Performance management of employees has caught the attention of organizations and business people in recent times since employees are considered assets. Organisations are no longer content with merely considering their relations with employees as transactional but consider employees as investments. It is only the superlative job performance of satisfied, loyal and talented employees which acts as a renewable source of sustainable competitive advantage to any organization. Performance Management System is an off-shoot of Performance Appraisal. While the latter confines itself only to compensation, promotions, training programmes, the former is a comprehensive term which refers to treating employees as long-term partners in organizations. The success of such a system also depends upon how employees perceive it. Employee perception of performance management system as biased, political or irrelevant can lead to frustration and dissatisfaction, more so in a hospital setting since the nurses are professionals called upon to render their services with utmost kindness, care and devotion. Therefore, the present research study has attempted to study the perception of employees about the Performance Management System and using statistical tools such as Factor Analysis, reliability, Multiple Regression and ANOVA offered suggestions to improve the effectiveness of Performance Management System.