Assessing performance appraisal of employees is a crucial part of human resource management because it gives insight into how efficiently employees are performing their job. Today, unlike previous decades, it is recognized that employees are among key factors for achieving overall company success and for that reason it is important that they are satisfied and motivated with their job and work conditions. Thanks to that, evaluation of performance appraisal is implemented more often, not only to get insight of employees’ job performance, but also about their skills and knowledge level that each employee possesses. Results obtained by performance appraisal also helps employees to see in detail how they are performing and by frequently conducting evaluations, employees have the opportunity to improve their performance until the next evaluation period in order to ultimately achieve the best possible result. Also, results of performance appraisal serve employers to decide whether to introduce, increase or decrease employee’s variable compensation. It is very important that the system of performance appraisal is fair to all employees, that it is objective and not subjective because it affects how employees behave towards their job and after all towards all organizations. The purpose of this master thesis is to examine employees’ perceptions of performance appraisal system fairness and its effect on job satisfaction.