Briefly, the problem is that forced rank and similar systems create a zero sum game where employee is pitted against employee. It creates a system where people can win by tearing others down inside the company rather than focusing their efforts on working together to compete against those outside the company.

Combine this with the fact that managers rarely are able to do performance reviews correctly — due to lack of information and gaming of the system — and you have a recipe for disaster.

In the end, forced rank typically hurts morale and aggravates attrition because no one perceives it as fairly and correctly done.

A good alternative is to use performance reviews solely to help people improve their skills, give non-monetary compensation for individual rewards, and focus monetary compensation on rewarding teams.

If you’re interested in details, there is much more on that in The Human Equation, Strategic Human Resources, and other good books on human resource management.