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If you work for a large company, you know that the dumbest and least productive thing you do all year, and the thing most susceptable to skeezy favoritism, is your annual performance review. Favoritism can arise from friendship, sexual relations, ethnic/racial affinity... in my 20-plus years I've seen it all (and never benefitted from it).
A few favored employees getting boosted up unfairly is not the whole problem. Senior management pressures your boss to avoid giving too many favorable reviews. This is because good reviews mean a better raise than the negligible one everybody is getting, the one that doesn't even keep up with inflation. So no matter how you performed, there is downward pressure on your evaluation going in.
Between the evaluator's pet getting top reviews every year, and the general pressure to limit the number of positive reviews, most of us get squeezed from both ends into an average-at-best performance review every year. It actually discourages extra effort because you know it's not going to help you.
Smart companies need to find fair ways to keep people motivated. There's an interesting article here about Microsoft that illustrates how to be an incredibly stupid company:
http://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer
They kept all the standard defects of corporate employee evaluations, and added special features that set the employees at each other's throats. Their system is not just unnecessary, not just unproductive, it actually set MS on the road to ruin.
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Ive never seen a company structure that wasn't the same in every case. Clueless or ruthless CEO. Over paid management that truly lack intelligence or any workable skills. Employee's that do as little work as possible, push their work onto others, spend most of the day on personal projects and a$$ kiss the boss. Usually get the raises, then dumps the company for a better job. Finally the employees whom not only know what they are doing, work their butts off, keep the business going and are loyal to the employer. Their knowledgeable advice and experience are always ignored and get paid the least.
I must say, I recognize a lot of that in my own workplace.
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Thanks for pointing this out, Zap.
Like too many things in our society, people just accept what it is and never THINK about what it really is/does or how to do it better.
What's that story about the gorilla, the bananas and "we've always done it this way"? Applies here.
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from: http://www.npr.org/2014/10/28/358636126/behold-the-entrenched-and-reviled-annual-review
"They're fraudulent, bogus and dishonest," says Samuel Culbert, a management professor at UCLA who does research in dysfunctional management practice. "And second, they're indicative of and they support bad management."
Several years ago, Culbert offered his unvarnished views about performance reviews on the pages of The Wall Street Journal and wrote a book on the subject. He blasted them as one-sided forms of employee intimidation and said they breed defensiveness and tension. His piece became a sensation. Thousands of letters poured in."
Here's the link to the WSJ article: http://online.wsj.com/articles/SB122426318874844933
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... no thanks, retirement is fine. 
I cannot WAIT to join you, Gone!
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