Quantitative Economics and Management Studies (QEMS) ISSN: 2722-6247 (online)

Vol. 2 No. 1 (2021)

https://doi.org/10.35877/454RI.qems119

Role of Performance Appraisal System and Its Impact on Employees

Motivation
Pooja Dangol
Kathmandu University (KUSOM), Kathmandu, Nepal

Abstract
The general objective of the study is to determine the role of performance appraisal and its impact on employee. The study is
guided by the following specific objectives: to establish the extent to which performance appraisal process affects employee
motivation, to determine the extent to which appraisers affect staff motivation and to determine the challenges in appraising
employee performance. The study adopted descriptive research design. The population of interest consists of 120 employees of
Service Industry in Nepal. Data is collected using structured questionnaires and additional qualitative data is collected using the
reference from the questionnaire and the objectives of the study. The data is analysed using statistical tools such as frequency
distribution, percentages and Pearson correlations. Data is presented using tables and charts. The research findings suggest that
regular assessment of performance leads to employee motivation. Performance appraisal rating can be considered as a technique
that has a positive effect on work performance and employee motivation. Employees may be motivated if the appraisal process is
based on accurate and current job descriptions. On the challenges of performance appraisal on employee motivation established
that some managers tend to be liberal or strict in their rating of staff which may affect the employees’ motivation. The manager’s
ability to address the skills gaps can have a significant impact on the employee’s motivation. Regular ratings may affect the
performance and motivation of the employees. Fair assessment of the employee’s performance may enhance their motivation.

Keywords: Performance appraisal; motivation; performance; employee development.

1. Introduction*

With the rapid development and growth of organization, both in terms of its operations as well as the growing needs
of the employees, it is quite normal for an organization to want to appraise its employee’s performance. Traditionally,
performance appraisals are conducted in a timely manner in order assess growth and progress of the employees in
their work and job roles. Due to this, it is often linked to employee benefits as well as growth and promotion schemes
by the organizations. While many organizations provide benefits or promotions based on the result of these
appraisals, most of them unconsciously ignore the crucial connection of these appraisals with employee motivation.
According to Chan & Lynn (1991), organizational performance criteria should include not only just profitability,
productivity, marketing effectiveness, customer satisfaction, but also employee morale. The rationale behind it is
simple i.e. employees are the key resources and assets for an organization. An organization becomes successful when
its workforce works hard to achieve organizations goals and objectives and subsequently, when the organization
becomes successful, it helps its employees to progress in life, career and earnings. To become a successful
organization, performance appraisal must be conducted all throughout the year, wherein employee’s experience so
far, motivation level, growth and development and other factors are reviewed to get a clear picture of his/her
performance.

*
Corresponding author.
E-mail address: pujadngol@gmail.com (Pooja Dangol)

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 Dangol, et.al | Quantitative Economics and Management Studies (QEMS), 2021, 2(1): 13–26

