It should be noted upon mentioning curve-grading employees against one another that there's a big difference between being in the bottom 10% of a group and an employee being actively destructive to productivity and morale. Planning from the start to get rid of 10% of the workforce doesn't seem very smart. Aspiring to hire 100% good to great workers makes more sense. Getting rid of people with tendencies actually harmful to the group is good, but getting rid of a productive employee who happens to be 5% less productive than someone else is just silly.
While what I wrote above promotes evaluations for the most part, I wouldn't promote intentionally hiring 10% of a workforce for them to fail and be fired. I'd want the documentation available to support firing people who actually, for example, cause productive members of the team to want to leave or who introduce more work for others than they accomplish themselves. That's hopefully a rare person who doesn't slip past the recruiting phase very often, though.
Mostly evaluations should be about two positive outcomes. The first is finding the problems otherwise productive employees are having that management can address. The second is about rewarding the great employees who stand out from the good and maximizing their contributions.
Stories of incompetent managers (and/or accountants) who take out their frustrations on their work-force are, of course, the stuff of legend. (Which has little to do with the process of “performance appraisals.”) If a company believes that it has hired 10% too many people to do the job, it is probably wiser to fire the onedamned fool person who is saying that. However, if that person appears to be attracting a sincere audience, it simply means that the company has cash-flow problems ... which are almost always endemic. The bloodstream of a business is cash, and “congestive heart failure” is always fatal to it.
“Substantial layoffs” are, pure and simple, a sign that there are icebergs in these waters, and that the company has recently hit one of them. (It is very easy to <!>-up a company, even when management didn’t mean to.) The company doesn’t have enough cash to pay its bills, and probably has tapped-out its lines of credit or is well on its way to doing so. It is deciding whether to cut off its arm or which one of its legs. If a major company makes substantial hits to its data processing operation, in particular, then that is a company that is “going down,” no matter how long it actually takes to hit the ground. (If cash is the bloodstream, then the digital computer is the heart and hands and feet.)
You might not have the privy data with which to make a decision, but you can always see the signs. Don’t sit there in your comfy seat, waiting until you actually smell smoke. If you are reasonably alert and attentive and educate yourself as to what to look for, you can usually spot the warning signs months or years ahead of time, while management is still (publicly, at least) in denial. If the words on that wall aren’t graffiti, don’t let the door hit you in the butt. Don’t spread secrets or spill (or buy stock or puts/calls based on) what you may know; just carry your own box of personal belongings out to your car.
All that you can do – all that you have to do (unless you are an officer of the place, you unlucky SOB...) – is to get out of the way. There will always be very strong demand for people who can make a digital computer sing and dance: if not “here,” then “there.” This is the way that business actually works. Don’t take it personally, and try not to get caught by it more often than you inevitably will. You are a very well-paid employee; therefore, you are very costly. It is merely a contract; no one owes any allegiance to anyone. It’s par for this course. Plan wisely.
I think you're living in one of those legends yourself. The overall IT sector is, along with every other sector of the economy, down over the last few years. There are companies that will cut 10% of every department just to cut costs for the stock price. Incompetent managers are just as likely as incompetent workers in any other line of work, and jerks are just as likely to be managers as any other line of work.
Performance evaluations aren't done for their own sake. They are done to validate actions the company or its staff take. A good evaluation validates a raise or promotion. A bad one validates no raise or letting someone go. If the evaluations are abused and data misconstrued, then people's jobs and pay rates are absolutely being abused as well.
Businesses don't always give the department lead a budget to be spent on whatever, and many businesses do not allow the department manager direct say in the exact pay rates of his or her staff. There is sometimes nothing but paperwork linking many workers to people making decisions that directly effect the employee's job and pay. They may not have ever met the people making the decisions. That paperwork needs to be accurate unless you really want someone to keep the wrong part of your staff around.