In performance appraisals, what is a risk of using average evaluations?

Using average evaluations in performance appraisals carries the risk of overlooking outstanding employees. This occurs because a system that focuses solely on averages tends to group all employees around a common mean, which can suppress the recognition of those who consistently exceed expectations. As a result, exceptional performances may not be highlighted or rewarded as they deserve, leading to demotivation among high achievers. When outstanding contributions are not acknowledged, it can impact retention and morale, as these employees may feel undervalued or disengaged. This undermines the goal of performance appraisals, which is to motivate and enhance overall effectiveness within the organization.