The effect of performance appraisal system on employees’ motivation: the case National Road Safety and insurance fund service

Abstract

Human resources are the most important and value-adding resources of any organization. For efficient utilization of human resources, an effective performance management system is critical. Hence, the primary objective of this study was to evaluate the impact of the performance appraisal system on employee motivation at the National Road Safety and Insurance Fund Service in Addis Ababa. The research employed descriptive and explanatory research designs with a mixed research approach. The study population comprised over 300 individuals and a sample size of 171 respondents was carefully selected. Data collection was conducted using a questionnaire as the primary instrument. The collected data was subsequently analyzed using SPSS version 25, employing descriptive and inferential analysis techniques. The findings of the study confirmed that six key factors of an effective performance appraisal system have a positive and significant effect on employees’ motivation. These factors include ongoing feedback, rewarding performance, trained appraisers, continuous open communication, and the fairness of the system. However, employee participation in the performance appraisal system is not expected to have a significant effect on motivation. Based on the findings of the study, it is recommended that the performance appraisal system is a crucial factor in promoting employee motivation. By improving job performance and motivation at work, the performance appraisal system can play a vital role. However, certain elements of the current system limit its effectiveness in enhancing motivation within the organization. These elements of the system should be given priority by the leadership to make the performance system more effective.