An organization’s goals can be achieved only when people put in their level best. To ascertain whether an employee has shown his or her best performance in the given job, performance appraisal is done by organi­zations.

Employee appraisal is done by the human resource manage­ment of the organization.

According to Gary Dessler, “Performance appraisal is the process of evaluating an employee’s current and/or past performance relative to his or her performance standards”.

Mathis and Jackson have said that performance appraisal is the process of evaluating how well employees perform their jobs when compared to a set of standards, and then, communicate that information to those employees.


The importance of performance appraisal can be studied under the following heads:-

1. Improvement in Performance 2. Development of the Employees 3. Improves Motivation 4. Helps in Human Resource Planning 5. Helps in Recruitment and Selection

6. Helps in Deciding Training and Development Need 7. Helps in Placement Decision 8. Helps in Growth and Development of Employees.  9. Helps in Career Planning and Development 10. Helps in Personality Development of Employees

11. Forms Basis for Compensation 12. Decision on Promotions, Transfers and Job Rotation 13. Improves Working Relationships 14. Improvement in Working Environment 15. Helps to Develop Confidence.

Importance of Performance Appraisal

Importance of Performance Appraisal

An organization’s goals can be achieved only when people put in their level best. To ascertain whether an employee has shown his or her best performance in the given job, performance appraisal is done by organi­zations. Employee appraisal is done by the human resource manage­ment of the organization.


According to Gary Dessler, “Performance appraisal is the process of evaluating an employee’s current and/or past performance relative to his or her performance standards”. Mathis and Jackson have said that performance appraisal is the process of evaluating how well employees perform their jobs when compared to a set of standards, and then, communicate that information to those employees.

Appraisal helps to appraises in better management and it represents worthwhile investment of their time. While analyzing the purpose of Performance Appraisal, Patricia King opines, “PA involves the employee, the manager, and supervisor and the larger organizational unit. Each one has objectives and hopes for what PA will accomplish.” King has empha­sized the role of PA in corporate strategic planning. In the hands of manager, PA is a powerful mechanism for management control.

Employ­ees will get satisfied if their security and recognition needs are met through PA. PA makes it possible to know and analyze the expectation of the organization from the employee. Philip Moon viewed that PA is benefi­cial for all the three – appraise, appraiser and the organization. Appraise receives feedback, gets an opportunity to discuss career prospects and promotion. He is also able to identify training needs and gets clarification about objectives.


Appraiser is able to enhance his effectiveness- through forward planning, tackling contentious issues, makes more effective use of team members and reduce staff turnover. Finally, organization perfor­mance is improved through, commitment by staff, development of orga­nizations training programme, manpower and succession planning and test of selection process.

Importance of Performance Appraisal:

i. It is a sound basis for promotion, demotion transfer or transmis­sion of employees.

ii. Better persons are selected for promotions, it helps management in avoiding snap judgments about personnel and instead helps in taking sound personnel decisions.


iii. It helps in distinguishing between efficient and inefficient em­ployees.

iv. It reveals defects in the selection procedure.

v. Performance rating helps in guiding the employees. They come to know where they stand and consequently they try to improve their performance.’

vi. Performance appraisal helps superior to evaluate the performance and know the potentials of their subordinates systematically.


vii. It also helps them to assign work to individuals for which they are best suited.

viii.It facilitates the correct placement of workers.

Importance of Performance Appraisal

Performance appraisal has become a very significant activity in most of tile enterprises. It provides data about past, present and expected performance of the employees which is helpful in taking decisions on selection, training and development, increase in pay, promotion, transfers and the like. These days a large amount of money is spent on performance appraisal by most organisations.

The importance of performance appraisal are as follows:


(i) It helps the supervisor to evaluate the performance of his employees systematically and periodically. It also helps him to assign that work to individuals for which they are best suited.

(ii) Rating helps in guiding and correction of employees. The supervisor may use the results of rating for the purpose of constructively guiding the employees in the efficient performance of work.

(iii) The ability of the staff is recognised and can be adequately rewarded by giving them special increments.

