How can 360 peer performance reviews ever work? The incentives are against a fair evaluation: the reviewers have the incentive to overly criticize others so that they can stand out more.

I'm not saying that everyone on a 360 review process does that. But the incentive is there and it's working against fair reviews.

>The incentives are against a fair evaluation: the reviewers have the incentive to overly criticize others so that they can stand out more.

Wouldn't that(how you view and fit in with your team) be part of your review? If I was Bob's manager and all reviews he gave of his teammates were "Teammate M is a dumbass and the only reason they are productive is because I do 80% of their job for them", wouldn't leave me thinking Bob is great. It would leave me thinking Bob is a jerk who doesn't work well with others.

If performance is not tied to pay, why would you have an incentive to do that?

If anything the incentive is problematic in the other direction. People tend to be nice because they don't want to say mean things that they know the manager will see.