Many employees lose motivation if they are not considered worthy of merit awards, which directly impact performance. Employees say the criteria used to measure performance are highly subjective and unfair. As a result, favoritism in employee evaluation can create major problems within an organization. This makes other employees demotivated; they feel insignificant, causing low morale, because no matter how high they perform, they never meet the standards. Demotivated employees produce less and do not contribute substantially to the organization. Inconsistencies with the evaluation system used for merit pay cause a higher degree of conflict among employees, which directly impacts productivity. Often personal goals can become more important than team goals, which is not beneficial to the company and affects team unity. Developing an accurate performance appraisal system in which raters are properly trained and objectives are clearly spelled out and discussed with employees can alleviate many problems