(iv) Performance appraisal can be used as a basis of sound personnel policy in relation to transfer and promotion. If the performance of an employee is better than others, he can be recommended for promotion, but if a person is not doing well on a job, he may be transferred to some other job.


(v) Ratings can also be used to evaluate the training programmes. Weaknesses of employees are revealed by merit rating and the training programmes can be modified accordingly.

(vi) Performance appraisal provides an incentive to the employees to better their performance in a bid to improve their rating over others.

(vii) Systematic performance appraisal will prevent grievances and develop a confidence amongst the employees because they are convinced of the impartial basis of evaluation. The records of merit rating are available in permanent form to protect the management against subsequent charges of discrimination which might be filed by the trade union leaders.

Importance of Performance Appraisal – (With Reasons)

Performance appraisal serves as a motivation tool. Through evaluating performance of employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a person for better job and helps him to improve his performance in the future.

It encourages people on job to take responsibility for their performance and growth. They do not put the blame on their stagnation on anyone else.

A fair performance appraisal gives immense satisfaction to all employees. They respect it and accept all the outcomes of it.


Performance appraisal is important for the following reasons:

1. It guides them decide rewards, promotions etc.

2. It enables them to identify high performance and not so high performers. They then can initiate programs for low performers.

3. Performance Appraisal helps the supervisors to chalk out the promotion programmes for efficient employees. In this regards, inefficient workers can be dismissed or demoted

4. Compensation – Performance Appraisal helps in chalking out compensation packages for employees.

5. Merit rating is possible through performance appraisal. Performance Appraisal tries to give worth to a performance

6. The systematic procedure of performance appraisal helps the supervisors to frame training policies and programmes. It helps to analyze strengths and weaknesses of employees so that new jobs can be designed for efficient employees.


7. It also helps in framing future development programmes.

8. Performance Appraisal helps the supervisors to understand the validity and importance of the selection procedure.

9. It provides management with first hand data about employee performance. This helps them in effective decision making.

10. Provides a base for general promotional and other policies.

11. For an organization, effective communication between employees and employers is very important.

Through performance appraisal, communication can be sought for in the following ways:


i. Through performance appraisal, the employers can understand and accept skills of subordinates.

ii. The subordinates can also understand and create a trust and confidence in superiors.

iii. It also helps in maintaining cordial and congenial labour management relationship.

iv. It develops the spirit of work and boosts the morale of employees.

Importance of Performance Appraisal

Following are the importance of performance appraisal:

1. Improvement in Performance:

Performance appraisal leads to the improvement in utilisation of employees’ skills by identifying their strengths and setting goals and targets accordingly. During the process of performance appraisal, constructive feedback is given to the employees which helps them to improve their performance. The organisations also provide the employees the necessary support after the discussions during the performance appraisal interview. Therefore, the employees’ performance is enhanced through performance appraisal.

2. Development of the Employees:


Appraisal determines the employees’ need for training as the performance appraisal system identifies areas where they need to improve their performance. It encourages supervisors to observe subordinates’ behaviour and help them change through feedback and counselling.

3. Improves Motivation:

When the employees are given constructive feedback about their performance, it encourages initiative, develops a sense of responsibility and motivates them to perform better. Employees also get encouraged to give their best when they are apprised of their growth opportunities and know that there is a scope for advancement in the organisation.

4. Helps in Human Resource Planning and Career Planning:

Performance appraisal provides valuable information for preparing skills inventory because through this process, the strengths and weaknesses of the employees along with their skills, abilities and aptitude are identified. Human resource planning becomes easier because skills available in the organisation are documented. It is then possible to match the job requirements with employee’s aspirations thereby, optimising skill utilisation in the company.

5. Forms Basis for Compensation:

Performance appraisal indicates how the employee has performed on the job. In a majority of companies, increments are linked with performance. Therefore, performance appraisal becomes a basis for providing increments, special bonuses and rewards to the employees.

6. Decision on Promotions, Transfers and Job Rotation:

Through the process of appraisal, employees’ skills, abilities, aptitude and potential is identified. This data can be used for considering employees for transfer, promotions and job rotation.