According to Rue and Byars, (2005), performance appraisal is a way of determining and communicating how the
employees do their jobs and coming up with a plan for improving the process of carrying out work responsibilities.
Performance appraisal process can also be referred to as a procedure for determining employee performance.
Performance appraisal is essential as it gives updates on the performance of the employees; it identifies training needs
and come up with plans for employee development (Livy, 2007).
Performance appraisal system is usually identified as a critical element for boosting employee motivation (Selvarajan
& Cloninger, 2011). Performance appraisal system is an important drive that looks for better, more accurate, more
cost-effective ways for of evaluating job performance and employee motivation. Performance appraisal system is a
significant technique aimed at enhancing the performance of the employee in the organization (Vasset, Marnburg, &
Furunes, 2011).
Performance appraisal is often considered one of the most important human resource management (Selvarajan &
Cloninger, 2011), and an effective performance appraisal and management system is an integral part of organization’s
human resource management effectiveness (Guest 1997 cited in Selvarajan and Cloninger, 2011).
Hodgetts (2002) categorizes a four- step process of the performance appraisal system. Performance appraisal systems
comprises of established performance standards, a method of determining individual performance, comparison
against standards and an evaluation of performance based on the comparison. The first step of establishing
performance standards outlines the employees’ job responsibilities. The job standards are set against employees’
performance. The second step involves pegging the worker performance (such as traits approach, behavioural
approach, ranking methods, alternation ranking, and results methods, productivity measures, 360 degrees’ evaluation
and Management by Objectives (MBO). Thirdly, there is comparison against standards. At some point, the individual
work record it compared with the standards set for the job. Fourth, an evaluation of performance is made pegged on
the comparison.
Selvarajan and Cloninger (2008) suggest that some organizations are dissatisfied with their performance appraisal
process. This implies that the performance appraisal process is not an appropriate mechanism for addressing
employee motivation. But, performance appraisal is considered to be essential to create a positive effect in work
environment and improve the quality of service. However, there are a number of issues associated with the
performance appraisal process and these include poor design, lack of attention to the organizational culture, and
unwillingness to confront issues of poor performance, as well as time pressure.
There are a number of different options concerning who should evaluate an individual employee, and the decision
needs to be based on a series of factors. Traditionally, it has been the sole responsibility of managers or supervisors to
assess performance. However, other organizational members (such as clients, co-workers and subordinates) can be
valuable source of information as they are likely to have exposure to different aspects of an employee’s performance.
Collecting information from multiple sources can increase the accuracy of performance evaluation (can reduce bias)
and increase employee’s perceptions of fairness (Vasset, Marnburg, & Furunes, 2011).
A typical traditional appraisal usually occurs once or twice a year. There would be extended time gaps of months
between establishing goals and reviewing them, and objectives that are set upon in the beginning of the year are
usually only dragged out during appraisal time (Afriyie, 2009). While performance appraisals provide the perfect
opportunity for managers and staff to have one-on-one discussion, it is unfortunately open to biased ratings (Khan,
2013). There is also a tendency to focus on the weaknesses instead of strengths, which tend to create conflicts
between manager and staff as well as negative work environment (Okeyo, Mathooko and Sitati, 2010). What
organizations do not realize is that skills gaps need to be addressed quickly as it would impact the bottom line. During
the performance appraisal process, there are common problems that emerge and they include: bias, stereotyping, halo
error, distributional errors, similarity error, the appraisal conflicts, proximity error, contrast error and attribution error.
A successful performance appraisal system must fit the organization. Organizations need to assess the suitability of
performance appraisal systems to their own workforce before implementing one that meets their needs (Skarlicki &
Folger, 2007). The primary purpose of an appraisal system is to sieve out those who cannot or would not do the job. It
has to be communicated to all involved parties and appropriate support and training should be provided especially to
managers conducting such sessions with their staff (Shaw, Delery, Jenkins, & Gupta, 2008). Employers should also

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take note that performance evaluation is a continuous process and not one that happens only once a year. The best
appraisals are a two-way discussion and focus on the employee assessing his own performance and setting goals for
improvement. And as best practice, organizations should ensure Key Performance Indicators (KPIs) are well
communicated to and clarified with staff, and there are proper benchmarks in place against which staff are assessed.
Data collected from appraisals should be used to track the success of recruitment and induction practices.

2. Methods

2.1. Nature and Collection of Data

The research is descriptive in nature. The study setting of this research study is non-contrived. This research is
conducted in the natural environment setting without any external influences or an artificially controlled setting.
As the data for this study will be collected once, the research study is cross-sectional. The unit of analysis for the
study is at individual level. The relevant population for the research study is 120 employees of Service Industry in
Nepal.
The questionnaire has been split into two sections. The initial section asked questions concerning the general
responded information. The second section established the effect of the performance appraisal process on employee
motivation. The third section determined the extent to which appraisers affect staff motivation. The fourth section
examined challenges in appraising employee performance. A five-point Likert scale and rankings is used (ranging
from strongly agree to strongly disagree) to reflect the appropriate levels of measurement necessary for statistical
analysis.

2.2. Data Analysis Methods

According to Mugenda and Mugenda (2009), descriptive analysis involves a process of transforming a mass of raw
data into tables, charts, with frequency distribution and percentages. In this study, the descriptive statistics such as
percentages and frequency distribution are used to analyse the demographic profile of the participants. The mean
described each variable under performance appraisal system, appraisers and the challenges of the appraisal system.
Pearson Correlation is used to determine the relationship between independent and dependent variable. The data is
presented using tables and figures to give a clear picture of the research findings at a glance.

