Shared Performance Ratings Align Cross-Functional Teams

Situation

In many organizations, engineering managers (EMs) and product managers (PMs) face misaligned incentives that create friction and undermine collaboration. Will Larson observed this problem across multiple companies where he worked, including his current role as CTO at Carta.

• Core problem: EMs and PMs often have different performance metrics and incentives
• Common conflict patterns: PMs focused on impact metrics while engineers prioritized interesting projects or uptime
• Resulting behaviors: Teams arguing before understanding each other's needs, creating "villain narratives" about peers
• Traditional approach: Each function evaluated separately with different performance criteria

Actions

Carta implemented a shared performance evaluation system for cross-functional leadership:

• Paired performance ratings: Engineering managers and product managers received the same performance review rating
• Joint calibration: The Chief Product Officer and CTO spent significant time calibrating together on these paired ratings
• Transparent communication: Leadership clearly communicated this approach to teams
• Exceptions for clear issues: While maintaining the principle, they allowed exceptions for obvious non-performance cases
• Trifecta model: Carta experimented with extending this approach to include business leadership as well

Results

• Aligned incentives: The approach created shared incentives between engineering and product
• Improved understanding: Teams recognized they would succeed or fail together
• Better trade-off decisions: While balancing competing priorities remained challenging, teams understood their shared fate
• Reduced functional silos: Decreased tendency to optimize for functional metrics at the expense of overall outcomes
• Cultural shift: Teams began focusing on solving for the entire set of constraints, not just functional constraints

Key Lessons

• Shared fate drives collaboration: When teams know they'll be evaluated together, they're more motivated to understand each other's constraints
• Incentives shape behavior: Performance review structures powerfully influence how teams interact and make decisions
• Transparency matters: Clearly communicating the shared rating approach helped teams understand the expectations
• Calibration requires leadership time: Cross-functional leaders must invest significant time aligning on performance evaluations
• Functional understanding remains critical: Even with shared ratings, teams must still work to understand each other's unique needs and constraints
• Flexibility is important: Maintaining exceptions for clear performance issues preserves accountability while promoting collaboration
• Company context matters: The approach can be adapted to include other functions (like design) based on company-specific needs