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Why are more frequent performance reviews better in the following situation? Why does frequent feedback and recognition have a more powerful impact on long-term performance than a review once a year accompanied by a merit pay increase.

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In general, more frequent feedback is more effective in all cases in which you are trying to affect a person's behavior.  This is because more frequent feedback is more immediate and therefore more meaningful.

If you are trying to get a person to perform better, you will want to let them know how they are doing quite often.  This is good because it will give them feedback very soon after their actions.  It is also good because it allows them to try to make changes and then get feedback on those changes relatively quickly.

By contrast, if you only review someone once a year, the connection between performance and reward will not be immediate and will therefore be less meaningful--it's less meaningful to say "remember what you did 6 months ago" than to say "let's look at what you did last week."  The person will also not get any feedback on any changes they make in their performance for another year.  Therefore, the longer time between reviews will be less effective.

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