The Annual Appraisal Everyone Games

Look at last year’s appraisal ratings. If your business is like most mid-market companies, you’ll see the same shape: a handful of people at the top, almost nobody at the bottom, and a tall column of “meets expectations” in the middle — often 70% of the organisation or more.

Now ask yourself honestly: is 70% of your team performing at exactly the same level?

Of course not. You know who carries the business and who coasts. So does everyone else. The appraisal just doesn’t say it.

The ratings all land in the same place

The pattern is so common it’s almost a law. Managers are handed a form, a five-point scale and a deadline. They fill it in during the last week of March, alongside year-end closing, targets and budget. Most ratings land on 3. A few favourites get 4. A 2 is given only to someone already on the way out. A 5 is rare, because a 5 invites a salary conversation nobody has budget for.

Then HR applies the increment matrix, and the numbers come out roughly the same for everyone — a percentage point either side of the average. Six weeks of effort produces a result that could have been calculated in an afternoon.

Everyone is gaming it — for rational reasons

It’s tempting to blame weak managers. But the appraisal is being gamed by everyone, and each person has a perfectly sensible reason.

Managers avoid low ratings because a 2 means an uncomfortable conversation, a possible resignation, and a vacancy they’ll have to fill during peak season. They avoid high ratings because they can’t deliver the increment that should follow — and a 5 with a 9% raise feels worse to the employee than a 3 with 8%.

Employees game it too. They learn that the rating depends on the last two months and a well-written self-appraisal, not on the year’s contribution. The ones who are good at politics outperform the ones who are good at the job.

And leadership quietly games it by deciding the increment budget before the process starts. Everyone senses that the outcome is fixed, so nobody invests in the conversation.

What it actually costs

The obvious cost is time — hundreds of person-hours on a ritual that changes nothing.

The real cost is who leaves. Your strongest performers can see that they were rated the same as the colleague who does half the work. They received roughly the same increment. The message is clear: effort beyond the minimum isn’t noticed here. They don’t complain. They update their LinkedIn profile.

Meanwhile, genuine underperformance never gets named. The person who has been struggling for three years has three consecutive “meets expectations” on file. When you finally decide to act, there’s no record to act on.

And managers never build the skill that matters most in a scaling business: telling someone clearly and kindly how they’re really doing.

Why fixing the form doesn’t work

The usual response is to redesign the form. Add competencies. Introduce 360-degree feedback. Buy performance-management software. Enforce a bell curve.

None of it fixes the problem, because the form was never the problem. A forced distribution just moves the gaming — now managers negotiate over who has to take the 2 this year. Software makes the theatre more efficient. The underlying issue is that the organisation has no habit of honest performance conversations, and one annual form can’t create a habit.

What actually fixes it

Separate the conversation from the money. When the rating and the increment happen in the same meeting, nobody hears the feedback — they’re just waiting for the number. Hold development conversations months away from compensation decisions.

Make it frequent and short. A 20-minute quarterly check-in against three or four clear goals beats a 20-page annual form. By April, nothing in the review should be a surprise.

Measure against the role as it is today. Many ratings are meaningless because the job description behind them is years out of date. If you can’t say what good looks like in a role, you can’t rate anyone in it.

Differentiate the money deliberately. If your top performers and your average performers get increments within two points of each other, you are paying people to be average. Protect a real gap, even if it means harder conversations at the bottom.

Train managers to have the conversation. It’s a skill, not a personality trait. Most mid-market managers were promoted for doing the work well, and nobody ever taught them how to tell a colleague they’re falling short.

An appraisal is a conversation, not a verdict

The appraisal was meant to answer a simple question: how is this person doing, and what do they need to do better? Somewhere along the way, it became an annual compliance exercise that protects everyone from that question.

You don’t need a better form. You need managers who can tell the truth, a system that rewards it, and enough frequency that the truth never arrives as a shock.

If your ratings look like a skyscraper in the middle of the scale, it’s worth asking what your best people are reading into it — before they answer by leaving. See how our People & Capability practice works →