William Briggs relates an acquaintance's story about the annual review process. From the tone of the post it doesn’t sound like he thinks it’s fair.
My friend is a top employee, a fact which nobody questions, and so my friend gave four personal goals a 5 and one goal a solid 4. The form was then handed in.
It wasn’t long before a human “resources” resource got on the phone to question the ratings. “Did you know,” the resource questioned, “that your group is only allocated three ‘outstandings’? So you cannot put four of them for your self.”
It certainly doesn't seem "fair" but it is the only way that I can think of to make the ratings scarce so that they are only truly given to those that deserve them.
Without this artificial scarcity you allow really crappy managers -- that only want to please their employees-- to give out 'outstanding' reviews like candy. Meanwhile, more honest managers try to give them fairly (and those with rigorous standards give them out sparingly) so there are huge disparity amongst different teams. With employees that work for lazy managers getting rewarded and employees that work for demanding managers getting punished.
This isn't to say that the system is perfect, but at least the inequity in rating is somewhat limited within a certain scale.
I have worked for managers that don't establish clear goals or objectives and rated everyone highly. I have also worked for managers with very high expectations and doled out "outstandings" like they were pure gold. I would much rather work for the later.