An appraisal of the employee is undoubtedly necessary at the time of his employment. However, an appraisal on a continuing during the working life of such an employee is also desirable and useful. Actually, evaluation is constantly being done at an unconscious level. Employees evaluate superiors, fellow colleagues and subordinates. What is needed to generate proper climate as well as formal procedure for evaluating personnel within the organization. Such appraisals are at times described as ratings. Here an individual, after comparison with another, is ranked or rated as excellent, normal or average. Such personnel merit of efficiency ratings are generally used for ascertaining an employee's eligibility for promotion. The employees are rated on personality characteristics and performance. Employee motivation is determined both by the employee's orientation and the external factors in the organizational role and the organizational climate and culture. In spite of best selection and placement procedure in an organization it is observed that some perform well and some do not. A need for an effective performance management system is, therefore, the need for every organization.