Are employee ratings useful in improving individual employee performance?
A major flaw with employee rating systems used as the main part of the annual review has to do with the limited information they give to employees to help them improve their performance. So, unfortunately, rating systems, while they often anger employees, don't give enough specific feedback during annual reviews, to help the employee become a better employee.
Research in learning and behavior change tells us that for a person to change their behavior (or become more effective), they need specific information, or feedback about a) what they need to stop doing and b) what they need to start doing. In other words they need to know, in very specific terms, what they might be doing that is ineffective, and what alternative behaviors they can use instead.
Rating systems almost never result in the employee getting that information. The information is simply not precise or exact enough. The result is rating systems don't help employees improve, on their own.
So, if you have to use a rating system that doesn't reference specific behaviors, you can still help employees improve by adding some. Don't rely on the ratings themselves, but use them to start a conversation about what the employee might consider changing in order to be more effective. This alters the tone of the annual review from something like a kindergarden report card to something that contains enough specific information to help the employee improve.