Do performance reviews improve productivity

At many firms its annual performance review season. I was curious on if folks believe performance reviews result in improved performance for companies. Most firms appear to have an “exceptional” rating that few or no individuals get, a few middle ratings most individuals get, and then a “low” rating indicating it’s time to start looking for a new job. I can see value in a formal review process for promotions, but I am starting to question why firms do annual reviews.

I had to help talk some peers off the ledge. They received middle review ratings, and were disappointed they weren’t rated higher and with the harsh wording of feedback that is now part of their permanent record. These folks provide value and don’t seem at risk of being terminated. Ostensibly, all their reviews did was make them less happy. Folks who aren’t cutting it will be put on PIP plans anyway. Folks who are exceptional are already being considered for promotion. What are we doing here?