Performance appraisal is a systematic process through which an organization evaluates the performance, efficiency, and productivity of its employees over a specific period of time. It involves assessing an employee’s work in relation to the assigned duties, organizational goals, and expected standards of performance. The purpose of performance appraisal is to identify strengths and weaknesses of employees, provide feedback, improve performance, and make decisions regarding promotions, training, compensation, and career development. In the context of Human Resource Management and Industrial Relations in Micro, Small, and Medium Enterprises (MSMEs), performance appraisal plays a crucial role in enhancing workforce efficiency and maintaining harmonious employer–employee relations. Since MSMEs operate with limited resources and a smaller workforce, effective performance appraisal helps them utilize human resources efficiently and promote productivity. One important factor for performance appraisal in MSMEs is clear performance standards. Employees should have