Performance appraisal is primarily used to:

Performance appraisal is a systematic process of evaluating an employee's job performance and productivity. It serves multiple purposes within an organization, primarily focusing on development and improvement.

• Evaluate and improve employee effectiveness is the correct answer. The main purpose of performance appraisal is to assess an employee's strengths and weaknesses, provide constructive feedback, identify development needs, and ultimately enhance their effectiveness and contribution to the organization. It's a vital developmental tool.
• Punish low performers (A) is not the primary purpose; while appraisals can identify areas for improvement, the focus is on development, not solely punishment.
• Reduce payroll costs (C) is a financial objective, not the core purpose of performance appraisal, although appraisal outcomes might indirectly influence compensation decisions.
• Comply with labor laws only (D) is a secondary benefit; while appraisals can help with legal compliance (e.g., documenting performance for promotion/termination), this is not their primary goal.