What is an annual review?

An annual performance review is a method for evaluating employees, acknowledging their achievements and identifying potential areas for improvement. Managers can also use them to set goals and keep employees invested in the organization by suggesting development opportunities. Many large companies use annual reviews for every employee. Others rely on informal reviews performed at more frequent intervals, such as monthly or biweekly feedback sessions.

What is the purpose of an annual review?

An effective annual review helps employees understand how their contributions affect the company. It also helps team members understand what they can do to advance their careers. 

For example, an employee working on the manufacturing line may set a goal to become a team leader. The manager conducting the review may explain the steps to transition into that role, such as meeting certain key performance indicators (KPIs) or upskilling in various areas.

Annual reviews can also help managers monitor team performance. When you perform reviews consistently, you might identify and address areas of concern. Many companies also use annual reviews to award merit pay increases. For example, an employee with a rating of “exceeds expectations” might qualify for a 5% raise, while a worker with a rating of “meets expectations” might qualify for a 4% raise.

How do I plan an annual review?

Careful planning before annual reviews may help you organize your thoughts. Consider setting specific, measurable, achievable, relevant and time-bound (SMART) goals to help managers and employees understand your expectations.

As an annual review approaches, you might create detailed notes on the employee’s performance. This can help you avoid recency bias, which occurs when a manager emphasizes recent events over past events. Recent performance isn’t always a reliable indicator of overall performance, so considering all achievements can help managers increase accuracy during the review process.

When you schedule a review, it’s helpful to give the employee plenty of time to prepare. They may want to create a list of questions to ask or points to discuss. For example, they may request additional resources to support areas of improvement, such as additional equipment or training.

Annual review templates

An employee evaluation form typically includes a list of competencies. managers typically use a standard scale to assign a rating for each one. These are some of the most common rating scales used for employee performance reviews:

• Five-point numerical scale: The five-point scale allows managers to assign ratings of one through five for each competency. One represents the lowest rating, while five represents the highest.
• Likert scale: With a Likert scale, managers indicate their level of agreement with each statement. For example, a manager might “strongly agree” that an employee meets deadlines consistently. 
• Four-point numerical scale: The four-point scale works the same way as the five-point scale. However, there’s no middle value to represent average performance.

It’s also helpful to include space for comments so employees can understand why they received certain scores.

Some companies incorporate employee self-evaluations into their performance management processes. Self-evaluation gives team members a chance to assess their own performance. They can compare their ratings with a manager’s, making it easier to determine if their perceptions align. Self-evaluation also increases accountability and helps promote self-reflection.

If you don’t have an evaluation form, consider using one of the performance review templates compiled by Indeed. Using a template can reduce the time it takes for a manager to complete each evaluation.

Examples of annual review questions for managers

It’s helpful to ask specific and open-ended questions during an annual review. Consider asking questions that allow employees to assess their strengths and weaknesses and identify their contributions. You might include these questions in your review process:

• What accomplishments from this year are you most proud of?
• How can I improve your job satisfaction?
• What working conditions make you most effective in your role?

When examining your employees’ strengths, here are a few example questions:

• Which of your personal strengths help you perform your job effectively?
• Why are you the best person for your role?
• Do you have any skills that our organization could use more effectively?

When identifying areas of improvement, consider using these questions:

• What two or three things may help you improve your performance in the coming year? 
• How can I help you reach your goals more effectively?
• Are there any parts of your performance you think could be improved, and if so, how will you improve them over the next year?

Most annual reviews contain a section on the employee’s future outlook. This section often contains questions such as, “Where do you see yourself in five years?” or “What are your goals for the future?” If you want employees to reflect on their professional growth, consider asking these questions:

• What do you consider to be your most important goals over the coming year?
• What would you like your next position in this company to be, and what responsibilities would you like to take on?
• Are there professional growth opportunities you’re interested in?

When adding questions to your evaluation form, it’s helpful to have a narrow focus for each one. For example, you might want some questions to focus on skills and others to focus on potential areas for improvement.

Examples of useful comments on annual reviews

Constructive feedback can support professional growth and help employees improve their performance. You can use this section to highlight performance concerns in neutral terms, with suggestions on how to resolve them.

You might use these comments for your annual reviews:

• Their excellent performance this year was driven by their ability to reflect, plan and act effectively.
• They use their experience to lead team meetings, but it can sometimes limit others’ ability to contribute.
• When working alone, their performance is superb, but they might benefit from refining teamwork skills. 
• They consistently meet deadlines and effectively prioritize their workload.
• They prefer traditional approaches over creative ones, leading to a tendency to be risk-averse.
• Their creative thinking is often a key element in meeting team goals.
• They always give their team the resources and training needed to achieve company goals and targets.
• Their risk-averse tendencies lead them to concentrate on lower-value work.

Although some of these comments suggest areas for improvement, they highlight a problem, identify its cause and offer actionable feedback.

Common annual review skills

Depending on an employee’s role, some skills are typically more important than others. For example, problem-solving and innovation may not be necessary skills for workers on a production line, but employers likely prioritize quality of work and reliability.

Here are several examples of employee skills to cover in an annual review:

• Quality of work
• Communication
• Interpersonal skills
• Teamwork
• Punctuality and attendance
• Accountability
• Problem-solving
• Adaptability
• Innovation
• Growth
• Self-education and learning

Simple annual reviews

If an employee has few duties, you might perform a simple review instead of a detailed one. Consider creating a simple evaluation form with the following information.

• The employee‘s strengths and weaknesses
• Areas where the employee can improve
• The employee’s contributions to your organization’s core values and goals and how they can grow and evolve

However you choose to conduct your performance evaluations, keeping them useful and engaging for employees and managers is key.

Annual review examples for managers (Templates for PDF & Word)

Consider using these annual review templates to evaluate employees: