Impact of Performance Appraisal Fairness on Employee Motivation to Improve Performance: LMX Dynamics of the Banking Sector of Pakistan

Abstract

Examining the mediating impact of leader membership relations, this study investigates how performance appraisal fairness affects employee motivation to improve performance. The research employed a descriptive correlational design, surveying 364 employees in Pakistan's banking sector. Data collection deployed simple random sampling to distribute questionnaires, which were then analyzed using PLS-SEM to engage statistical methods. The findings indicate that performance appraisal fairness increases employees' motivation to improve their job performance. Impartial performance appraisals have the potential to strengthen the bonds between managers and staff, which in turn can increase the incentive to make substantial performance improvements. It is especially true when evaluations are based on clear, up-to-date job descriptions. However, ensuring fairness can be challenging. Managers need to provide consistent and unbiased appraisals to maintain employee motivation. Regular performance reviews with fair assessments can significantly boost employee morale and effort. This research aims to help banks refine their appraisal policies to get the most out of their workforce and achieve specific goals. It suggests that the current appraisal system might impact employee performance and proposes developing clear criteria to guide managers in effective employee evaluations.