- For very small startups: just talk. A lot, every week at least. Setting metrics is hard until you gain more visibility. If you can though, do it.
- For midsize startups: set goals with clear metrics/achievements (we use OKRs), and still talk a lot (one-on-ones and amongst the team). Metrics are here to set expectations not to be your final rating. If your manager wants to screw you, they'll do it with any system.
- For larger companies: Do as above + add formal appraisals. The appraisal is more about career direction.
This tends to work well because employees find it fair and predictable. And as others mentioned, don't wait 6 months to give feedback. A review shouldn't come as a surprise.
I have a very strong feeling that there are important qualities that are required for both of those jobs that are almost impossible to quantitatively measure. And therefore introducing purely quantitative metrics would actually hurt performance, make employees miserable and make the best of them leave the company.
For instance, I once had "customers repeat app usage" as a KPI. This aligned with the company's goals for this mobile app, but resulted in pressure to add "dark patterns" and product features that annoyed people into launching the app. If the metrics are simple and naive, you're going to get employee behavior that has unintended consequences.
That said, I'd still argue that any steps taken to make one's performance goals more transparent and _measurable_ are steps taken in the right direction. If I knew what those magical "right" metrics were, I'd go into business tomorrow an HR consultant.
While I don't run a dev shop (sports science lab instead), we have this as the majority of the reason compensation is increased. Fluency in Spanish, getting certain certifications, passing some tests, etc, all trigger pay level increases, bonuses, and so forth.
Subjective review is part of the game however, and unavoidable entirely.
We also analyze the workforce by free cashflow and percentage of FCF per employee and pay global bonuses based on the needle being moved in the correct direction, which keeps incentives aligned properly RE: expense waste and income generation.
Having a lot of triggers seems to help, in my experience.
It seems obvious to do as a business owner, but as you pointed out, I guess it's not that common.
It is just strange to ignore basic incentives/economics. The more you can align the incentives in the same direction, the better result you get. Highly-trained workforces are not fungible. All of this sounds like being "nice" to employees, but in reality it serves the business simply better than the alternatives.
If your training was useful, it'll reflect itself on your work, no? Why do we need to reward it specifically?
And make sure managers and HR departments stand by their metrics.
Avoid, on all counts, what I have in the past seen "We are a quickly growing company, where out goals may change any minute. We cannot possibly have fixed goals or ways to track them or past performance ... Just show me the result" Anyone demanding such is dizzy and unable to steer any direction.
And 360s: They simply do not work otherwise than to give more senior management more transparency from their viewpoint - if they feel the need to use them, they don't feel sufficient transparency and this is what needs to be addressed.
They infact do. Smaller shareholders in particular. Shareholder meetings can be quite fun if you're informed and trying to see a small shareholder get an answer to an obscure question.
KPIs like "share price" and "revenue" where you as Software Engineer #39 have little effect can be frustrating but at least they're transparent and you can connect the dots between that number and your compensation.
The worst ones tend to boil down to: "As your manager, here is my subjective view of your performance over the last N months." which essentially rewards high visibility and self promotion rather than actual performance.
Second worst is: "As your manager, here is my subjective view of your performance plus 360 input from peers" which rewards your ability to join cliques and alliances.
Sadly in almost all jobs I've ever had, it was one of the above.
Sometimes the company would throw in a "self assessment," purpose unknown to me, which is likely not even read.
The ideal (in my view) performance assessment would be: "Here are the numeric metrics we agreed N months ago to measure your performance by. The data (collected neutrally and transparently throughout those months) show you met metric 1, 2, and 4, exceeded 3 and 5. Based on the transparent and mutually agreed upon formula, your raise and bonus this year are X and Y". Measurable and objective: Clear goal posts for you to aim for throughout the year. I've never seen this anywhere. I understand some sales roles get something like this.
VCs and shareholders don't come to shareholder meetings and say things like "CEO, I subjectively feel in my heart you are not doing a good job!" No, they look at the company's measurable, numeric results and judge by that. Why should it be any different with employees?
Obviously the hard part is coming up with those metrics so you're rewarding the right behavior and performance, but I'd much rather see companies put effort into coming up with those metrics rather than crafting the world's best self-assessment question or wasting everyone's time on 360s.