What is the purpose of performance appraisals?

Performance appraisals serve a crucial role in managing employee performance and overall organizational effectiveness. The primary purpose of performance appraisals is to evaluate an employee's job performance, which informs key decisions regarding promotions, raises, and development opportunities.

By systematically reviewing an employee's performance against established criteria, organizations can identify strengths and areas for improvement. This evaluation helps in recognizing high performers who may be eligible for promotions or salary increases. Additionally, it provides a structured method for identifying skill gaps, which can drive professional development initiatives or training opportunities that support the employee's growth.

In contrast, calculating employee wages, determining benefits eligibility, or assessing profit margins are distinct HR functions not primarily linked to the performance evaluation process. These activities focus on compensation, benefits administration, and financial analysis rather than the direct assessment of employee job performance itself. Thus, performance appraisals are fundamentally about understanding an employee’s contribution to the organization and planning appropriately for their career path and development.