Effectiveness of Performance Appraisal System: A Proposed Model with Empirical Evidence from the Government Employees of Punjab, Pakistan The main purpose of the current study was to evaluate the effectiveness of performance appraisal system used for government employees in school education department of Punjab, Pakistan and to propose a model of performance appraisal that highlights the importance of leader-member exchange in determining performance appraisal reactions (performance appraisal fairness and performance appraisal satisfaction). This study is grounded in the concepts extracted from, but not limited to, social exchange theory by Homans (1958), leader-member exchange theory by Graen and Uhl-Bien, (1995) and organizational justice theory by Greenberg (1987). The proposed model posits that leader-member exchange influences performance appraisal reactions which in turn influence the effectiveness of performance appraisal system. Thus, performance appraisal reactions are believed to mediate the influence of leader-member exchange on effectiveness of performance appraisal system. The study was a cross sectional quantitative study in which survey approach was used for data collection. The data were collected through closed ended questionnaires to elicit the perceptions of dyad: 557 principals (raters) and 557 teachers (ratees) using the proportionate random sampling. The study concluded that according to ratees’ perceptions, effectiveness of performance appraisal system is dependent on leader-member exchange. Moreover, performance appraisal reactions link the levels of leader-member exchange and effectiveness of performance appraisal system. The conclusion drawn in this study was confirmed by taking aggregated leader-member exchange and found that effectiveness of performance appraisal system is dependent on the level of aggregated leader-member exchange. The present study contributes greatly in the field of appraisal research in that it is an attempt to develop a comprehensive model to measure the effectiveness of performance appraisal considering the social context of performance appraisal and appraisal reactions. The researcher has used the two levels of analysis to get the clear picture of leader-member exchange through ratees’ and aggregated perceptions of ratees and raters. Hence, the concerned authorities can pay more attention to developing a more comprehensive system where reactions are catered to.