're not meant to capture every action or responsibility of an individual, nor are they a job description. Performance reviews, on the other hand, are meant to reflect a person's ability to execute in the role they are in, and how they're executing on their holistic responsibilities. Second, OKRs, or a communication and strategy tool. They look forward into the future, and when you fail on an OKR, it's meant to be a learning moment for you and the organization, not a punitive one. A performance review, is an evaluation tool for looking at past performance, and if compensation, bonuses, and promotions are withheld, it's a form of punishment. When a person fears consequences for not hitting an OKR, it can end up working against your team. And it can really encourage behaviors that are counter to the transparency and stretch encouraged by OKRs. Third, OKRs are for teams. They measure the progress of a team or an organization towards a goal. Performance reviews measure a person's progress towards their full potential in their role, they entail far more than OKRs. Compensation is a measure of value, promotion signal growth and skills and responsibilities, and are often tied to an increase in compensation, bonuses are awards for specific outcomes. How do you separate OKRs and pay effectively? A performance reviews should be putting in context of a person's role and responsibilities. Organizations should make it clear upfront what it means to be a senior engineer versus a junior engineer, a sales director versus a sales manager, and define what high performance and the role looks like versus underperforming. Performance reviews constitute different conversations and a different process than OKRs. They have a different cadence, and metrics of success. Most simply, OKRs can be one discussion topic in a performance review, but they shouldn't be the determining factor when it comes to someone's compensation, bonus, or promotion. This is where I often get asked, "But if OKRs are about the outcomes, why shouldn't outcomes factor into a performance review?" If you use OKRs for compensation instead of communication, it will have negative consequences. We've seen examples when an individual is faced with the "hit this benchmark... or else" situation, they switch into survival mode. Focus dress from the good of the team to the good of the individual, and if people are primarily looking out for themselves, they may begin to game the system. Second, by themselves, OKRs aren't a reliable indicator for how good a person is at their role. It's possible for someone to completely miss their OKRs, and still get an incredible performance review. For example, say a company's legal team sets an Objective to streamline the contracting process, but they failed to deliberate this quarter. The reason, the company closed on an acquisition and it required the entire legal team to go above and beyond and work around the clock on it. It's also possible to meet or exceed your OKRs and do poorly on your performance review. For example, say a team leader brings in more sales than was projected in their OKRs, but achieves it by being a poor or overly controlling manager. That's poor performance. CFRs can be an opportunity to provide feedback to that team leader, not when it's too late in their performance review, but earlier. CFRs can be the framework for offering notes and corrections, and any patterns that develop. Behavior, strategy, and patterns of decision-making are all fair game for a performance review. Evaluate those in your compensation and promotion decisions. Leave the OKRs themselves out. Sometimes there's overlap between the KRs, and the criteria for bonuses. But I'll say it again, OKRs are for teams not individuals. They're collective commitments, so these bonus targets may appear in your KRs, and that's okay, but they really have to be targets that the collective is responsible for. And if a contributor isn't meeting their KRs, it's meant to signal a misfire in the overall plan and to instigate a course correction, not judgment on one person. If you do have a bonus plan, we strongly encourage you to set the criteria for success that depend on the team, rather than the individual. If OKRs become about holding individuals accountable, or evaluating a person's performance, you've strayed from their purpose. A person's contribution can add to the success of an OKR, but it's not how they should be judged.