Are they worried about hurting this guy's feelings? This isn't a daycare. Are you worried about this guy leaving for another company and taking valuable information with him? He's not going anywhere, no one else would hire him with skills that old.
If you have a company that mature without either annual reviews or management that feels that they should manage, your company has a dire problem and you should get out of there. The way you phrase this makes it sound like it's actually a government position, and sadly that is more par for the course. Now you know why people don't like paying their taxes.