Do Performance Appraisals Really Drive Performance? A PLS-SEM Analysis of Feedback, Self-Assessment, and Rewards in Nepal's Organizations

Abstract

Background: Employee performance is essential to organizational success, and performance appraisal systems can enhance performance by providing feedback, recognizing contributions, and identifying development opportunities. However, concerns regarding fairness, transparency, and effectiveness remain, highlighting the need to examine their influence on employee performance.

Purpose: The objective of this study is to examine the impact of performance appraisal systems on employee performance.

Design/Methodology/Approach: The study adopted a descriptive and explanatory research design. Data were collected from 387 employees using a structured questionnaire through non-probability sampling. The questionnaire was administered using KoboToolbox, and the collected data were analyzed using descriptive and inferential statistical techniques. The study was grounded in Equity Theory to explain the relationship between performance appraisal practices and employee performance.

Findings: The findings indicate that performance appraisal systems, timely feedback, constructive criticism, and self-evaluation significantly improve employee performance. However, financial rewards and employee involvement in goal setting did not have statistically significant effects on employee performance. The findings further indicate that perceived bias, lack of transparency, and delayed feedback can hinder the effectiveness of performance appraisal practices. In contrast, transparent evaluation procedures, employee recognition initiatives, and regular feedback mechanisms were identified as important practices for improving employee performance.

Conclusion: Effective performance appraisal practices can contribute significantly to employee performance and organizational success. Appraisal systems that emphasize fairness, transparency, constructive feedback, recognition, and employee development can support employee motivation, job satisfaction, and productivity.