The general objective of the study was to determine the effect of performance appraisal on employee motivation using a survey of Oromia International Bank. The study was guided by the following specific objectives: The study adopted a descriptive research design. The research survey was conducted among 80 employees including department heads and four branches, a total of 80 employees responded resulting in a 100% response rate. Both qualitative and quantitative research methods through semi-structured interviews and close ended questionnaires were analyzed to get an in-depth view about the problem. Performance appraisal did not reflect objectively the employees' performance and the employees were not satisfied with performance appraisal system and motivation. Performance appraisal rating can be considered as a technique that has a positive effect on work performance and employee motivation. The employees may be motivated if the appraisal process is based on accurate and current job descriptions. The performance appraisal identifies performance problems to improve employee productivity and motivation. Performance appraisal rating can be considered as a technique that has a positive effect on work performance and employee motivation. The employees may be motivated if the appraisal process is based on accurate and current job descriptions. The performance appraisal identifies performance problems to improve employee productivity and motivation. Key words: Performance Appraisal, Motivation, Performance Management.