Abstract There is direct relationship between the good characteristics of the performance appraisal system and the compensation plans of an organization. The compensation plans are the decisions made by the management depending on the results of the assessments on the workers performances. The goals of both performance appraisal and the compensation plans are to improve the performance of the workers, which in effect improves the goals of the organization. The performance appraisal systems and the compensation plans must operate within the regulations that govern the employees’ relationship with the organization. Such regulations are found in labor acts such as the Fair Labor Standard Act (FLSA). Introduction The performance assessment system is a prescribed course of actions that contains the expectations of the organization and the manner in which employees will be evaluated on how they have performed against the expectations of the organization (Resurreccion, 2012). The workers’ performance assessments are meant to enhance the performance against the organization objectives. The major aim of the performance appraisals is to motivate and enhance the workers’ performances towards the attainment of the organization goals. Human resources management makes reliable and accurate decisions concerning the conduct of workers as well as their performances using the performance appraisals. In fact, decisions regarding promotions of workers, termination of workers, need for improvements of skills and compensations are arrived at through assessing the employees’ performances (Resurreccion, 2012). Good characteristics of a performance appraisal system Performance appraisal systems should have the following traits in order to be considered perfect for application in the management of the employees’ performances. The management should apply performance appraisal system that is objective and seen to be unbiased. In other words, employees and the stakeholders should consider being equitable and fair. In essence, the performance appraisal system should create an environment where workers have confidence and trust on the process. Generally, the performance appraisal system should be inclusive, unbiased, just and impartial (Gruman & Saks, 2011). The other characteristic of a good performance review system is the ability to be relevant to the job performance it is supposed to measure. The performance appraisal system should measure specific job performance and not the individual characteristics of the employees. The success of the job performance depends on the principles established by the performance evaluation (Resurreccion, 2012). The relevance of the performance assessment to the specific job measurement relates to the trait of acceptability. The appraisal performance standards should be acceptable to all parties. All parties should also establish the method of evaluation through combined partnership and group work. In addition, the workers performance evaluation procedure should possess characteristics that indicate high reality. The characteristics include reliability, dependability consistency and stability. The high reality characteristics are critical in decision-making process during th