In my humble opinion stack ranking was meant to create a clear process by which to measure people relative to their roles and each other. (I'm not defending the practice, just stating purpose.) Instead it created selective pressure that measured how well you could game the process to appear successful and push down the ranking of everyone else for yourself and your employees.
During the stack ranking heyday there was a manager who spent his year compiling a list of mistakes by other teams. When it came to year end reviews anyone asking about the ranking of this manager's people ended up deflected with questions about their own team members. People learned to just leave this manager's rankings alone and work around him. He was wildly successful, getting promoted early and often before leaving the company to go start a recruiting firm which allegedly applies some sort of AI principles to picking good candidates.
Yes, the purpose was to measure the unmeasurable, which, since it's impossible by definition, created the secondary effects you describe.
For details on the daily workings of stack ranking at Microsoft, the venerated Mini Microsoft is still up and available in all it's 15 year old glory. It's one of the true documents of contemporary tech work, and I'm glad it isn't just buried in archive.org (long live archive.org).
Also the list of "good" employees is not consistent year to year. Even if you don't fire people most will have better and worse years. Sometimes the swings can be dramatic when people find their groove or conversely when they face burnout or have personal problems.
Stack ranking is stupid, heartless and unscientific. Just like the man who invented it.
It in fact gets worse. During stack ranking's tenure at Microsoft, they would often pull the "best and brightest" in the entire company into teams to accomplish certain goals. The theoretical "best and brightest" were then stack-ranked against each other. Every manager had to pick the "worst" person to eventually get canned.
Not just that, but good employees get tired of dealing with the stress and sabotage from coworkers trying to stay ahead of the layoffs. In my experience, it speeds up the burnout process.
During the stack ranking heyday there was a manager who spent his year compiling a list of mistakes by other teams. When it came to year end reviews anyone asking about the ranking of this manager's people ended up deflected with questions about their own team members. People learned to just leave this manager's rankings alone and work around him. He was wildly successful, getting promoted early and often before leaving the company to go start a recruiting firm which allegedly applies some sort of AI principles to picking good candidates.