{"id":9612,"date":"2026-05-26T14:59:35","date_gmt":"2026-05-26T14:59:35","guid":{"rendered":"https:\/\/besthrpractices.org\/?p=9612"},"modified":"2026-05-26T16:46:49","modified_gmt":"2026-05-26T16:46:49","slug":"annual-performance-reviews-are-the-most-expensive-hr-illusion","status":"publish","type":"post","link":"https:\/\/besthrpractices.org\/sk\/annual-performance-reviews-are-the-most-expensive-hr-illusion\/","title":{"rendered":"Ro\u010dn\u00e9 hodnotenie v\u00fdkonnosti je najdrah\u0161ou il\u00faziou v oblasti \u013eudsk\u00fdch zdrojov"},"content":{"rendered":"
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Ro\u010dn\u00e9 hodnotenie v\u00fdkonnosti je najdrah\u0161ou il\u00faziou v oblasti \u013eudsk\u00fdch zdrojov<\/h1>\t\t\t\t<\/div>\n\t\t\t\t
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Why SMEs can no longer afford them?<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Performance management in SMEs: from annual evaluations to quarterly dialogue<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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The Best HR Solutions in V4 Countries project is an international community of business leaders, HR professionals, and academic researchers exploring how scientifically proven HR practices can be translated into everyday business operations to create HR systems that genuinely work and deliver business value. The article series launched by the community examines the most important HR areas from both SME and large-enterprise perspectives.<\/strong><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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In Hungary, performance management in most small businesses still means one single tense event each year: the annual review that both managers and employees simply want to survive.<\/p>

Yet an international study covering more than 2,000 organizations across the V4 countries \u2014 including SMEs \u2014 found that nearly 40% of companies operate without any regular performance management system at all. And where such systems do exist, they are most often used for only one purpose: justifying salary increases. The result is predictable: unclear expectations, delayed feedback, and organizations operating \u201cby intuition\u201d rather than through data and meaningful dialogue.<\/p>

Today, the real question is no longer whether SMEs need performance management, but how they can implement it simply and without unnecessary administration.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Why annual reviews do not work<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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Traditional annual performance evaluations fail in most SMEs for three main reasons.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t

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Time distortion<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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When the conversation finally takes place in December, both the manager and the employee are trying to remember what happened back in February. Events close to the end of the year remain vivid, while earlier achievements or issues fade away. As a result, the evaluation reflects what people still remember \u2014 not actual performance throughout the year.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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Pressure and tension<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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If employees receive feedback only once a year, the moment inevitably becomes stressful. Managers dislike uncomfortable conversations, and employees do not want to be confronted with problems they have never heard about before. In these situations, everyone tends to avoid conflict, and eventually \u201ceveryone becomes good or excellent\u201d \u2014 exactly as one HR director from a global IT company described during our research interviews.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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Lack of real usefulness<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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If the only practical purpose of the review is to justify pay increases, neither managers nor employees feel that the \u201cmandatory\u201d conversation is truly about development. The entire process turns into a theatrical \u201clet\u2019s get this over with\u201d exercise and a form of unnecessary administration.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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A \u201cperformance management maturity mirror\u201d for SMEs \u2014 in four questions<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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If you lead a small or medium-sized company, the following four questions can quickly reveal how well your performance management system actually works. If your answer is \u201cno\u201d to several of them, what you need is not fine-tuning but genuine redesign.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t

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1.Do your employees clearly understand what is expected from them over the next three months?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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This is not about general job responsibilities \u2014 everyone already knows those. The real question is whether employees have a few concrete, measurable goals linked to current business priorities that they genuinely feel ownership over. International SME research shows that companies using short-term, measurable goals with direct business impact tend to have higher engagement and lower turnover.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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2. Do you have regular, short feedback conversations \u2014 not just one annual review?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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According to V4 HR research data, feedback processes in many organizations across the region remain irregular and ad hoc. In SMEs, this is especially paradoxical: managers and teams work closely together, creating natural opportunities for feedback \u2014 yet regular conversations still rarely happen. A structured 30\u201345 minute quarterly discussion is not a major time investment, and the IT company examined in our case study found that this is the only way to prevent goals from becoming one-off administrative exercises.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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3. Are managers truly required to differentiate between levels of performance?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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This is one of the most sensitive questions. If salary increases are \u201cautomatic,\u201d and everyone in the team receives roughly the same raise, then performance has no real value \u2014 either positively or negatively. In the case study we examined, this issue was addressed through a simple rule: approximately 80% of the team could receive a raise, while 20% would not, and the highest performers would receive the largest share. This is not about punishment; it is about ensuring that exceptional performance actually matters.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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4. Do you regularly track at least 3\u20134 basic performance indicators?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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According to the V4 research, nearly 39% of organizations use no HR controlling tools at all. From a performance management perspective, this means managers have little visibility into where energy is being lost, who may be approaching burnout, or where teams need strengthening. At minimum, companies should review several indicators quarterly: goal achievement rates, turnover in critical roles, the number of development and feedback conversations completed, and whether salary increase decisions are supported by documented reasoning.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Four practical steps toward effective performance management in SMEs<\/h2>\t\t\t\t<\/div>\n\t\t
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1.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Replace annual reviews with a quarterly rhythm<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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One of the key lessons from the IT company case study was this: as long as evaluations remain a once-a-year \u201cceremony,\u201d few people take them seriously during the rest of the year. However, when companies build a structured rhythm \u2014 setting goals at the beginning of the year, conducting short quarterly reviews, and closing the year with a summary discussion \u2014 goals remain continuously visible and can be adjusted when priorities change.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Quarterly discussions do not need to be lengthy. A few focused questions are enough:<\/p>