I think it's a terrible system. This means you could have a room full of the best and brightest, all of whom would be a '5' in a random sample of workers, but someone has to still be a 1 or a 2 because that's how the system works.

This reminds me of a couple of other barometers for standards that work in the same way

- Employment demographics and targets. I'm pretty sure from the depth of my mind that some companies and public sector work places aim to employ a certain percentage of the workforce from minorities or based on gender, so they're letting a persons race, age or gender play a part in their decision making process. Given two applicants of approximately equal ability, they let their targets decide who should get the job.

- Exam grades. Some exams use a system where only the top n% can get the top grade, which is great in some ways as it prevents everyone passing an easy exam with a high mark but there are so many ways this can work against a person. One exam group may be composed of more talented people on average than another group sitting the same exam. Because of that, someone with a higher actual mark might end up with a lower grade than someone who scored a lower mark but was still in the top n%

There is nothing wrong with assessing ability relative to others as long as it's used alongside consideration of expectations for the job etc. Scoring someone with a low mark simply because relative to their colleagues, they're not as good as them without considering their raw ability to do the job is the mark of someone who frankly isn't very good at being a manager in my opinion