3. Data Analysis and Discussions

3.1. Response Rate

Table 1. Demographic Profile of the Study Variables

Variable Classification of Variables Frequency Percent (%)

Gender Female 40 33.33
Male 80 66.67
Age 20-30 years 58 48.33
31-45 years 54 45.00
46-60 years 8 6.67
Years of Association Less than 1 year 20 16.67
2-5 years 28 23.33
6-10 years 27 22.50
11-15 years 26 21.67
Above 15 years 19 15.83

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Table 1 is indicative of the results which are obtained from the demographic profile. Among the 120 respondents,
66.67 percent are male and 33.33 percent are female. 48.33 percent of the respondents are of 20-30 years, 45 percent
are of 31-45 years and 6.67 percent are from 46-60 years. 16.67 percent of the respondents are associated with their
respective organisations for less than 1 year, 23.33 percent are associated with 2-5 years, 22.50 percent are associated
for 6-10 years, 21.67 percent have served for 11-15 years and 15.83 percent have served for more than 15 years.

3.2. Effect of Performance Appraisal on Employee Motivation

Table 2. Effect of Performance Appraisal on Employee Motivation

S.N. Effect of Performance Appraisal on Employee Motivation Mean Rating

1 My performance rating is based on how well I am doing. 3.16 3
2 I am satisfied and motivated with the way appraisal system is used to evaluate 3.20 5
my performance.
3 There are set standards for my job. 3.17 2
4 Employee performance is easy to measure. 2.94 7
5 The most recent ratings I received are based on many activities I am 3.97 6
responsible for at work.
6 My performance is above average ratings. 2.75 10
7 I clearly understand the purpose of performance appraisal process. 3.14 11
8 Performance appraisal identifies performance problems to improve employee 3.08 4
productivity and motivation.
9 Performance appraisal process encourages co-operation. 3.56 8
10 The performance appraisal system has helped improve job performance. 3.05 1
I am satisfied with the way the performance appraisal system is used to set my
11 performance goals for each rating period. 2.77 9

The findings indicate that a large proportion of the respondents suggested that their performance rating is based on
how well they are doing (m=3.16). The rating scale method offers a high degree of structure for appraisal and
motivation. Similarly, the data collected form the respondents also suggested that they believe performance appraisal
system has helped improve job performance at work (m=3.05). It can be deduced that performance appraisal system
is often considered one of the most important factors for employee motivation. This is followed by a large number of
respondents who suggested that there are set standards for their job (m=3.17). The performance standards specify
what the worker is supposed to be doing.
A substantial number of the respondents responded that the performance appraisal identifies performance problems to
improve employee productivity and motivation (m=3.08). In addition to it, the findings also suggest that the
respondents are satisfied and motivated with the way appraisal system is used to evaluate their performance
(m=3.20). From this, it can be deduced that the appraisal process is accurate according to the current job description
and experience which may have a direct impact on the employee’s motivation to give their best.
However, the number of respondents who are satisfied with the way these appraisals are used to set the performance
goals for each rating period is comparatively less (m=2.77). Even fewer responses are that the performance is above
average ratings (m=2.75) but on a positive note, the number of respondents who understood the purpose performance
appraisal process is comparatively large (m=3.14).

3.3. Correlation between the Appraisal System and Employee Motivation

As significance level is 0.00 which is less than 0.05, therefore, the findings suggest that there is strong correlation
between the satisfaction with the current performance appraisal system and having a set of set standards for the job at
(r=0.346, p<0.01).

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Table 3. Correlation between Appraisal System and Employee Motivation

My There are set I am satisfied I am satisfied with the

performance standards for and motivated way the performance
rating is based my job. with the way appraisal system is used
on how well am appraisal to set my performance
doing. system is used goals for each rating
to evaluate my period.
performance.
Satisfaction Pearson
with the Correlation -0.24* 0.35** -0.05 -0.21*
current Sig. (2-
performance tailed)
appraisal 0.01 0.00 0.61 0.04
system
**. Correlation is significant at the 0.01 level (2-tailed).

