> those ratings have an effect on the teacher's annual review?
Yes. And with adjuncts (folks brought in to teach one or two courses per semester), getting low scores on the ratings means you don't get your contract renewed for the following semester.
For tenure-tracked teachers, your ratings are included in the things that they look at for tenure review.
> and thus being able to be harsh when necessary without having to self-correlate his behaviour in fear of being financially punished
You can only do that after you're achieved tenure.
What the HECK is that sort of system for? Students rating teachers and those ratings have an effect on the teacher's annual review?
I hope I'm wrong but if that's how it works in that particular school there's no chance for professional integrity if the teacher has to keep the students happy. A teacher should always be in a position where he has an unchallengeable authority over students (with regard to the class, of course), and thus being able to be harsh when necessary without having to self-correlate his behaviour in fear of being financially punished. Otherwise it'll be screaming for A's for everyone.