Everybody who works for you needs to know where they stand and how they are doing compared to your expectations of them. Many companies have formal review systems to let employees know how their performances stack up. Reviews may be conducted as often as every three months, but annual reviews are most popular.
Each review should go over the goals that were set when the employee started the job or during the last performance evaluation. Then the review should examine how well the employee has done toward reaching these goals. The employee should be asked to rate his or her performance, in addition to relying on objective measurements such as sales figures. You and the employee should then discuss the desirability of trying to reach goals that haven't yet been achieved, and you should both set goals for the future.
But reviews and evaluations are--often justifiably--viewed as little more than formalities that accomplish little or nothing in the way of true feedback. To make formal evaluations go more smoothly, and to eliminate any surprises on the employee's part, give feedback at the time something occurs to warrant it.