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Kill Annual Review

Let's face reality: yearly reviews should be extinct. Top performers hate them, and most managers are terrible at delivering them. In business management, annual performance appraisals are standard practice for evaluating employee performance, setting goals, and making decisions about promotions, pay raises, and terminations. However, beneath their seemingly systematic structure lies a cognitive bias that often skews the evaluation process: the Peak End rule. This psychological phenomenon, first proposed by psychologists Daniel Kahneman and Barbara Fredrickson, suggests that people judge an experience primarily based on how they felt at its peak (the most intense point) and its end rather than the total sum or average of every moment. When applied to annual performance reviews, the Peak End rule introduces significant distortions that can undermine the fairness and accuracy of evaluations, leading to adverse consequences for both employees and organizations.

At first glance, the concept of the Peak End rule may seem innocuous, even intuitive. After all, it is natural for humans to remember extreme moments and the conclusion of an event more vividly than the entire duration of the experience. However, when transposed into the context of performance appraisals, this bias can yield problematic outcomes.

Consider an employee who has performed consistently well throughout the year but encounters a significant setback or conflict during the final weeks leading up to the appraisal. According to the Peak End rule, the negative emotions associated with this culmination may disproportionately influence the manager's...

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