The presence of nepotism and favoritism during the execution of recruitment selection has now become a major concern for both developed and developing countries. Based on social exchange theory a framework was established to evaluate contextual performance, adaptive performance, and task performance as a result of recruitment and selection practice in an organization. Besides, the study also investigated the effect of nepotism and favoritism as a mediating variable between recruitment and selection, contextual performance, adaptive performance, and task performance. Moreover, data from 384 respondents working in the tertiary care hospitals in Pakistan were congregated and analyzed using confirmatory factor analysis and structural equation modeling. The results of the study reveal that recruitment and selection have a substantial impact on contextual performance, adaptive performance, and task performance. Consistently, the mediation effect was established. Furthermore, the current study is of significance for the HR managers of the hospital to formulate strategies to overcome this phenomenon particularly in the recruitment & selection process which in the end affects the healthcare employee’s performance.