How do you approach annual reviews with team members who perform well, but haven't done what it takes for a promotion?

In this scenario, I focus on supporting their readiness for higher roles. This may involve providing shadowing opportunities, offering a tour of duty in another part of the organization or helping them build the necessary skills and experience within the next 6-18 months. I take a developmental approach and consider other pathways, such as lateral moves, if promotional opportunities are limited. It's important to assess the individual's current role expectations and explore ways to support their growth and advancement within the organization.

I’ll add in my agreement of honesty being key here. Just because some performs well doesn’t automatically equal a promotion each year. Especially if we are talking about promotion from individual contributors to a people leader role.

If the employee still has development to get to the next level or promotion there should be a partnership in creating a development plan. Asking them what they feel are some key experiences or skills they need to gain before being ready? Then work on a plan to get those, and encourage the employee to be proactive in driving their development.

I will "third" honesty and add that being very direct (not beating around the bush to soften the blow) is also critically important, to ensure the message is received. Continue to offer ideas for how the individual might develop, but also make sure they are owning their own development to drive their own career forward.

Honestly.  Make sure you are able to describe why (even if it's difficult), and offer to support their development.  I don't think you should just give them development - people are responsible for their own careers - but helping someone who is taking that responsibility is the best way to keep them engaged.

Honesty is key, everybody has potential to do something but you have to realistic and fair. If someone is a key performer but shows limited potential to go the next level up, you have to keep the person motivated and engaged. The person can still be critical to the organization for their deep expertise so we advice to leverage their expertise to maximize their contribution to the business. Continue to develop them and deepen their know how and make them SME’s for upcoming talent and a mentor, for instance.