Individual Development Goals
An area in which to be careful is individual goals. In an agile environment, individual goals are best used for individual development and not for meeting corporate objectives. Assign individual goals for individual development. Make sure individual goals are aligned with team goals.
Many traditional engineering goals for people are structured around owning a particular component or designing or implementing a component. These goals are inappropriate for an agile team member, because there is no room to redirect someone from contributing to the team's goal of building value to a non-value-oriented goal of completing a component.
A team member who is supposed to design and build a component will concentrate on the component and not on the feature that it supports. This monkey wrench can make the wheels of agile production grind to a halt, so these kinds of goals should be avoided. On the other hand, it's reasonable and helpful to desire that someone take the technical lead in implementing a user story or theme.
Frequent 360 degree performance feedback is better than many alternatives. One manager in China said to me, "Scrum seems to hide the contributions of individuals, and I can't judge them as well." My first thought was "Well, what does that tell you?" No one on a scrum team knows better how each person is doing than anyone else on the team. Make use of that by trying 360-degree reviews. Doing them frequently takes away a lot of the sting and, after a couple of rounds, there will be no surprises left. Doing them outside the formal review process will allow people to comfortably give the kind of feedback that can really make a difference.
Here's how I did them. I announced to the team that we would do voluntary 360-degree reviews. Nobody was required to participate, but if you wanted feedback you had to give feedback for everybody else on the team, including the ScrumMaster and product owner. All feedback was handed in to the manager, who edited it together to make it impossible to determine who said what. Feedback was then delivered to each person directly and in private by the manager.
Most performance review systems include a passing nod to the skills that are important for individuals to be productive members of teams. As a reviewing manager, you have fairly wide discretion in weighing the importance of these traits, characteristics, and behaviors when you evaluate individuals. Use your discretion. Value highly the personal traits, characteristics, and behaviors of good team members.