I don't know what's normal across the game industry, but I know that Valve uses a stack-ranking system: Every year, the least-productive 10-20% of the company gets fired.
Oh, they figured out how to measure "productivity" in a largely creative line of work? Surely they're not measuring LoC #s?
Recalling another HN article I read on Valve's process, and what Microsoft's own stack-ranking system is like, I think the parent's use of "ranking" is/was literal: each employee lists all the other employees in order of what they think their productivity is. These ranking-vectors are then multiplied together to give an average ranking. So nothing is being "measured" any more than polling the populace about the length of the Emperor's nose is "measuring" it. It's more a way of saying, the justifiably least-popular 10-20% are fired.
It sounds absolutely terrible. What prevents the organization from being filled with evil people just supporting one another? How come a organization filled with quiet hard-working people doesn't outmatch them?
No, they are ranked by their peers.
Do you have a source for that? Gaben is an ex-microsoftie, and I doubt he would repeat their mistakes verbatim.