3.4. Effect of Performance Appraisers on Employee Motivation

Table 4. Effect of Performance Appraisers on Employee Motivation

S.N. Effect of Performance Appraisers on Employee Motivation Mean Rating

1 Managers know enough to appraise me. 3.13 6
2 I doubt whether I get a good appraisal. 3.15 3
3 Managers set targets more clearly. 3.12 12
4 The evaluator helps me understand what I need to do to improve my 3.44 1
5 performance. 3.10 9
6 My manager discusses regularly my job performance with me. 3.08 4
7 My work colleagues recognize me when I do a good job. 3.04 7
8 My manager recognizes me when I do a good job. 2.70 13
9 My manager plays a significant role in my career development. 3.34 10
10 The customers recognize me when I do a good job. 3.26 2
11 My subordinates recognize me when I do a good job. 3.11 8
12 My manager gives me fair feedback. 3.60 5
13 My manager/supervisor is highly capable as manager. 3.10 11
My manager/supervisor has reasonable expectations from my work.

The findings from the respondents claimed that the evaluator helps them understand what they need to do to improve
their performance (m=3.44). A substantial number of the respondents mentioned that the subordinates recognizes the
employees when they do a good job (m=3.26). Subordinate evaluations may give valuable information to improve on
the employee’s motivation. The findings from the responses also indicate that a number of respondents doubt whether
they get a good appraisal at a mean of (m=3.15). The responses indicated customers recognize employees when they
do a good job (m=3.34. A few other respondents mentioned that their work colleagues recognize the employees when
they do a good job (m=3.08). Peers or co-workers often know the job of the individual employee better than the
supervisor does and they are more directly affected by the employee’s actions, either positive or negative.
The respondents also seem to agree that the owner, who personally evaluated the employees is highly capable as an
evaluator in evaluating their performance (m=3.60). This indicates that the respondents believe that the evaluator is

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highly capable of evaluating employee performance. This also plays an important factor which is likely to affect their
motivation towards work performance.
On the other hand, only a few number of the respondents agree the evaluator discusses regularly the employee job
performance with the employees (m=3.10). There are certain problems that can occur when mangers or the owners
themselves are responsible for employee’s evaluation process. A less number of the respondents responded that their
direct manager or the evaluator recognizes them when they do a good job (m=3.04) and very few express that their
manager has reasonable expectations from the employee work (m=3.10).

3.5. Correlation between Appraisers and Employee Motivation

Table 5. Correlation between Appraisers and Employee Motivation

My work Managers set Managers The customers

colleagues targets more know enough recognizes me when
recognize me clearly. to appraise me. I do a good job.
when I do a
good job.
Satisfaction Pearson
with the Correlation -0.22* -0.23* -0.05 -0.29**
current Sig. (2-
appraisers tailed) 0.03 0.02 0.65 0.00

**. Correlation is significant at the 0.01 level (2-tailed).

As significance level is 0.00 which is less than 0.05, therefore, the findings suggest that there is a strong correlation
between the satisfaction with current appraisers and the customers being recognized for the good job that they do at
(r=0.292, p<0.01).

3.6. Challenges in Appraising Employee Performance

Table 6. Challenges in Appraising Employee Performance

S.N. Challenges in Appraising Employee Performance Mean Rating

1 My manager gives me fair feedback. 3.10 4
2 My ratings are based on reasonable expectations from my work. 2.99 5
3 The ratings adequately reflect my performance. 3.96 6
4 My evaluator is based about my job performance. 2.86 8
5 My evaluator recognizes me when I do a good job. 2.85 9
6 My evaluator plays a significant role in my motivation. 1.76 12
7 I am satisfied with my relationship with manager/supervisor. 3.34 1
8 My manager/supervisor is highly capable to rate my performance. 3.10 2
9 The appraisal system does not manage me better. 3.19 3
10 Performance appraisal reflects objectively my performance. 2.94 7
11 I receive erroneous feedback on my performance. 2.92 10
12 The managers have reasonable expectations from my work. 2.11 11

