In a setting that has the potential to be as emotionally charged as a performance review, good managers always have a plan.  If your reviews have generally been fairly casual affairs, you robbing yourself of the opportunity to improve morale at best, and setting yourself up for future litigation at worst. 

A basic performance review agenda is a must for any manager who wants performance reviews to have the most impact.  Here’s one sample for you to consider:

1. Greeting:  Relax tensions with a warm greeting.  Set an employee at ease with a discussion about a recent success.
2. Summary:  Summarize overall performance first so the employee can understand the flow of the interview that will proceed.  Tell the employee up front how he rates.
3. Focus on strengths first:  If you want to see more of a specific kind of behavior, specific compliments improve the likelihood.  Saying, “I appreciate the fact that you turn in payroll reports before they are due” clarifies to the employee that this is one behavior she “wins points” for.
4. Address weaknesses:  Saying “you have a poor attitude” assesses a weakness in performance, but doesn’t give an employee any ideas about how he should change.  Instead, try saying, “Your chronic tardiness to staff meeting hampers the meeting’s effectiveness and indicates that you have a poor attitude.”
5. Time for an employee to respond:  Make sure your agenda includes an opportunity for your employee to respond.  Listen politely without interrupting or attempting to defend your own views.  If appropriate, re-state what the employee has said so she knows that you listened, and clarify that the employee’s rating stands.
6. Recap:  Summarize the employee’s overall rating, and announce the new salary (if any), and the date it will be effective.  
7. End on a positive note:  Unless the employee’s performance is truly substandard, finish up with a statement of sincere appreciation:  “We appreciate your effectiveness in motivating the other employees in your department.  You are a real asset to our company.”

Source: http://www.businesstown.com/people/reviews-review.asp.