Recently, Paul R. Niven, noted Author, Strategist, and OKR Consultant sat with Atiim CEO, Kyle Silberbauer, to discuss the evolution of the OKR (Objectives and Key Results) methodology. In this webinar, they discussed how the protocol is evolving, recounted best practices of an OKR execution, and provided new tips, tricks, and hacks to make the system even more impactful in driving performance.
Read the full video transcript to learn more about how you can use OKRs to align everyone to what matters most in your organization.
How OKRs are Evolving
Paul speaking: “How are OKRs evolving?” This is the fun part of the presentation today, especially for those of you who are listening who have some experience with OKRs. For lack of a better word, there’s been some “dogma” that’s crept into the OKR world. There are things that people say you definitely do, and some things you definitely don’t. And, I’m seeing that being challenged, which I think is a good thing. You know, I love the fact that OKRs are dynamic and we’re learning from users all the time. And, we’re doing more research all the time.
OKRs and Performance Reviews
I wanted to talk about two things today in particular, that I see evolving. Obviously, I would love feedback from everybody who’s listening. And, anybody who is using the recorded version of this webinar can contact me to talk about it. The two areas are OKRs and performance reviews and OKRs and incentive compensation. So, who really cares and performance reviews? Again, this is one of the things, that if you read the books and the literature out there, everyone says “don’t link OKRs to performance reviews.” So, let’s first back up a little bit with some background. I would say that virtually all the research that I’m reading now is suggesting that the old way of conducting performance reviews is outdated and I would say mercifully it’s on the way out. In that model, a manager and employee would sit down once a year, and they would discuss the employee’s performance during the past 12 months. And, that’s the key there, the past 12 months. You’re really looking in a rearview mirror, and there are so many problems with that model. You’re focusing on the past, instead of the present, and maybe, more importantly, the future. We also hear a lot about the “stacked ranking” issue of employees, so that even those who you know are working really hard, and they’re producing results, they’re going to be given relatively poor performance reviews, just because the organization has to do that. That, of course, generates a “fight-or-flight” response in people if they’re not getting that good review that they hope for. Obviously, this is very alarming to people. So, a lot of problems with the traditional system, but fortunately it’s changing.
A New Model Emerging
There’s definitely a new model. We see a lot of large organizations completely abandoning the old performance review process. As a lot of you know, and Kyle you know this, the focus now is on more frequent feedback between managers and employees, quarterly, or in some cases even monthly, or maybe more frequent conversations. No numerical rankings, just discussions that focus mostly on the future. We’re capitalizing on the employee’s strengths, to guide and enhance performance. To do this well though, organizations have to provide some training to their managers on how to structure a conversation like this, the questions to ask, etc.
We think OKRs can play a role in that process. We’re not suggesting that you link OKRs directly to performance reviews as there’s more work that has to be done on that, but we think they can play a role in the process. Just as an example imagine that every month Kyle, if I reported to you, I sit down with you and you could just ask me, “Hey Paul, tell me about an OKR that you worked on this quarter that you were really excited about, that you were proud of the results.” You know that does a couple of things. It increases my engagement because we’re having a strategic discussion where I can learn more about the strategy and tell you about my role in executing it. It gives you a chance to give me feedback obviously, on where you think I could have done more, or where I might have veered off course in my understanding of the strategy. So yeah, that’s really, really critical. It also gives me a chance to discuss my next quarter’s OKRs, to ensure there’s the alignment that we talked about, alignment around the priorities and expectations that you would have, that the organization has.
Increasing Employee Engagement
There’s a growing body of evidence, which is really exciting to me, that conducting these reviews, having these frequent conversations, has a number of positive attributes. Maybe the most important one is it it’s been shown to increase employee engagement. I’m excited about that because there’s research that shows that companies that are engaging in OKRs are seeing small bumps in engagement. The numbers are small at this point, as far as the number of companies that are engaging in this research, but it’s exciting. So again, we’re not suggesting an out-and-out link between OKRs and performance reviews, but we are saying you can connect them perhaps. So when you’re talking to your employees, just discuss how an OKR they worked on was something that helped them, helped the organization. Use them to inform the discussion. So, Kyle what are your thoughts on that? What you’re seeing? Are you seeing anything similar in your world?
OKRs as a Results-Based Methodology
Kyle speaking: Yes, absolutely. We’re often lumped in, that is Atiim as a company is often lumped in with a lot of these software products that do continuous performance management. Our perspective is that OKRs are fantastic context for these conversations, these performance reviews, and continuous coaching conversations, 360 reviews, all that. OKRs are the perfect jumping-off point for those conversations. We also see OKRs as a great way to focus on the results the employees are creating, and not just the activity that they’re doing week to week, or their personality traits, their character traits, those sorts of things.
OKRs is really results-based, and that’s great as it helps to keep those conversations very objective.
Paul speaking: Yes, really, well said.
So, the second one Kyle, and this one might be a little bit more controversial, so I’m very curious to see what questions we get from the audience on this one, OKRs and incentive compensation.
