Performance review is a very powerful tool and should be used in all companies for all employees. It gives the manager an idea about the way the employee is seing his/her job and him as a manager and the employee an idea about how he/she is performing. Performance review is a powerful motivation tool also.
From the employee's perspective the following actions take place:
1. He receives some objectives/tasks to follow during a certain period of time - most often a year. This is important because the employee has a clear view of his job. He knows what is expected of him and focuses his actions around these objectives. Meeting the objectives and even exceeding them can end up in a salary increase or bonus.
2. He has the opportunity to evaluate himself responsibly. Most of the times, the review starts with a self assessment. The employee is asked to send the manager a self evaluation explaining his point of view upon the completion of the objectives.
3. He has the possibility to receive feedback and improve his performance.
4. He has the possibility to ask for advice and to tell the manager about his ideas and maybe request training for some areas where he needs or wants improvement.
From the manager's perspective the following actions take place:
1. He gets the possibility to check how the employee sees his own activity and see how responsible he is when he prepares his self evaluation.
2. He has the possibility to get the employees feedback upon his activity as a manager and upon the team's performance.
3. He has the possibility to receive new ideas about how the team should deal with issues in order to improve performance.
Now, just a few words about the 360 degrees review. You may have heard about it and you're wondering what this is. Well, it's one of the most effective ways of review. It's called 360 degree because both employee and manager are reviewed from all angles. The employee does self review, reviews his manager while the manager does self review and reviews the employee. This is the most detailed and useful way of receiving feedback from all parties involved. Sometimes an addition to this method is done: asking the members of the team to evaluate themselves, each other and the manager while the manager reviews himself, the team as a whole and each member of the team.
This may sound complicated - actually there are a lot of questionnaires and forms involved, but it's useful since they all get to receive and offer feedback.