I believe the statement in the question is not quite correct. The term performance appraisal generally applies to the appraisal of the performance of a person by another person, generally the supervisor. This is done primary for the purpose of taking decision such as increments, and promotions. These increments and rewards play an important part in motivation of the employees appraised. In contrast, management by objective is a system of motivation based on the every employee being motivated by a set of objective set for the employee, rather than the promise of any reward associated with actual performance against the objectives.
Also when we examine the relationship between the objectives and performance appraisal, the objectives should be set before performance appraisal is undertaken. This permits more meaningful evaluation of performance.
All that we can say in support of the statement that "
Performance appraisal is a step toward Management by Objective (MBO).
is that the concept of MBO has been developed as an improvement over the performance appraisal system as a means for motivating employees. Here it should be noted that MBO is not just about using objectives for self-motivation for employees. It is also a method of developing objectives for individual members of the managers in an organization that maximizes the achievement of total organizational objectives.