Performance Management and Goal Setting
In a large company, it becomes more and more challenging to create an environment where people can succeed at scale. How to take the pain away out of the annual performance reviews? How to make performance goals motivating for people?
Netflix pays above market base salary, but no performance bonus (1). Bonus allocation is highly subjective; it reflects "loyalty" to one's manager, politics, and nepotism rather than merit.
Knowledge workers are motivated not as much by income but rather by autonomy, mastery, and the sense of purpose (2). More about it separately.
How to motivate by a sense of purpose? At the corporate level, the company mission gives an inspirational reason for the company's existence (3). Visionary companies set "big hairy audacious goals" (BHAGs) (4). The company mission cascades to the CEO, down to each department and employee in the form of transparent objectives and key results (OKRs). In addition to top-down OKRs, about half of personal OKRs come from an employee.
At the team level, a manager discusses with his/her reports their OKRs in bi-weekly 1:1 meetings. The OKR technique inspires employees through product roadmaps as well as challenging personal goals. Please see how Google describes this methodology (5). Employees do not stay at the company because of options vesting or an upcoming annual bonus. Instead, the purpose of the work they are doing motivates them to stay.
For example, you're an engineering manager with 20 engineers from five different product development teams reporting to you. Each engineer will have team-specific product OKRs, which will motivate the engineer with a sense of purpose. As a functional manager, your job is to inspire by encouraging your reports to develop mastery of their discipline. Help them focus on important but not urgent functional OKRs like learning and development, greenfield innovation, and tech debt removal. Motivate by giving autonomy, such as an opportunity to teach others and participate in internal innovation, such as startup challenges, hackathons, internal crowdsourcing.
OKRs are not meant for performance reviews. Instead, ask each report to list accomplishments in a one-pager. Then discuss them in a quarterly 1:1 meeting. Additionally, team members who work very closely together should rate each other's performance anonymously and provide the results to managers. Of course, the most objective data for performance evaluation comes from product outcomes achieved by a team based on KPIs and the roadmap. A product portfolio board can provide an opinion on a team's performance and effectiveness.