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Performance reviews are a great tool when used correctly. In theory, performance reviews measure levels of performance in certain areas the company deems appropriate for their company and/or position in the company. When a person doesn't meet certain goals or performance levels trying to achieve these goals he/she is then denied the reward (if any) had they been performing at higher levels. Performance reviews are always a good tool for both the employee and the employer. Employers should really consider using them to improve performance levels across the organization. Employees should use them to evaluate whether or not they are doing well in their current position. The review will highlight areas where you need to improve and where you stand currently. Knowing this is important to maintain levels of performance in your job function. How can you be sure you are performing to your standards and the standards set by your company? Answer: you can't unless you understand what areas of performance your company measures. With performance reviews, the employee knows where they stand and can make adjustments to improve or move on. The same goes for the company. Let's evaluate this in an analogy: Machines.
When NASA launches a rocket they collect all sorts of data from the engine to the environment surrounding the rocket itself. This data is then examined and used to make adjustments to the rocket to increase its performance on the next launch. Like any machine a rocket can be tweeked in order to get maximum performance. In order to accomplish its mission, NASA knows the rocket must meet or exceed certain performance levels in various categories. Once the rocket has been altered it is put to the test again, measured, then tweeked. Measure, tweek, measure. One could do the same thing for people in order to enhance their performance. As people are your most valuable asset in an organization you want them functioning to spec or beyond. You accomplish this by setting your metrics, your rewards/incentives and taking measurements and making adjustments.
Like NASA, companies also have missions. Most of the time performance metrics are based on the mission. If not, the company risks measuring the wrong metric and effectively losing sight of the performance it needs to accomplish its mission. It's in both parties best interest to know what performance metrics are measured and what reward (if any) will be given if the employee meets the performance levels. With proper metrics and realistic goals an organization can get the best performance. Like the rocket people need to be tweeked sometimes.