Annotation features have a fixed position and size, so when you zoom in to the map they appear to get larger. Labels are dynamically drawn according to their layer’s label properties. If the map does not have a reference scale they are drawn at their specified font size regardless of the map scale. To make labels behave more like annotation, you can set a reference scale for the map. The labels will be drawn with their specified font size scaled relative to the reference scale.

When converting labels to annotation you should specify a reference scale. If you do not, the current map scale will be used as the reference scale for the annotation.

You can also view and change the reference scale for the data frame using the General tab of the Data Frame Properties dialog box.

After you set a reference scale the labels will become correspondingly larger or smaller when you zoom in or out. You’re ready to convert these labels to annotation.