IMPORTANCE OF PERFORMANCE APPRAISAL ARE :-

Performance Feedback:
Most employees are very interested in knowing how well they are doing at present
and how they can do better in a future. They want this information to improve their
performance in order to get promotions and merit pay. It also gives him satisfaction
and motivation.
Employee Training and Development Decisions
Performance Appraisal information is used to find out whether an employee requires
additional training and development. Deficiencies in performance may be due to
inadequate knowledge or skills.
Validation of Selection Process
Performance appraisal is a means of validating both internal (promotions and
transfers) and external (hiring new employees from outside) sources. Organisations
spend a lot of time and money for recruiting and selecting employees. Various tools
used in the selection process are application blanks, interviews, psychological tests,
etc. These tools are used to predict (guess) the candidate's performance on the job.
Promotions
Performance appraisal is a way of finding out which employee should be given a
promotion. Past appraisals, together with other background data, will
enable management to select proper persons for promotion.
Transfers
Performance appraisal is also useful for taking transfer decisions. Transfers often
involve changes in job responsibilities, and it is important to find out the employees
who can take these responsibilities
Layoff Decisions
Performance appraisal is a good way of taking layoff decisions. Employees may be
asked to lay off, if the need arises. The weakest performers are the first to be laid
off. If there is no performance appraisal, then there are chances that the best men
in the department may be laid off.
Compensation Decisions
Performance appraisal can be used to compensate the employees by increasing their
pay and other incentives. This is truer in the case of managerial jobs and also in the
case of employees in non-unionized organisations. The better performances are
rewarded with merit pay.
Human Resource Planning (HRP)
The appraisal process helps in human resource planning (HRP). Accurate and current
appraisal data regarding certain employees helps the management in talking
decisions for future employment.
Career Development
Performance appraisal also enables managers to coach and counsel employees in
their career development.
Some Of the Problems with Performance Appraisal

COMPARE/CONTRAST ERROR When appraising employees, it is

important never to compare their abilities and using it to make a judgment.
Each employee is gifted in their unique way and thus has different
strengths and weaknesses. When you try to compare or contrast their
abilities, it means that you will not get a fair review. SIMILARITY ERROR
In every organization, some employees have a resemblance of different
aspects with the manager. Now some managers usually find it easy to reward
such employees highly compared to those who portray contrasting behaviour
or opinion.Bias Bias is also one of the problems with performance
appraisal managers often encounter. As a matter of fact, everyone has some
biases towards someone or something irrespective of how we portray them.
However, as a manager, it is imperative not to let the biases hinder the manner
in which you approach performance evaluation process.Stereotyping
Stereotyping is closely related to biases only that in this case, you tend to make
your judgment by your predetermined mindset towards a particular
employee’s race, gender, political affiliation, religious background, culture and
other characteristics.The Halo effect This is also known as the horns effect.
It is a situation where you let your positive or negative feelings towards an
employee to influence your evaluation easily. It is necessary to judge each
criterion independently without compromising what you feel for the
employee.
Recency effect This is majorly about carrying out an appraisal for a short
period before it takes place. As stated earlier, an appraisal is an activity that
takes place continuously, which means that the focus should not only be for
the short period before it happens but rather the entire time of the year.

Attribution error This is one of the trickiest problems with performance

appraisal. It involves making your independent belief on possible causes of
some behaviours or outcome and letting that influence your judgment.

Leniency and Severity tendencies These mistakes usually arise as a result of

distribution errors, which imply that the overall dissemination of appraisal
does not stand firm to the classic bell. This means that some managers are too
lenient and will end up appraising all employees above average, others will
give average whereas others would provide below average.