Most employees believe that their annual performance review is a tool whose purpose is to communicate (their immediate supervisor's perception of) their actual near-past performance in order to help them know what to improve upon, so they can become a better employee in the future (help the company) and maximize their salary increases and promotion opportunities (help themselves).In reality, the annual performance review is an accurate assessment of performance only if you’re receiving a “failing” grade. If you’re receiving a “passing” grade, it's purpose is to modulate your expectations about the near-future salary increase that management has already decided upon, based on (a) their (real) evaluation of your work performance (that you will never see), (b) the demand for your skills in the marketplace, and (c) your likely mobility (how easy it is for you to pick up and go anywhere for work). i.e., They try to pay you in praise or excuses (as a substitute for money) as much as possible.Companies have many reasons -- mostly financial, some legal -- not to give you an honest & complete appraisal of your skills & performance. Don't be discouraged (more on this later).Ask the average worker to draw a graph of how performance review grades track actual work performances and they will produce something like . . . .The alert reader notices that this looks like a linear, quasi-analog mapping of one variable onto another. And, since -- as you will learn from experience, if you didn’t already learn in school -- very, very few things in the real world are linear, you should be deeply suspicious of this graph.The first change that's needed stems from the recognition that real-world organizations use a finite number of grades to assess their employees, so a more realistic graph resembles the transfer function of an analog-to-digital converter . . . .For purposes of illustrating this quantization effect on the Y-axis, we’ll use the grading scheme of a large defense contractor we once worked for . . . .What else looks unusual about the grade vs. performance graph just shown? Those transitions between grades look too perfect, and since the real world is far from perfect, we need to add uncertainty/noise/jitter to the transition steps as shown . . . .Does this now represent a "real world performance review"? Not even close. This is due to three sad truths:Most managers in the corporate world aren’t skilled enough to accurately assess an individual’s performance, let alone do so for large numbers of their subordinates.It is not cost-effective to the organization to put that much effort into doing so even if managers had the skill. Statistical evaluation of large groups works just as well while consuming less time & money from management's overhead. “But that's not fair. I should be treated like an individual!” Wake up and smell the cappuccino: we are all binned into categories within categories based on various criteria, some of which seem important and some of which seem superficial. "Profiling" and "stereotyping" may be verbally demonized in academia & mass media, but the existence of Google, Facebook, and a $90B/year advertising industry is all predicated on their use, because they work (not so much in predicting the behavior of specific individuals, but in predicting the behavior of large groups). You lie somewhere on a myriad of statistical distributions. The people who manipulate us know this and use it.Performance reviews are about minimizing salary increases, not improving the employee (that's the employee's responsibility).Management’s first job in any performance review process is to bin employees into one of two coarse categories:The Rid Themselves Of employees will all get the I (failing) grade. They are being encouraged to remove themselves from the payroll without the company having to fire them or lay them off, both of which carry risks of legal action (wrongful termination lawsuits), bad press, and harm to the morale of remaining employees. “This (low grade on your performance review) is a warning shot across your bow. Get lost. Leave this company (to protect your dignity or employment record), or find a new job within it (working for managers who are more forgiving), before we have to show you the door.”The situation is more complicated for the Retain employee. Here, the company seeks to assign the optimum F/E/M (passing) grade that will encourage this employee toavoid looking for employment elsewhereyet (also) accept the smallest possible salary increasewhile (possibly) also avoid seeking promotions (another kind of salary increase)Here are some of the input variables that factor into which F/E/M performance grade will be assigned to each of the Retain employees:The employee’s Actual Performance (however imperfectly management measures that). i.e., what we naively thought the performance review was ALL aboutHow much industry Demand there is for this employee’s skills.How much Potential this employee appears to have. Generally only applies to those with less than 5 to 10 years of work experience. After that incubation period, most managers (correctly) believe that you've settled into the 'final product' of who you were going to become. Not that you can't learn anything new, but that such growth will be small and very non-revolutionary: Your fundamental personality, intelligence, ambition, capacity to work quickly and accurately, ability to sweep away the trivial and focus on the crucial, etc., etc., are very unlikely to change. i.e., A 29-year-old Wally Cox is never going to become a 31-year-old Steve Jobs. Not in the space of two years. Not if he lives to 100.Age. Older employees are perceived as being less train-able, less adapt-able, more set in their ways.Where this employee appears to sit on the Confidence Spectrum (1 = riddled with self-doubt, 10 = arrogance).Are there signs that this