You can use the yearly review as a chance to touch base with each employee. You can let them know what they have been doing well, what they could use some improvement on, and what they can work towards in the future. You can also provide your employee with a self-assessment to rate how they feel their performance has been, and compare it to your own assessment. Allow them to write down questions to ask  you as well. Do not rush the yearly review, and allow employees to take all the time they need to express their feelings and expectations to you. Of course, this is always a good time for the yearly pay raise. Make sure to also ask questions of your employee and find out how they feel.

Be respectful. Even if you are giving a negative yearly review, make sure to do it in a respectful and motivating manner. Allow your employees the opportunity to improve and do better in the future. Make expectations clear. Do not allow personal feelings or subjective bias get in the way of the review. Help your employee recognize their strengths, and help them to set both short and long term goals. Have your employee leave the yearly review feeling positive and motivated, and everyone wins!