Effectiveness of Performance Appraisal: Evidence on the Utilization Criteria

Abstract

This study examines the relationships between performance appraisal (PA) purposes and immediate and ultimate outcomes. Drawing upon expectancy theory and Greenberg's taxonomy, we explore the roles of multiple mediators as sets of person- and organization-referenced ratee reactions and reveal the multiple why-related aspects of the relationships between PA purposes and PA effectiveness. Our research is based on a questionnaire survey of 563 employees from the telecommunications sector of Pakistan. The results of structural equation modeling analysis suggest that individual-focused PA better serves the employee perspective, whereas position- and organization-focused PA better serves the organizational perspective. These findings indicate that inclusion of role definition and strategic purposes in the PA system is likely to render PA more effective and practical. The findings also corroborate that ratee reactions mediate the relationship between PA purposes and PA effectiveness, albeit to varying degrees. Our findings have theoretical and practical implications.