employee has Dropped Anchor In This Company? The longer you’ve been with your current employer, the more your Sell-Yourself-In-An-Interview muscles have atrophied, and the less confident you will be that you can jump ship to a new company. Most worker bees have no awareness of this phenomena until they're too old to do anything about it. This is why it's important to move to a new company every 4-7 years, even if you're "happy" at your current company.Are there signs that this employee has Dropped Anchor In The Local Community? How locked into the local job market is he? The more self-restricted your employment options are (“I will not / cannot move outside a ___ mile radius from my current residence”), the more your current employer has you over a barrel. . . . . Mortgages? . . . . Spouse? Ex-spouses pulling alimony from your monthly nut? . . . . Kids? Number? Ages? Private ($$$) or Public K-12 or university? Any remotely billeted (with ex-spouses), that must be visited/hosted periodically? . . . . Expensive Hobbies? i.e., boats, mistresses, gambling . . . . Endemic Hobbies? i.e., surfers don’t leave Southern California . . . . Do parents and/or siblings (employee's or spouse's) reside locally? i.e., emotional ties, support network, etc., . . . . Did employee go to college locally? i.e., deep friendships, homecoming/nostalgia, miscellaneous hand-jods for local alumni (I once knew two middle-aged, male, sports-fanatic UCLA graduates who would sooner give away their first-born children than to relinquish their volunteer jobs of holding & moving the yard-markers at home football games), etc.,This Dropped Anchor In The Local Community bullet might sound like I'm making the case for remaining single (fewer anchors). While that might be useful for getting higher raises, being single might also make you more vulnerable to layoffs. Why? Single adults going hungry due to being laid off is a sad story. But tales of families going hungry because dad got laid off can destroy the brand of the company and faith in Capitalism in general. i.e., All other things being equal, the single guy might get better raises, but the married guy is more immune to downsizing (companies know that kids are future consumers, future voters, future soldiers to protect the nation, future employment-seekers who help keep labor costs low, etc., etc.,).These factors make the assignment of passing (F/E/M) grades to the Retain employees a highly non-linear exercise that appears to be random with respect to actual performance:i.e., You can be average at your job, but if your skills are in short supply in the employment market, you can get an excellent rating. You can be outstanding at your job, but if your company knows you've got lots of local anchors, you can get a mediocre rating.We can already hear the young reader thinking “Holy crap! This is horribly unjust. What’s the point of working hard if we’re just Pavlovian dogs in a corporate parlor game?” Fear not.Good news #1. Armed with this information, you can take steps to keep the company from knowing more about you than is strategically in your best interest:Avoid water cooler conversation. Or at least consciously steer it clear of your anchors. Keep it on company news or outside-world news / sports / entertainment.Be as vague as possible if/when you are asked explicitly what you do with your non-work time (evenings, weekends, vacation time, sick leave, etc.,). Don't tell anyone anything that could give them clues about your anchors. This may seem standoffish & unfriendly, but personal information is potential ammunition that management can use to your disadvantage.When filling out company paperwork, write Proprietary or NTKB (need to know basis) on any fields that ask for data that you don’t want to give out. If corporations and governments can have secret information, then why can’t you?Good news #2. If you work in a large company, the sample size of your peers can be so large that it’s unavoidable that you will get a good qualitative sense of what the true talent distribution looks like, and where you fall on it. There’s no place to hide (nor should there be).Good news #3. You don’t need anyone’s words (written or verbal) to get useful feedback. The best gauge of your talent is other people’s actions:How in demand you are for new projects.How often people seek out your help (even when you’re not officially assigned to their current team).How often you get invited to design reviews, peer reviews, tiger-team meetings, etc.,How often you get invited to lunch. If you suck at your job, nobody wants to spend their precious free time with you -- even if you're a social butterfly with the wit of Noel Coward -- because they will be afraid of being thought to suck (guilt-by-association).Before future performance reviews, consider handing your managers a document that spells out your expectations, and tell them that you prefer NOT to be told what your “performance grade” is unless they can supply the specific data you need to really improve. An example follows.If this company wants me to take their Performance Review seriously, here are the 3 things I expect to receive in addition to my “grade”:1. The histogram of what the distribution of grades is in our group, department, section, center, division, and the company as a whole. Context matters.2. A list of names of the people in our immediate group/department/section who are getting F and E grades. How are we supposed to improve if management doesn’t show us what the Gold Standards are?3. An itemized list of detailed characteristics that management looks for in an employee (fitting my job description/category/type), and my grade for each:You do NOT need to be confrontational toward your management. You just want to communicate to them that you are prepared and will not be fooled by the Hidden Goals Of Their Existing Performance Review Scheme.