OKRs and Incentive Compensation
So I’ve got in italics, “overcoming the sandbagging problem.” If you read the literature here in OKRs, the verdict is very clear on this topic, you do not link OKRs to incentive compensation. The primary rationale for that is, of course, the sandbagging problem, it’s a classic problem. If I’m going to link your OKRs to compensation, Kyle you’re going to say, “Well, of course, I’ll just set the bar really low!”
As you know, that’s antithetical to the whole idea of OKRs, which are supposed to be about stretching and visionary thinking. And now you’re doing the opposite because you want to achieve a reward, right?
So that’s the thinking, they’re setting easily achievable targets, in order to ensure an incentive reward. But having said that, and of course and I’m well aware of that, but the landscape is shifting. I am actually seeing more and more of my clients linking OKRs to incentive compensation. Some would say, and I agree with this, that the sandbagging problem, and hear me out on this, is a bit specious. I don’t know if it’s as solid as we thought it was. Here’s why, I mentioned earlier here that OKRs are not set in a vacuum, of course first you’ve got to have that strategic context we talked about, but something we haven’t discussed yet, but I think is really important, is that OKRs is a negotiation. This is that bottom-up planning that you talked about a minute ago Kyle.
Negotiating Bottom-Up Objectives & Key Results
When I develop OKRs, let’s say again Kyle that I report to you, I don’t just say, “Here Kyle, here’s my OKRs,” and you rubber stamp them. That’s definitely not the way the system works, not the way it should work. I can certainly draft OKRs, my team can draft OKRs, and again if I report to you, we have a discussion. We have a negotiation, and that does so many positive things that we’ve already talked about. It makes sure that you can relay to us the concerns that you have, about we’ve had, you can coach us on the level of stretch, you can tell us when we’re off target as far as the strategy is concerned, and that increases engagement. All good things come from this negotiation, but perhaps most importantly, is you can challenge us on our targets. You could say, “Gosh you want to increase the number of new users this quarter by 500, why not a thousand? You know, why didn’t you come up with a thousand?” And, so through this negotiation process, I’m not saying that sandbagging can disappear, but I’m kind of saying shame on the manager who would let that go through.
Now if you just rubber-stamp your subordinates OKRs without any kind of coaching any kind of negotiation, then that’s a problem. On the other hand, if you do what we’re talking about, if you have that really in-depth conversation about the targets, about the strategy, and you come to agreement on a target that you both agree is visionary, it’s aspirational, but with really hard work it’s doable, then why not linked it to compensation? Why not reward employees for that extraordinary effort?
So again I’m seeing more and more of my clients, I can’t name them, but I have one fairly large client recently that we’re having a discussion and they said, “Well, it’s off the table not doing linkage compensation, we’re doing right out of the gate, and they did. They’re doing exactly we’re talking about, having these conversations that are so important. I’m not using this webinar as a soapbox to advocate for this, I am saying, however, don’t rule it out just because you’ve read some of the literature out there that says definitely don’t do it. Just consider it, it might be right for your organization, it might not be. You might not be at a state where you’re culturally ready for it, but just consider it, and don’t close the door completely is I guess what I would say on this one. Kyle, love to hear what you think about this.
Kyle Silberbauer: Yes, we also get this question a lot. You know I think you’re right Paul, it is one option on the table as a way to kind of kickstart engagement, to get employees and managers more engaged. Because, a lot of times what we see is that companies want to create bottom-up types of alignment where they’re getting their employees contributing to, and their managers deciding on, these Key Results and what are good measurements for it. But they just they don’t quite have that culture built yet, that habit of employees and managers participating. So I think by tying OKRs to compensation is one option, as a way to get them to see that they do have a stake in the outcome of the OKR program.
Paul Niven: Yeah, nothing is going to make OKRs more real to employees than saying, “Hey we’re linking it to your compensation.” Yeah, that’s going to get everyone’s attention immediately.
Now, we haven’t even talked about it, and I’m a bit of a psychology geek, Kyle, so we haven’t even talked about the intrinsic versus extrinsic motivation. There’s a whole lot of research that suggests that incentive compensation, of course, is extrinsic. So, we’ll leave that on the table for another webinar.
You know, from the small numbers at this point, because this is something that as I mentioned is evolving, I’ve seen client that are having success with this. As you just said, it really gets people’s attention, it gets that fight and support, and it fosters those conversations. So, I’m excited about seeing where this goes, and you know perhaps when we have another webinar in several months we’ll have an update.
Kyle Silberbauer: Another question along that line Paul is, do you recommend this for companies who are brand new to OKRs, or going back to the learning curve, it seems like they may want to do a few rounds of OKRs before they start linking compensation to OKRs?
Paul Niven: Really terrific point Kyle, and important, and thanks so much for bringing it up. Yes, although I have clients who do it right out of the gate, I would suggest exercising a little caution. As I mentioned, having reviewed thousands of OKRs, the increase in the ability to do OKRs from quarter to quarter is astounding to me. People get better at it so I would be very wary about linking my initial OKRs to compensation because I just know they’re going to get better. Setting targets and key results is not easy, it’s definitely more of an art than a science, and you will get better at it. So, this is something I would say, approach with caution, but consider it.
We sincerely hope you enjoyed the conversation, found it informative and educational, and picked up some pointers as to best practices to help you with your company’s process. Have additional questions or want to learn more about how OKR Software can aid your performance?