Performance appraisals are among the most widely implemented and least effective HR tools in Indian business management. In 2022, despite increased awareness of their limitations, most organisations continue to conduct annual appraisals that produce ratings that managers do not trust, feedback that employees find unhelpful and decisions that are not clearly connected to performance data. Understanding why appraisals fail - and how to redesign them - is one of the highest-leverage performance management investments a growing business can make.

The Five Reasons Performance Appraisals Fail in India in 2022

1. Recency bias

Annual appraisals assess 12 months of performance from memory - and human memory is heavily weighted towards recent events. An employee who had an excellent first half of the year but a difficult Q3 will be rated primarily on Q3. An employee who performed poorly for nine months but had a strong Q4 will be over-rated. Without documented monthly performance data, the annual rating is largely a reflection of the last two months, not the full year.

2. Absence of defined KPIs

The most fundamental appraisal failure is conducting a performance review without a predefined, agreed measurement framework. When KPIs have not been set at the beginning of the year, the year-end discussion is inevitably subjective. The manager and the employee may have entirely different views of what constituted success in the role - and both can be simultaneously right.

3. The comfort avoidance pattern

Most managers in Indian SMEs rate employees higher than deserved to avoid difficult conversations. The result is a performance distribution where 70 to 80 percent of employees are rated above average - a statistical impossibility. This rating inflation destroys the credibility of the entire system, because employees know the ratings are not accurate.

4. No connection to decisions

In many organisations, appraisal ratings are completed but not used in increment or promotion decisions in any structured way. Increment percentages are set by salary budget, not by performance differentiation. Promotions are based on tenure and relationships, not on sustained KPI performance. When employees discover this disconnect - usually within two review cycles - they stop investing in the appraisal process.

5. Conducted under time pressure

Annual appraisals are typically scheduled in a two-week window. Managers conducting 8 to 12 reviews simultaneously give each employee less attention than the employee expects and less rigour than the process requires. The rushed review is worse than no review - it signals to the employee that their performance does not merit the organisation's time.

  Research from Gallup in 2022 found that only 14 percent of employees strongly agreed that their performance reviews inspired them to improve. 26 percent said their annual review was not accurate. (Source: Gallup, 2022)

How to Fix Performance Appraisals in 2022

The fixes are not complicated. They are disciplined. Define KPIs before the year begins. Document monthly check-in conversations. Train managers on calibration and rating discipline. Connect appraisal outcomes to increment decisions explicitly. And move the most important performance conversations from the annual review to the monthly check-in cycle - so that by the time the annual review arrives, neither the manager nor the employee has any surprises.

"A performance appraisal should be a summary of conversations that have already happened throughout the year, not the first time performance is discussed. In 2022, that distinction is the difference between a useful management tool and an annual compliance exercise."

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