Annual Review: Understanding the Process and Importance

An annual review is a yearly recap of an employee's performance. Managers meet with employees to discuss progress, document any challenges, and define goals for the year ahead. 

Employers, managers, and HR professionals conduct annual reviews with staff across sectors. However, different industries, organizations, and departments have their own formats and processes. 

Learn more about performance reviews, the format these might take, the purpose of engaging in a review, and how to prepare for your annual review.

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What is an annual review?

Managers and HR professionals hold annual reviews with individual employees once a year as a structured, documented meeting. This allows you both to discuss your performance, plan your development, and align your future work with personal and company goals. These meetings support you in identifying your strengths and contributions, any areas that may need more focus, and increase motivation. You may also refer to an annual review as an annual employee performance review, an annual review, or an annual evaluation. 

Types of an annual review

Annual reviews may differ depending on where you work and the line of work you do. Usually, they follow a top-down format, whereby a manager leads the meeting without input from the employee, evaluating progress against company objectives and previously set goals. However, you may find some variations. You might find that your annual reviews combine two or more of these evaluations:

• Self-assessment: A personal evaluation of performance by the employee, sharing details of achievements and areas for improvement

• Peer review: Members of the workforce rate and discuss an employee's achievements and performance 

• 360 review: An in-depth review including self-assessment, peer reviews, appraisals, and feedback from management, clients, and stakeholders, led by a manager or HR professional

• Behavioral anchoring review: A numerical scale rating an employee's behavior and contributions 

What does the annual review look for?

The point of an annual review is to evaluate performance and to make a plan for any progression. Collaboration between the manager giving the review and the employee receiving the review is important as it’s an active and collaborative process. With an annual review, the aim is to put a plan in place for the year ahead by evaluating successes in line with set objectives. It involves looking at important areas for development and setting clear goals for the next year, the progress of which you can measure during the next review. It’s also an opportunity for the employee to ask questions.

Evaluation of employee performance and contributions

The main part of an annual review is the evaluation of employee contributions and performance over the year. If you are an employee, you can prepare by writing down your achievements from the past year. Consider achievements you can quantify, and provide detailed explanations for those that you cannot. Your employer may ask you to do this in a formal self-assessment as part of the review process. 

During the process, the employer will also look at the evidence relating to achievements, extra responsibilities taken on, areas of growth and development, and any special contributions. 

Goal setting and progress assessment

In addition to evaluating an employee's performance in general, the manager conducting the annual review typically looks at progress against previously set goals, which may include some constructive feedback. While all achievements are positive, it’s important that—as the employee—you can demonstrate and provide evidence that you are meeting your personal goals set at last year’s annual review, alongside company goals. 

An important part of an annual employer performance review is setting new goals for the year ahead. As an employee, you have a say in what these are. Ask any questions you may have, highlight points you need a manager to clarify, and outline goals you are motivated to work towards. Goals should be SMART (specific, measurable, achievable, realistic, and time-bound). In your next annual review meeting, you’ll use these goals to identify your progress. 

Feedback from supervisors and peers

Some annual reviews incorporate feedback from managers, supervisors, and peers as part of a peer assessment. This can be an important element of an annual evaluation as it gives a rounded perspective. Constructive feedback is an excellent way of understanding and working on areas for improvement while learning about what you do well and what your colleagues value. It’s important to incorporate both constructive and positive feedback into a review.

What is the purpose of the annual review meeting?

An annual review meeting evaluates performance over the year and sets goals for the next. Besides that, if done well, it’s effective in boosting motivation and communications, uncovering areas for development, and ensuring employees and organizations have the same values and goals.

Enhancing employee engagement and motivation

A collaborative annual review, where employees can share their accomplishments and participate in the goal-setting process, can improve motivation and engagement. By being involved in setting goals, such as self-assessment, an employee is more likely to engage in active development. 

Identifying areas for professional development

A key aspect of any performance review is examining ways an employee can improve personally. By identifying strengths and weaknesses and examining accomplishments, it’s possible to see where a person is performing well alongside areas that may need work. Generally, the areas with growth potential are those you address for development and further training. Document these points for review in your next appraisal. 

Aligning individual goals with company objectives

There is a general expectation that goals and self-development objectives set during an annual review will align with the company's overall goals and ethos. This is important to remember if you’re an employee asking for a raise or promotion. Your manager will look for evidence of your commitment to both the role and the company, ensuring the goals set will be mutually beneficial. 

Preparing for your annual review

As an employee preparing for your annual review, organize yourself sufficiently. Take the time to gather evidence to demonstrate your achievements and to make a case for your objectives. If your annual review requires a self-assessment, complete it before meeting with your manager to discuss your points.

Gathering performance data and achievements

Rather than thinking about your accomplishments on the spot, list all your achievements since your last review as preparation for your review. Look at the goals and objectives you set with your manager and provide evidence that you’ve met them. If you can provide values and quantities to demonstrate, then do. For example, “Grew the company’s social media following by 30 percent.”

Setting your own goals and expectations

You’ll find that your manager will have thought about goals and objectives for you that align with company goals. However, an annual review is also an opportunity for you to highlight areas you want to work on. Think about how you want to grow your role, what you want to learn, and what you might like to do in the future. A review should be a two-way conversation that benefits the company and employees. 

Who conducts the annual review?

Annual employee performance reviews are generally led by an employee’s line manager or direct report on behalf of an employer. HR professionals play a role in ensuring fairness while allowing managers to take the lead. They may create the process and coach managers, offering mediation when necessary.

In some organizations, colleagues have a role to play in your review, giving feedback on your performance, particularly as part of a peer review or a 360 review.

Prepare for your annual review with Coursera.

The annual review process is instrumental in evaluating employee performance and creating development opportunities. To improve your skills in line with a performance review, you may consider taking an online course or completing a Professional Certificate.

Coursera hosts several business courses. Take a look at the IBM IT Project Management Professional Certificate to help consolidate your leadership skills or the Meta Marketing Analytics Professional Certificate if you want to upgrade your skills in working with marketing data.