The findings from the response obtained indicate that a large number proportion of the respondents claim that they are
satisfied with their relationship with the managers (m=3.34). It is found out that the managers quickly address the
skills gaps which have a significant impact on the employee’s motivation. Accordingly, a large number of
respondents responded that the managers are capable to rate their performance (m=3.10). This indicates that errors
may occur when the managers use only the last few weeks or month of a rating period as evidence of their ratings of

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others which may affect the performance and motivation of the employees. A significant number of the respondents
mentioned that the appraisal system does not manage them better (m= 3.19). From this, it can be deduced that the
performance appraisal system does not determine how well the employees perform their jobs and motivation.
On the other hand, only a few respondents agreed that the ratings are based on reasonable expectations from their
work (m= 2.99). The findings from the responses also indicated that quite a few number of the respondents agreed
that the evaluators are biased about the employee job performance (m=2.86). This means that the ratings may not be
objective in evaluating the employee’s actual performance. Also, fewer respondents agreed that the evaluator
recognizes the employees when they do a good job (m=2.85). A small number of the respondents agreed that the
evaluator plays a significant role in employees’ motivation (m=1.76) and only a small proportion of the respondents
agree that the managers have reasonable expectations from the respondent work (m=2.11).

3.7. Correlation between Solution for Performance Appraisal Problems and Management of Employees

Table 7. Correlation between Solution and Performance Appraisal Problems

My rater plays I am satisfied The My ratings are based

a significant with the appraisal on reasonable
role in my performance system does expectations from
motivation. appraisal not manage my work.
system that is me better.
used to set my
performance.
Satisfaction Pearson
with the Correlation -0.38* 0.17 0.32** -0.21*
current Sig. (2-
appraisers tailed) 0.00 0.09 0.00 0.04

**. Correlation is significant at the 0.01 level (2-tailed).

As significance level is 0.00 which is less than 0.05, therefore, the findings suggest that there is a strong correlation
between satisfaction with the solutions for performance appraisal problems and the appraisal system not managing
employees better at (r=0.315, p<0.01).

3.8. Findings from Interview

Qualitative data unlike quantitative data cannot be translated into numbers to decipher the exact data. The data
collected have therefore, been coded using a thematic approach to decode and decipher the patterns observed during
the interview. As the purpose of the interview is to substantiate the data obtained through the questionnaires collected,
only two employees are approached for the interview.

3.9. Performance Appraisal Process Affects Employee Motivation

Data reduction is a method through which codes are generated by analysing the themes generated during the
interview. The themes of every answer generated are identified and coded accordingly. The codes are generated
through these themes. The codes generated are presented as follows:
The findings from the first interview (table 8) indicate the importance of accuracy, fairness in scoring the appraisal,
goal setting post appraisal, co-operation between the appraisers and appraise as well as the importance of inclusion of
self- development aspect for the employees, as important factors which affect the employee motivation during
appraisal.

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Table 8. Coding based on First Interview

Statements/Themes Codes
“though everyone knows it is being done, not all put value to or understand why it is Clarity of Purpose
necessary”
Fairness in Scoring
“the rating is usually average and done by the boss, so, I don’t believe it reflects my
correct appraisal” Lack of Accuracy
Goal-setting
“the appraisal doesn’t reflect how I performed in my overall in the past year so setting my
target based on it does not reflect my capacity and potential” Co-operation

“should be presence of understanding on both parties”

Table 9. Coding based on Second Interview

Statements/Themes Codes
“just done for salary increment or setting target for the next year” Clarity of Purpose

“helped in improving my performance compared to last year as my appraisal is a bit Development of Skill
better”
Feedback
“helped me identify my weakness when boss talked with me after the appraisal so it has Performance
improved my work rate” Solving

Fairness in rating
“boss is usually here on site and observes us and sometimes helps us, so though I think Co-operation
the appraisal reflects my performance, I don’t think it is entirely accurate” Lack of Accuracy

The findings from the second interview (table 9) indicate importance on clarity on the purpose of the appraisal,
development of the workers, the feedback system, fairness in rating, co-operation, accuracy, performance problem
solving and presence of biasness as important aspects that can affect the motivation of the employees during the
performance appraisal process.

