This work presents an annealing study of high-anisotropy (Co/Pd)N magnetic multilayers designed for bit-patterned medium recording applications. Magnetic multilayers were deposited by magnetron sputtering at 2.5mT argon pressure at room temperature and annealed at different temperatures (up to 250°C) for up to 2 hours in atmosphere and in vacuum. Depending on the annealing time, the samples annealed in atmosphere exhibited two distinct modes of magnetization reversal. In samples annealed for a time shorter than some critical time, tc, where tc is a function of the annealing temperature, the magnetization reversal occurs by domain wall injection and propagation. In samples annealed for times longer then tc, the magnetization reversal mode switches to magnetization rotation. Using XPS, it is found that the transition is accompanied by the formation of oxidizes at the grain boundaries leading to exchange decoupling of the grains. In samples annealed at higher temperatures, the increases of the coercivity of as high as 30 times the coercivity of as prepared samples are observed. Significantly, annealing in vacuum showed only small modification of magnetic properties as manifested by relatively minor modifications of vertical M-H loops and unchanged morphology of domain patterns in ac demagnetized state.