It's not only that, though - if you reward the top 10% of performers and fire the bottom 10%, say, but don't actually make sure that said performance is due to skill and not a degree of randomness you may not improve at all.
You also create an attitude of fear which is not conducive to a productive and adaptable environment in the long term. You can get away with it for a while, but it's not a good principle.
Get rid of the annual review entirely. Active management is better than passive with guiderails like prodding reviews. I've never been motivated by an annual review nor have I seen it successfully motivate others; have you?
The opposite is true in my experience. People fear it and become less productive as it nears, it takes time that would be better spent on other things and it's not personally rewarding for the manager or the worker. If done poorly, it also lowers team unity and especially doesn't work as a reward because people don't recognize the behavior that led to it. If you reward behavior right after it happens, people associate the behavior with the reward. If you wait six months, they don't. They can intellectually but the team impact is lowered. Not to mention if you're individually evaluating a team based on arbitrary statistics you miss the people who hold everything together. Nobody wants to help their teammate if it will cause their teammate to get a raise instead of them.
Finally, it causes people to game the system instead of improving their work because the work improvement has less impact on their remuneration.
All that to say I don't think the annual review is a good tool.
You also create an attitude of fear which is not conducive to a productive and adaptable environment in the long term. You can get away with it for a while, but it's not a good principle.
Get rid of the annual review entirely. Active management is better than passive with guiderails like prodding reviews. I've never been motivated by an annual review nor have I seen it successfully motivate others; have you?
The opposite is true in my experience. People fear it and become less productive as it nears, it takes time that would be better spent on other things and it's not personally rewarding for the manager or the worker. If done poorly, it also lowers team unity and especially doesn't work as a reward because people don't recognize the behavior that led to it. If you reward behavior right after it happens, people associate the behavior with the reward. If you wait six months, they don't. They can intellectually but the team impact is lowered. Not to mention if you're individually evaluating a team based on arbitrary statistics you miss the people who hold everything together. Nobody wants to help their teammate if it will cause their teammate to get a raise instead of them.
Finally, it causes people to game the system instead of improving their work because the work improvement has less impact on their remuneration.
All that to say I don't think the annual review is a good tool.