Abstract: Performance appraisal has increasingly become part of a more strategic approach to integrating HR activities and business policies and may now be seen as a generic term covering a variety of activities through which organizations seek to assess employees and develop their competence, enhance performance and distribute rewards (Fletcher, 2001). Thus, both practice and research have moved away from a narrow focus on psychometric and evaluation issues to developmental performance appraisal (e.g., Fletcher, 2001; Lefkowitz, 2000; Levy and Williams, 2004; Waal, 2003), which may be defined as any effort concerned with enriching attitudes, experiences, and skills that improves the effectiveness of employees (Boswell and Boudreau, 2002). Performance appraisal is a widespread, very expensive, counterproductive exercise. It is typically conducted with good intentions to manage and improve the performance of individual employees, and lead to enhanced overall organizational efficiency, effectiveness, and productivity. Unfortunately it is an exercise in futility. This paper explores why formal performance appraisal and performance pay fail in their objectives as components of an organization’s performance management program, and why they should be abolished .In recent years it is necessary to find more scientific, effective & fair assessment method, to examine the current performance appraisal for the success & failure of the organization.