Table 10. Summarisation of First and Second Interview

Statements/Themes Codes
“we know when someone has done their part work properly and when one has failed to Recognition
meet their target”
“the targets are set based on the company’s target for the year” Clarity on Target
Goal-setting

“our boss talks to each individual after appraisal to tell about their weakness or what or Feedback and Guidance
how they should do next time to improve themselves” Problem Solving
Skill Development
Competent

“my appraisal is, I think, fair bur I believe I could have gotten better ratings” Fairness

“we all work together and everyone helps each other so I don’t think our boss is biased” No Biasness
Mutual Respect

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Table 11. Summarisation of First and Second Interview

Statements/Themes Codes
“ratings are fair but sometimes I think our boss does it based on how we should have Expectation from
done then rather than what we have done that’s why they are mostly around average. I Employees Reflection
think he on Performance
sometimes expects more from us than we can deliver”
Competent
“he is the owner himself and has established this organization. He is very capable and we Mutual Respect
respect him. Moreover, he treats us like family not just employees”

“after appraisal he calls us individually to discuss on our appraisal results. They are very Individual Feedback
helpful”
Career Development
“the owner helps us and provides guidance but that does not mean we must always
depend on him to improve ourselves and grow our career”

The findings indicate some of the challenges on appraisal system are the expectation of work performance from
employees, feedback and career development. The findings indicate the biggest challenge is the expectation the
evaluator has from the employees. High expectation can often lead to disappointments when they are not met.

3.10. Data Display

The data display is method used to summarize the data and information collected during through qualitative method
of data collection. Among the various phrases are used during the interview, some phrases are frequently used. The
findings from the interview indicated some of phrases that are used frequently during the interview by the
interviewees.

Table 12. Frequently used phrases based on the set objectives of the study

Frequently used Phrases Frequency Codes

“the ratings of the appraisals are fair but are do not accurately reflect our 4 Accuracy
level of performance rather our lack of performance from the expected
level"
3 Clarity of Purpose
“everyone one knows when appraisal is done but not everyone knows and Process
how the ratings are scores or what is the main purpose for it as many
think it’s is only for salary increment”
2 Performance
“feedbacks are individually given to each and every employee and their Problem Solving
performance during the year is discussed as well”
2 Skill Development
“our weakness and strengths are discussed during feedbacks and during
weekly meetings and guidance is provided if we show our capability and
potential for improvement”

The data indicates that among the various factors that affect the motivation of the employee in regards to the appraisal
system, the four crucial aspects regarded the employees are accuracy, clarity on purpose and process of the appraisal
process, prospect of performance problem solving and skill development.
The interviewees firmly believe that accuracy of the rating and proper understanding of the appraisal system play
crucial role regarding employee motivation. If the employees perceive that their appraisals are not accurate and do not

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reflect their actual performance, then it will demotivate them from improving their work performance. Similarly, if
they have no idea how the appraisal is done or measured, then even if the appraisals are accurate, they might feel
unfairness or inaccuracy in scorings.
The interviewees also perceive that it is important that the post-appraisals process would show prospect in helping the
employees to further develop their skills and reach their potentials by providing guidance and help in solving the
problems that would help in increasing their ratings in the next appraisal. This would help them in developing
themselves and increasing their skills which would help to pave their career path as well. Such prospects are
important factors of the appraisal which motivates employees.

Table 13. Frequently used phrases based on the study

Frequently used Phrases Frequency Codes

“everyone is treated like a family member and even the owner as well as 2 Mutual Respect
managers help the workers in the work so there is no bad relation
between the employees”
4 Competence
“the owner has a lot of experience and is competent to appraise us”
3 Lack of Biasness
“everyone is treated fairly and rated based on their work performance
rather than their behaviour, so it is not biased”

The data indicates that among the various factors and codes generated, the following are most crucial factors regarded
by the employees regarding the second objective. The factors are mutual respect, competence of the appraiser and
lack of biasness.
According to the interviewees, the competency of the evaluator is one of the crucial aspect when regarding the
motivation of the employees in the appraisal process. This indicated that even appraiser play crucial role in
motivating employees through the appraisal process which leads to good cooperation during the appraisal as well
other day-to-day activity.

