What principles underlie the practice of 360 degree feedback?
360 degree feedback is based on the idea that in order for people to improve performance on any task, it's necessary for them to receive feedback (information) about what they are doing right, what they are doing wrong, and what they need to change to do better. In other words, in theory 360 degree feedback is based on sound psychological practice and research about what people need to get better at something.
The psychological research is indeed sound. Feedback (again, information about performance) is an essential part of learning.
The idea behind 360 degree feedback is that if you have feedback that comes from various sources and perspectives, the employee is more likely to get valuable information about how to improve.
However, while that's the theory behind it, it's more complicated than that. We know, again from the psychological research, that feedback on performance will only help improve performance if it has certain characteristics associated with it. It must be specific, for example, and have clear implications for the learner about how to change behavior. It must occur in a timely fashion (ie. as soon as possible after the behavior as possible. It must come from a source (ie. a person) who the learner respects and is willing to listen to.
So, "any old feedback" doesn't work. "Feedback" that doesn't have the characteristics of good feedback is as likely to anger the learner, or result in worse performance as it is to improve performance.
Unfortunately, when we leave the realm of theory, and look at 360 degree practice, we find that the huge majority of 360 degree feedback systems in use simply don't supply "good feedback" that can be used to improve performance.
These systems have very low "informational value" because they often rely on rating systems that do not provide quality information to the receiver, so he or she can improve. It is true however, that seeing oneself as others see us can provide a motivational "boot in the rear end" to improve.