The development and applications of performance-appraisal systems for hospital pharmacy personnel are discussed. The need for a performance-appraisal system is explained from the perspectives of the employee, the manager, and the hospital. Ethical standards that should be considered by managers during the appraisal process are listed. Performance standards are a key component of a performance-appraisal system and should be developed jointly by management and staff. Types of appraisal methods, personnel who should conduct appraisals, and the frequency at which appraisals should be conducted are discussed. Potential biases in appraisal methods and the preparation for and conduct of employee appraisals are discussed. A performance-appraisal system should be designed to meet the needs of employees, managers, and the hospital. Such a system will be more effective if it ensures the regular, frequent flow of data on employee performance, the systematic comparison of these data with previously agreed-upon expectations, and the frequent reporting of the results of these comparisons to both employees and managers.