The importance of performance appraisal are as follows:
1. Performance Enhancement: Performance appraisal helps organizations to enhance the performance of employees by work planning, skill recognition, and the development of capabilities.
2. Compensation Adjustment: Performance appraisal is generally linked to compensation. Efficient employees are rewarded for stimulating them for better performance.
On the other hand, ineffective employees are provided less pay due to poor performance.
3. Eliminating Informational Inaccuracies: Performance appraisal facilitates every employee and manager with a chance to exchange information, ideas, necessities, views, and expectations.
With the help of these activities, the misunderstanding between the manager and the employees can be easily eliminated.
It nurtures the relationship between the employees and the management aids in maintaining employees’ loyalty towards organizational goals and vision.
4. Taking Placement Decisions: Performance appraisal is a useful device that helps make important decisions related to employee placements like transfer, demotion, promotion, reassignment, relocation, etc.
Hence, it is considered the most efficient device for making decisions related to employee placements.
5. Career Planning and Development: Performance appraisal offers accurate information related to the performance and capabilities of present employees. This information helps in determining the career planning and development needs.
6. Identifying Deficiencies in Staffing Process: Performance appraisal helps in evaluating the correctness of hiring decisions because it plays a major role in recognizing an employee’s recent performance and capabilities for future development, placing the right person for the right job.
The organization can decide regarding re-location and employees who have been unfairly hired. Thus, functional inabilities can be removed.
7. Identifying Training and Development Needs: Ineffective performance represents the necessity of retraining. Similarly, effective performance may indicate the hidden potential that needs to be tapped and enhanced.
The organization should review the training and development needs timely.
8. Diagnose Job Design Errors: It is possible that certain errors in job design may lead to poor performance. These errors can be easily identified through performance appraisal.
9. Identifying Factors Affecting Performance: The performance of an employee is affected by both internal and external factors of an organization, such as family matters, health-related matters, work surroundings, etc.
If the performance appraisal fails to recognize these factors, the HR department may be capable of offering such support.
10. Ensuring Equal Employment Opportunity: Proper performance appraisal ensures fair and unbiased placement of every employee in an organization.