7. Improves Working Relationships:

The process of performance appraisal fosters better working relationships between subordinates and supervisors because of increased communication. During the feedback session, supervisors and subordinates need to express themselves freely and objectively. This frank and open communication leads to harmonious working relationships among supervisors and their subordinates.

8. Improvement in Working Environment:


When achievements are recognised and rewarded on the basis of the objective performance measures, there is improvement in the working environment.

9. Helps to Develop Confidence:

Systematic appraisal of performance helps to develop confidence among employees. It will prevent grievances, if the employees are convinced of the impartial basis of the evaluation.

Importance of Performance Appraisal

Performance appraisal is necessary due to its following importance:

1. Helps in human resource planning – Performance appraisal helps in planning human resource requirement of an organization both in terms of quality and quantity for a given period.

2. Helps in recruitment and selection – Need or necessity of additional staff depends upon the performance of present staff which in turn helps in recruitment and selection of employees.

3. Helps in deciding training and development need – Performance appraisal helps in analysing good and poor performance of employees. It also helps in deciding employees’ potential for development and thus helps to decide training and development need of employees.

4. Helps in placement decision – Promotion, transfer or demotion is usually based on past performance. Therefore, appraisal of the past performance helps to solve the problem of promotion, demotion or transfer of employees while making placement decision.

5. Helps in compensation decision – While deciding pay package of employees, appraisal of their performance is very much useful. Who should be paid more and who should be given extra benefit in the form of bonus or share in the profit and whose wages should be cut all depends on one’s performance.

6. Helps in growth and development of employees – As performance appraisal indicates strength and weaknesses of employees, they have every scope for development and improvement by undergoing training in the area in which they have shown poor performance and hope for better prospects.

7. Helps in career planning and development – Feedback on work performance helps employees to decide their career path and to develop confidence among them.

8. Helps in personality development of employees – Performance appraisal helps to improve knowledge, skill and attitude of employees. It also helps to improve communication skill and leadership abilities among employees.

Importance of Performance Appraisal – For Organizations

Performance Appraisal is an indispensable tool for organizations.

The importance of performance appraisal is that it enables the management to make effective decisions and/ or correct or modify their earlier decisions relating to the following issues of HRM:

1. Organizational planning based on potentialities of its human resources.

2. Human Resource planning based on weakness, strengths and potentialities of human resources.

3. Organizational effectiveness through performance improvement.

4. Fixation and revision of salary, allowance, incentives and benefits.

5. Original placement or placement adjustment decisions.

6. Identifying training and development needs and to evaluate effectiveness of training and development programmes.

7. Career planning and development and movement of employees.

8. Helps to maintain an inventory of the number and quality.

9. To maintain individual and group development by communicating the performance to the appraisee.

10. A regular appraisal constrains a superior to be alert and remain competent in his work i.e., it improves the quality of supervision by giving him an incentive to do thing to that he should be doing normally.

11. It makes for better employer-employee relations through mutual confidence, which comes as a result of frank discussions between the superior and subordinate.

12. It provides the ‘deadlock’ and research data for improving the overall personnel information system.

The another use of Performance Appraisal is that it helps to evaluate the existing plans. Information system, job analysis, internal and external environmental factors influencing employee performance like relations with supervisors, working conditions, personal problems of the worker like family, financial and health. This evaluation suggests and results in improvement in plans, information system, job analysis, creating the conducive work environment and controllable environmental variables.

According to Roland Benjamin, “A performance Appraisal determines who shall receive merit increases; counsels employees on their improvement; determines promotability; identifies those who should be transferred. Moreover, it improves employee job performance; encourages employees to express their views or to seek clarification on job duties; broadens their outlook, capacity and potential; promotes a more effective utilization of manpower and improves placement; facilitates selection, reward and promotion of the best qualified employee; prevents grievances and increases the analytical skills of employees.”

It will, thus be seen that performance appraisal is an important tool of Human Resource Management. It is a judgment of the characteristics, traits and performance of employees and has a wide range of utility. It unifies the appraisal procedure so that all employees are rated in the same manner, utilizing the same approach so that the ratings obtained of separate personnel are comparable.