Table 14. Frequently used phrases based on the study

Frequently used Phrases Frequency Codes

“after every appraisal, all the employees are called individually to 5 Feedback
discuss their appraisal results and give constructive feedback on their
performance”
3 Expectation on
“we perform the best we can, but the owner has high expectation from Performance
our work which leads to only average ratings in appraisal”
3 Career
“these appraisals indeed provide guidance to our career but this mainly Development
depends on our work and commitment rather than the appraisal

From the data collected through interview and the frequency used, it can be inferred that the provision of feedback is
taken as a crucial factor by the employees. The feedbacks are given with the aim to help the employees do better in
the next appraisal and perform their work better, however, these are done based on the appraisal results. The
interviewees believe that the biggest challenge is that the appraiser has too high expectation from them which has led
to only average performance ratings. Due to this, the feedbacks are not as effective as they could have been. These
feedbacks also help the employees to develop their skills and pave their career path but to the inaccurate ratings, this
has not been as effective as it could have been.

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3.11. Drawing Conclusion

From the data analysis, the conclusion can be summarized with the help of the conceptual framework (fig. 1).

Fig. 1. Conceptual Framework.

4. Conclusion and Implications

4.1. Conclusion

The general objective of the study is to identify the key variable factors that determine the effect performance
appraisal has on the motivation of employees. The study is guided by the following specific objectives: to establish
the extent to which performance appraisal process affects employee motivation, to determine the extent to which
appraisers affect staff motivation and to determine the challenges in appraising employee performance.
The study adopted descriptive research design. The population of interest consists of 120 employees employed in
Service Industry in Nepal. Data is collection using structured questionnaires and open ended interview questions. The
data is analysed using the statistical tools such frequency distribution, percentages as well as Pearson correlations. The
data is presented using tables and figures.
On the effect of performance appraisal process on employee motivation established that the system is important for
employee motivation. Performance appraisal system has helped improve job performance at work. The regular
assessment of performance leads to employee motivation. The performance standards are quantified and pegged
against an individual evaluation which is essential for employee motivation. Performance appraisal rating can be
considered as a technique that has a positive effect on work performance and employee motivation. The employees
may be motivated if the appraisal process is based on accurate and current job descriptions. The performance
appraisal identifies performance problems to improve employee productivity and motivation.

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On the effect of performance appraisers on employee motivation established that the different evaluators can increase
the accuracy of performance evaluation (can reduce bias) and increase employee’s perceptions of fairness. Customers
can recognize the employees when they do a good job evaluation process that are important for employee’s
motivation. Subordinate evaluations may give valuable information to improve on the employee’s motivation. Peers
or co-workers often know the job of the individual employee better than the supervisor does and they are more
directly affected by the employee’s actions, either positive or negative.
On the challenges of performance appraisal on employee performance established that some managers tend to be
liberal or strict in their rating of staff which may affect the employees’ motivation. The manager’s ability to address
the skills gaps can have a significant impact on the employee’s motivation. Regular ratings may affect the
performance and motivation of the employees. Fair assessment of the employee’s performance may enhance their
motivation.
Employers should also note that performance evaluation is a continuous process and not one that happens only once a
year. The reasonable expectations of the ratings can lead to honest feedback for employee motivation.

4.2. Implications

The main objective of the research is to identify the key variable factors that determine the effect performance
appraisal has on the motivation of employees. Despite favourable conditions and co-operation from the respondents,
there are a few setbacks present.
A major setback is the total population of the respondents. The present research is conducted in limited sample
population. It includes 120 employees who work in Service Industry in Nepal. Researchers suggest that less than 100
samples are considered “small sample size,” between 100 and 200 samples are considered “medium sample size,” and
over 200 samples are considered large enough. So the sample size, despite being taken in entirety, is still too small.
Similarly, the study is cross-sectional in nature meaning, the data is gathered only once in order to derive the findings
of the research. As questionnaires are involved, there is still possibility of self-biasness from the side of respondents in
the data obtained.
There is the need for the researchers to conduct further research on this topic. While working in this research, there
are fewer than handful research in existence. Identifying and coming into conclusive on this rising topic will
definitely bring a commendable change in the corporate business world.

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