Most performance appraisal programs are perfectly designed to de-motivate managers and subordinates alike. Managers detest them and employees dread them. If you don’t believe me, ask your people. It doesn’t have to be this way. In fact the performance review can be a highly motivational tool, and a key part of executing strategy.
They’re deeply flawed because they have lost their purpose and are primarily used to allocate ‘merit’ increases. This causes perverse influence, dysfunction and mistrust everywhere: managers rating everyone the same so that all would get the same increase, managers obviously playing favorites to give certain people more money, etc. It’s gaming the system to dole out meager increases, rather than increasing the value of your talent.
The primary purpose of a performance review should be to tell people where they stand, how they fit in the organization, what they can do to improve, and what they can do to get ahead. It should be a level-set and development-oriented. It needs to be a tool to increase the value of your talent. Performance reviews should drive merit increases, not the other way around. This requires a culture of trust and honesty, managers who are trained to grow talent rather than control it and employees who are energized about the company, its direction and its leadership.