Who watches the watchmen? In a large-enough organization, the stack ranking system is set by some executive high up the mountain. The low-level line managers and group managers are incentivized to work together to get the budget (for puffer employees) to help them keep their proven performers. Finance doesn't care as long as (a) the bottom-line improvements from firing puffers keep getting realized and (b) management keeps being able to pay puffers below-market salaries. Puffers themselves shouldn't care in this day and age, taking the opportunity to take the puffer paycheck as a 100% remote position with no actual responsibility, while working full-time somewhere else that actually appreciates them, so puffers basically get a free paycheck out of it for nothing.
It doesn't matter if it's a good system in theory. It only matters if it works in practice. There's an old joke about economists - they treat the real world as a special case.
So it doesn't even fail your first test of "the system can't tell". The system can tell. It's just not doing anything about it. That's the failure i'm describing.
Beyond that: If people work around the system, it will never work, regardless of the system. Any system can be worked around, good or not. There are no magically good systems that can't be worked around, or don't even incentivize people to work around them.
All good systems try to deal with bad actors in some way. If they don't, they fail. Plain and simple.
Saying that any system that doesn't work because it has bad actors is a bad system is silly. You will no-true-scotsman your way into having no systems at all.
And think about the corollary: how much additional effort would have to go into monitoring managers to make sure they weren't circumventing the "spirit" of the given bullshit metric? A company like that would resemble a dystopian regime.
"how much additional effort would have to go into monitoring managers to make sure they weren't circumventing the "spirit" of the given bullshit metric?'
Zero - Everyone already knows when it is bullshit. They all sit in a room, knowing someone else is saying bullshit, but avoid saying anything about it because they want to say bullshit too.
"This was my first lesson on how focus on tactical goals and metrics can fundamentally screw up the long term vision."
I don't get how you take that away from this - this is a lesson in how bad managers who refuse to do what is asked, and apparently have no accountability, can screw up the system.
Stack ranking may be good or bad, but if your managers are working around the system, and nobody is holding them accountable for it, that's a separate, and honestly bigger, problem.
If they actually did what was really being asked (instead of trying to work around it), either
1. it would work, and the company would be better off.
2. it would fail miserably, and the company would either stop doing that (and be better off) or go bankrupt (and we'd all be better off because it would be an object lesson).
The reason this went badly is precisely because of a lack of real accountability, not because of stack ranking itself.