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4s and 5s are out
Close. The rating is how you did during the year in the context of your peer group rather than promotion readiness, though the two can go hand in hand. So a 2 might be better described as “above expectations” with a 1 being better than that. But you could get, say, a 2 in your first year after promotion because you did quite well but it wouldn’t necessarily indicate immediate readiness for another promotion.
Conversely, 5s are often exited and a 4 can either mean PIP, being let go (more likely in down economic years) or just getting a strong message to improve.