Can 360 degree feedback be used to replace traditional performance appraisal systems?
Almost all of the reputable references on the use of 360 degree feedback caution against its use as a replacement for traditonal performance appraisal schemes. Despite these cautions, companies still do this kind of replacement, and use 360 feedback as a basis for making personnel decisions -- hiring, retention, merit pay and so forth. It's a bad idea.
First, 360 degree feedback requires a culture of trust and cooperation if it is to have a hope of working. When mutli-rater feedback replaces the use of traditional performance appraisals as a basis for decision-making, it moves the focus from improving performance, to "winning the performance game". it skews the results because there is a lot on the line -- even an employee's future with a firm.
Second, it is management's responsibility to provide feedback and information to employees about their performance, particularly if that information is to be used for personnel decisions. This responsibility cannot be delegated or abrogated without risk. Some of that risk can be related to legal issues that exist ONLY if the 360 degree feedback is used in place of a traditional performance management approach.
In the event that an employee alleges that his or her employment was terminated or otherwise negatively affected by the results of a 360 degree feedback, and that feedback was tendered within an anonymous system, the company cannot possibly defend against those actions, even if they know where the feedback in question originated. This is because the company also has an obligation to protect promises of anonymity from feedback providers.
Further, courts may not accept that an attempt to delegate or abrogate responsibility regarding the data used to make personnel decisions, is legitimate.