I'm a manager at my company. We have a rating system, and there is no need for someone else to be ranked lowly for you to be ranked highly.
What that DOES mean, though, is that someone has to keep pressure on people not to rank everyone as awesome. Because, look:
a. Managers are, contrary to rumor, people too. We don't enjoy the awkward, painful meetings in which we deliver negative feedback. We don't enjoy telling people that they aren't getting a raise, or that they need to improve or be terminated. That sucks. Personally, it keeps me up nights, and I've heard the same from many other managers.
b. Managers are also graded themselves on how effective their employees are. Like, if your employees are persistently rated below average, well, what's the common factor across your employees? Vice versa if they're all high performers.
So if you just tell managers "rate your employees, follow your conscience," then there is a grade inflation incentive. Even if you're super-disciplined and make painfully realistic assessments of your employees' abilities, Bob one team over may give everyone fives, and then you end up looking like a bad manager and also maybe you get to go and put someone on a PIP.
The company needs some way to stop this. Stack ranking is one such way. I don't like it, I think it's overall a bad way, but it's a mechanistic way, which is more valuable the larger your company. Small companies can have a powerful manager or small group of managers who "keep people honest." That doesn't scale.
You can use another mechanic to keep people honest, but all mechanics are exploitable.
What that DOES mean, though, is that someone has to keep pressure on people not to rank everyone as awesome. Because, look:
a. Managers are, contrary to rumor, people too. We don't enjoy the awkward, painful meetings in which we deliver negative feedback. We don't enjoy telling people that they aren't getting a raise, or that they need to improve or be terminated. That sucks. Personally, it keeps me up nights, and I've heard the same from many other managers.
b. Managers are also graded themselves on how effective their employees are. Like, if your employees are persistently rated below average, well, what's the common factor across your employees? Vice versa if they're all high performers.
So if you just tell managers "rate your employees, follow your conscience," then there is a grade inflation incentive. Even if you're super-disciplined and make painfully realistic assessments of your employees' abilities, Bob one team over may give everyone fives, and then you end up looking like a bad manager and also maybe you get to go and put someone on a PIP.
The company needs some way to stop this. Stack ranking is one such way. I don't like it, I think it's overall a bad way, but it's a mechanistic way, which is more valuable the larger your company. Small companies can have a powerful manager or small group of managers who "keep people honest." That doesn't scale.
You can use another mechanic to keep people honest, but all mechanics are exploitable.