A multilayer coating comprising Cr as IR reflector, alternative AlCrN/AlCrON as absorber and AlCrO as anti-reflective layer has been designed and deposited on stainless-steel substrate by cathodic arc ion plating. It was found that the selectivity (α/ε) of multilayer coating was increased from 0.919/0.128 to 0.928/0.105 after annealing at 550 °C in vacuum for 2000 h. Microstructural analysis revealed the formation of nanocrystalline/amorphous composite structures in the AlCrN/AlCrON absorbers and AlCrO anti-reflective layer, which was beneficial to improve the thermal tolerance of the multilayer coating by restraining nanoparticles agglomeration and interface degradation. The enhancement in selectivity after vacuum annealing was ascribed to the partial recrystallization of the amorphous matrices, resulting in the formation of nitride nanoparticles, which can promote the intrinsic absorption due to the increase of optical path. However, the multilayer coating destabilized when annealed at 550 °C in air for 2000 h. Based on the microstructural characterization, the corresponding failure mechanism was attributed to the element migration between adjacent sublayers, structural relaxation of the amorphous matrix, and surface solute atoms segregation induced oxidation and coalescence of nanoparticles, which degenerated the intrinsic absorption and localized surface plasmon resonance of nanoparticles in AlCrN and AlCrON absorbers.