Performance appraisals are used to determine selection for compensation and promotions, and to inform training and development.
Selection for compensation and promotion should be based on employee performance appraisals. Employees who are performing well deserve promotion or raises in compensation levels. Employees who are underperforming may require further training and staff development.
Performance appraisals can also be used to develop training programs. If there is a pattern of employees underperforming in certain areas, it could be that training in those areas is lacking. Further development of the training program is needed. Areas where employees do well do not need to be re-evaluated or adjusted, and can be models for programs in the future.
Performance appraisals are necessary for fairly selecting employees for promotion and fairly compensating them, and also for enhancing training and development opportunities for that and other employees.
A performance appraisal will determine key areas of need in training. If there is a trend across employee performance, the supervisor can determine where training is successful and lacking. Employee development and training programs can focus on areas of need, and continue in areas where the employees are shown to be doing well.
Fair compensation is important to employee retention. Linking compensation to performance breeds an attitude of fairness. It also leads to increased employee satisfaction, because employees feel that they are being rewarded for doing well. Employees whose performance is lacking also have an incentive to do better.