Performance review methods: OKR, KPI and 360-degree feedback

Why does the choice of performance review method matter?

The performance review method determines what an employee is measured on and how. The same employee can look outstanding under a goal-based method and average under a behavior-based one. Choosing a method therefore signals what the company values: results, behaviors, development or team contribution.

This guide focuses on comparing methods. For how to run the year-end review cycle itself, calibration meetings and linking results to pay, see our year-end performance review guide. If you operate in Turkey, the method also needs to fit local practice: many Turkish companies link review results to annual raises, and review data is personal data under KVKK (Turkey's Personal Data Protection Law).

What is an OKR and how is it applied?

OKR (Objectives and Key Results) is a goal-setting method in which an ambitious, qualitative objective is supported by measurable key results. It is usually run in quarterly cycles, with 2 to 5 key results under each objective.

The core features of OKRs are:

• Ambitious goals. OKRs are deliberately stretching; reaching 60 to 70 percent of key results is often considered a success.
• Transparency. Company, team and individual OKRs are visible to everyone, making links between goals clear.
• Short cycles. Quarterly planning and weekly check-ins suit environments where priorities change quickly.
• Separation from pay. The OKR approach recommends not tying scores directly to bonuses or raises; otherwise employees tend to write safe goals.

OKR example

Objective: Significantly improve the customer experience. Key results: cut first response time from 4 hours to 1 hour, raise the customer satisfaction score from 7.5 to 8.5, and halve the number of repeat complaints. At the end of the quarter each key result is scored between 0 and 1 and averaged.

What is a KPI and how is it different from an OKR?

A KPI (Key Performance Indicator) is a measurable indicator used to continuously monitor the health of a piece of work. Sales revenue, on-time delivery rate, error rate, customer satisfaction and payroll closing time are typical KPIs. KPIs are usually set as annual targets and weighted to produce an individual performance score.

The key difference is that OKRs measure change and growth goals, while KPIs measure the performance of ongoing work. In a call center, "average waiting time" is a KPI; "reduce call volume by 20 percent with a new self-service channel" could be an OKR. Many companies use both: KPIs track business continuity, OKRs track transformation projects.

How is a weighted KPI score calculated?

The example below shows three KPIs and their weights for a sales representative. Achievement is calculated as a percentage of target and multiplied by the weight.

In practice, a cap on achievement (for example 120 percent) is common so that one KPI does not inflate the total. Weights should always add up to 100 percent and the number of KPIs per employee should stay manageable; 3 to 6 is usually enough.

How does 360-degree feedback work?

360-degree feedback is a multi-source method in which an employee is assessed by their manager, peers, direct reports (if any) and themselves. Some companies also involve customers or partners. The aim is a more balanced picture of behaviors and competencies, rather than relying on a single manager's view.

In this example, the 0.6-point gap between the self-assessment and the direct reports' assessment is a good starting point for a development conversation about leadership behaviors. 360-degree results are usually used for development. When they are tied directly to pay decisions, the risk of tactical scoring among raters increases.

For 360-degree feedback to work well, form rater groups of at least 3 people, report results anonymously by group and base questions on observable behaviors.

What is a competency-based review?

A competency-based review measures "how" an employee does the job. Competencies such as communication, problem solving, customer focus, teamwork and leadership are defined, behavioral indicators are written for each, and the employee is rated against those indicators. Used together with KPIs or OKRs, a competency model answers both "what was achieved" and "how it was achieved".

The most common problem in competency reviews is vague definitions that everyone interprets differently. Instead of "communicates well", write observable behaviors such as "shares decisions and owners in writing after meetings".

What other performance review methods are there?

Management by objectives (MBO)

The classic method in which manager and employee set goals together at the start of the period and review achievement at the end. Most KPI-based systems are built on this approach.

Rating scales and BARS

Employees are rated against set criteria on a scale such as 1 to 5. A behaviorally anchored rating scale (BARS) defines each rating level with concrete behavioral examples, reducing differences in interpretation.

Forced distribution

Employees are distributed into performance groups at fixed proportions (for example 20 percent top, 70 percent middle, 10 percent bottom). It differentiates strongly but can produce unfair results in small teams and weaken collaboration. Many companies prefer a distribution guided by calibration rather than strict quotas.

Continuous feedback and check-ins

Instead of a single annual review, manager and employee hold short conversations at regular intervals (for example every two weeks or monthly). This does not fully replace the formal review, but it prevents surprises at year end. Recording check-in notes, even briefly, reduces the tendency of managers to focus only on the last few months (recency bias) and makes it easier to support the final score with concrete examples.

Which performance review method should you choose?

There is no single right method. The comparison below summarizes what each method measures and where it fits.

In practice the most common model is hybrid: KPIs or OKRs for results, competency reviews for behaviors, 360-degree feedback for managers, and regular check-ins throughout the year. For example, 60 percent of the total score could come from goals and 40 percent from competencies. Set weights according to the nature of the role: goals may carry more weight in sales roles, competencies in support roles.

What should employers consider when choosing a method?

1. Clarify the purpose. Will the review be used for pay decisions, promotion, development plans or all of these?
2. Group roles. Do not apply the same weights to sales, operations, office and management roles.
3. Define data sources. Which system will KPIs come from, and who will validate them?
4. Train managers. Plan short sessions on writing goals, giving feedback and recognizing bias.
5. Pilot first. Test the new method in one department for one cycle and adjust based on employee and manager feedback.
6. Document the link to pay. Explain in advance which score corresponds to which raise or bonus range; our salary increase policy guide can help.

What are the common performance review mistakes?

• Changing the method every year. Constantly changing criteria make comparisons across periods impossible and reduce employee trust.
• Writing too many goals. An employee with fifteen KPIs cannot tell which ones matter.
• Leaving everything to year end. For employees who get no feedback during the year, the year-end score is a surprise and objections increase.
• Measuring new hires on a full year. Set pro-rated goals for mid-year joiners and assess the first 90 days through the onboarding plan.
• Not checking consistency in pay decisions. Unexplained pay gaps between employees with similar scores can create risk under pay transparency rules. See our EU pay transparency directive guide.

Performance review results are personal data. Under KVKK, decide who results are shared with, how long they are retained and how employees can access their own results.