Performance appraisal provides important and useful information for the assessment of employee's skill, knowledge, ability and overall job performance. The following are the points which indicate the importance of performance appraisal in an organization:
1. Performance appraisal helps supervisors to assess the work performance of their subordinates.
2. Performance appraisal helps to assess the training and development needs of employees.
3. Performance appraisal provides grounds for employees to correct their mistakes, and it also provides proper guidance and criticism for employee's development.
4. Performance appraisal provides reward for better performance.
5. Performance appraisal helps to improve the communication system of the organization
6. Performance appraisal evaluates whether human resource programs being implemented in the organization have been effective.
7. Performance appraisal helps to prepare pay structure for each employee working in the organization.
8. Performance appraisal helps to review the potentiality of employees so that their future capability is anticipated..