What is an annual performance review?

An annual performance review is a yearly evaluation that employers facilitate for all employees. The review typically addresses the employee’s and/or organization’s pre-identified goals, a discussion of employee strengths, areas for growth and general progress. In some organizations, performance on an annual review is linked to financial bonuses or other incentives. Store performance review information in an employee’s personnel file.Higher education institutions or prospective future employers may request the information.

How to create a performance review process

Follow these steps to create a performance review process:

1. Set clear goals for the process

In addition to the standard goals of measuring and evaluating employee performance, consider what company-specific goals you might have for your review process. For example, determine how to leverage the process to fulfill your company mission, improve employer-employee relationships or increase employee motivation. Depending on what those goals are, decide whether you want to share them with employees during the review process.

2. Create your structure and tools

Consult industry models or create the specific structure for your reviews and the tools you will use to execute them. Common tools include an evaluation rubric, a pre-meeting and post-meeting reflection sheet, a goal-setting template and an agenda. Then create a digital or hard copy storage system for all evaluations so you can store them for the duration of the employee’s tenure with the organization, if not longer.

Related: Employee Evaluation Form

3. Clarify employer and employee roles and responsibilities

Once you establish the structure, clarify the roles and responsibilities of each party before, during and after the review to support a positive outcome. This helps facilitate high-quality preparation and empowers employees to engage meaningfully in the process.

4. Seek employee feedback

Seeking employee feedback before initiating your performance review process increases employee engagement, improves your process and creates a performance review culture that is more collaborative than intimidating. Determine whether some or all aspects of the process are open to feedback from employees. Depending on your office culture and specific objectives, determine if it’s more effective to include them in the planning process from the beginning or ask for feedback once a draft process has been established.

5. Evaluate the process periodically

Like any other structure within a professional organization, it is helpful to monitor the progress of your performance review process against the established goals. Being open to employee feedback and flexible in response to successes and challenges will allow you to continue refining the process until it meets your needs. Scheduling quarterly or annual review meetings for leadership personnel standardizes your reflection and refinement process.

Best practices for managers

Consider incorporating these performance review best practices for managers:

• Prepare yourself and guide employees about how to prepare: Both parties should come to the performance review meeting prepared to discuss specific areas of strength, areas for growth and future goals. Some organizations do this formally by asking employees to complete a self-assessment in advance of the meeting, using the evaluation rubric as a guide. Making an outline of key items to cover, collecting artifacts and even drafting your talking points are helpful preparation strategies for the employer.
• Follow a structured agenda: Following a pre-set, structured agenda keeps the conversation on track and ensures all key elements are covered. To support preparation, share the agenda with employees in advance.
• Emphasize strengths and positive progress:Most employees expect to hear both positive and constructive feedback during a performance review. Beginning with strengths and spending more time on that than on constructive feedback can support a strengths-based approach to leadership and maintain employee engagement and motivation.
• Provide examples: Whether through tangible artifacts or anecdotal descriptions, offer examples of positive and constructive feedback to enhance the process to ensure the employee understands the exact feedback.Providing examples ensures a fair and objective process.
• Identify clear next steps: Ending the meeting with clearly defined next steps gives purpose to the conversation and guides future growth and development. Assign the next steps to both the employer and employee, setting employer next steps as ways that the employer can most strategically support the employee’s performance.

Related: How to Conduct an Employee Evaluation

Performance review FAQs

Consider these answers to frequently asked questions about performance reviews:

Why should you have a performance review process?

Creating a structured process for conducting performance reviews, and implementing that process, helps maximize the effectiveness of the reviews in developing employee skills and meeting company objectives. Additionally, a standardized process promotes fairness and equity among employees, which minimizes the risk of legal action by employees who are terminated or dissatisfied with their evaluation.

How can you improve a performance review process?

Although the exact improvement strategy would depend on the existing process’s area for growth, here are a few ideas companies can consider to improve their performance review process:

• Administer employee feedback surveys about the process
• Research processes and tools used by other organizations
• Allow employees to take a leadership role in the reviews to increase their engagement
• Schedule quarterly check-ins to discuss progress and revise any action plans