I worked with two folks that had previously worked at Intel. The same procedure was implemented there. There was a top 10%, a middle 80%, and a bottom 10%. This isn't a problem when working on a team of 10 to 20, but you certainly don't want to be on a team of 3 to 4. In that case, someone has to be the top and someone has to be the bottom. Once you are on the bottom once it's pretty much a 'start looking' situation.
These types of systems have their obvious drawbacks. You don't want to work with good people because the better they are the bigger chance that you'll end up on the lower end.