This empirical based study attempted to examine the effects of one of the organizational climate dimensions on the perceptions of performance appraisal system. An effective appraisal system leads to proper development of the human capital in organizations. The study examined the relationship between managerial perceptions of the climate of participation and the perceived effectiveness of performance appraisal system in a private sector organization in North India. It was expected that the patterns of relationship between the variables under study would be positive in the organization. The results focussed on the importance of climate of participation for increasing organizational commitment with the help of a better performance appraisal system among managerial personnel in Indian organizations. The empirical findings, therefore, have an implication in development of skills, performance, and commitment of the human capital in organizations. The sample for the present case study belonged to a single private sector organization in Northern India.

Both scholars and practitioners recognize that for the present organizations to attain a competitive advantage, a skilled workforce, cutting edge technological proficiency, exemplary customer service, and higher quality product and services are needed (O' Reilly and Pfeffer, 2000). Pfeffer (1998) suggests that the real challenge lies in finding specific, empirically-supported ways to motivate employees for improved performance. Behavioral management, which has been around for about three decades, is an approach to improving performance at work. The main premise of behavioral management is that employee behavior is a function of contingent consequences (Komaki et al., 1996).

However by the 1960s, experts recognized that performance appraisals cannot simply stop motivating employees by measuring and monitoring performance, but in order to be effective and proactive, they should also identify the developmental needs of employees. Such an approach would help employees to attain the desired productivity levels, through counseling and identification of training needs. The incorporation of the twin and sometimes conflicting objectives of reward and development into the appraisal system led researchers to suggest that it would be better to split or separate the two (Mayer et al., 1965). It was felt that an appraiser might experience conflict in fulfilling the two objectives, since the role requirement changes from that of a judge, to that of a counselor and facilitator. This view was subsequently questioned by Lawler et al. (1984) who pointed out that delinking rewards from the appraisal process reduces the importance of the appraisal system.

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