Fair pay is under the spotlight like never before. With new pay transparency rules rolling out across Europe, HR teams are being asked tough questions: Are our processes really fair? Do employees trust how we make decisions about pay?
Performance reviews sit at the heart of this. For years, most companies have relied on the traditional, manager-led model — one person assessing performance, and often, pay. But this approach can feel narrow. A manager may only see part of the picture, and their perspective inevitably carries a lot of weight.
Enter the 360° review. By gathering feedback from peers, direct reports, and a range of other collaborators, it promises a more rounded view of performance. And when you tie performance to pay, doesn’t it make sense that you’d end up with a fairer, more transparent culture?
The answer is: it depends. This guide covers both sides of the argument in more detail.
What are 360° reviews?
A 360° review, sometimes called multi-rater feedback, is a performance evaluation method that gathers input from several people an employee works with day-to-day. Instead of relying solely on a line manager’s perspective, feedback might come from:
- Peers who collaborate on projects
- Direct reports who see leadership skills in action
- Managers who oversee overall performance
- Business partners or even customers in some cases
As you’ll immediately see, this approach is wildly different from traditional performance reviews, which are almost always manager-led. In those settings, one person’s view can carry disproportionate weight — whether or not it reflects the full picture of an employee’s contribution.
It’s worth noting that 360° feedback was originally designed for development purposes, not as a pay-setting tool. The idea was to help employees better understand their strengths and blind spots. Yet, many organisations have adapted the model to determine salary increases, too.
Example: Imagine Amira, a senior product manager preparing for her annual review. Instead of relying only on her direct manager’s assessment, Amira nominates:
- Two peers from engineering and design, who collaborate closely with her on product launches
- One direct report from her product team, who can speak to her coaching style
- A manager from marketing, who regularly partners with her on go-to-market campaigns
Together, this creates a rounded perspective on Amira’s impact across the organisation.
360° reviews vs. traditional manager-led reviews
While 360° reviews promise a more rounded view of performance, they’re not without controversy. Some HR teams see them as a step towards equity, while others worry they create just as many challenges as they solve. It’s always worth weighing up both the advantages and the drawbacks before deciding how (or whether) to fold them into your compensation decisions.
The case for 360° reviews
Advocates argue that 360° reviews can deliver a more complete and transparent view of performance, which could in turn support fairer pay decisions. And it seems organisations are paying attention: the global market for 360° feedback software was worth $1.11 billion in 2024, with analysts predicting it will more than double by 2032. Clearly, multi-rater feedback is no passing trend, for some of the following compelling reasons.
Pro 1: More holistic insights
Traditional reviews rely on a manager’s perspective. Useful? Absolutely — but also limited. When pay is based solely on a manager’s line of sight, important contributions can be missed. Multi-rater feedback reduces that risk by capturing work across teams and contexts, giving compensation decisions a broader base.
Pro 2: Enhanced transparency and trust
Satisfaction about pay often comes down to how fair the process feels. A study by Karkoulian, Assaker and Hallak found that employees in organisations using 360° feedback were more likely to see evaluation processes as fair — both in terms of procedural fairness (how decisions are made) and interactional fairness (how feedback is shared).
This boils down to the idea that when multiple voices contribute, employees are less likely to assume bias or favouritism. Even if the ultimate pay decision sits with a single person, the process itself feels more balanced and credible.
Pro 3: Well-rounded feedback culture
360° reviews can help make feedback more routine. When input comes from different directions, it’s harder for feedback to feel like a once-a-year event.
Gallup research shows that 80% of employees who received meaningful feedback in the past week are fully engaged. Frequent, constructive input keeps expectations clear and development on track — which, over time, makes progression and pay decisions feel less arbitrary.
The drawbacks of 360° reviews
Only two in five companies use both upward and downward evaluation in performance reviews today. That in itself shows how challenging multi-rater systems can be to run. And while 360° reviews have their advocates, experts warn against tying them too closely to pay. Here’s why.
Drawback 1: Increased risk of bias
More voices don’t automatically mean more objectivity. Peers can be overly generous, overly critical, or let personal relationships guide their scores. In some cases, 360° reviews risk becoming popularity contests. Academic reviews also flag concerns about validity and rater bias, which makes it risky to link the results directly to compensation.
Drawback 2: Inconsistent feedback
Feedback quality can also vary. Some reviewers will write detailed, thoughtful input; others might give a quick “meets expectations.” Different people also interpret criteria in different ways. Without careful calibration, these inconsistencies make it difficult to compare results across teams.
Example: Imagine two employees in the same role, with the same responsibilities. One is reviewed by peers who are generous with praise, the other by peers who are stricter with ratings. Both contribute at the same level, but their reviews look very different. If those results are tied to compensation, one ends up with a higher raise than the other, not because of performance, but because of who reviewed them.
Drawback 3: Resource-intensive process
Running a 360° process is nothing short of a workout. Collecting feedback, analysing comments, and training reviewers all take time and energy. For lean HR teams especially, it’s a heavy lift.
The risk is that all that effort doesn’t actually improve pay outcomes. If the process isn’t backed by evidence and an effective framework, the extra data adds noise rather than clarity. HR spends weeks chasing feedback, but employees still question whether pay decisions are fair.
360° reviews: benefits vs. challenges at a glance
Pro tip: If you do use 360° reviews, treat them as context for pay discussions — not the final word.
Do 360° reviews actually lead to fairer pay?
On their own? No. 360° reviews can bring in different perspectives and make the process feel more transparent, but they don’t automatically translate into fair pay. Sadly, bias can and does get in the way, which is why many experts advise against tying 360° results directly to compensation.
But that’s not to say the 360 approach is meritless. Gathering feedback from a rich range of sources provides useful context — at its core, that’s what a performance review should be about. So, when combined with structured salary bands, a clear compensation philosophy and proper calibration, 360° reviews can support managers to make decisions that are easier to explain and defend.
While they’re not the answer to pay fairness, 360° reviews can play a supporting role when the right systems are in place. At Figures, we help companies put those systems in place. Book a demo to see how.
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