I believe forced ranking systems are pretty ham-fisted; there is a whole series of perverse outcomes associated with them. They work in the sense that they force identification of performance differences. The question is: what do you do with the rankings? This is where it becomes much more contentious. I consider that imposing real consequences on people because of such rankings is pretty dysfunctional, and it reduces incentives for co-operation, increasing the competitive aspect of an organization, which may not be a good idea depending on what type of organization you are in.
Another worrying aspect pointed out to me by people involved in such systems is that forced rankings appear not to be particularly reliable over time, i.e. the people at the bottom of the ranking one year are not necessarily the people at the bottom the next. Hence the notion of getting rid of people seems particularly random. In addition, when laying off the bottom of the distribution, you are basically assuming that you can hire better people from outside – and it is not clear that this will always be the case.
In general I believe that the benefits that can be derived from a forced ranking in terms of identifying performance and sending important messages to employees could also be achieved by simply letting an employee know that he or she is at the bottom of the performance distribution in the group. For most people who care about their performance, that’s a powerful motivator and there is no need to threaten them further. If, on the other hand, they aren’t motivated, threatening them is unlikely to make much difference.