Management consultant Walter Oelwein writes in his Manager by Design blog:
What is most likely to happen (when "stack ranking" is used) is that the manager who advocates the loudest, or has the most charisma, is most politically “in” with the big boss, or has the most persuasive ability, is able to argue in favor of the “high performers” on the team. The manager who does not make forceful arguments, who cannot summarize eloquently, or simply doesn’t have the advocacy for his employees will inevitably have the “low performers.”
Microsoft isn't the only large company that uses "stack ranking." Others include General Electric, IBM, Intel and Pepsi, at least according to a bit of Googling.
Do any of you readers work in a "stack ranking" environment? If so, please tell us about your experiences and whether you think it helps or hurts your organization.