In my company, employees grades have to follow a normal distribution (HR rule). Most people must be ranked average, some must be ranked above, some must be ranked below. Otherwise all managers would give above average grades to most people, because it makes them look better, avoid conflict, and everyone is always convinced they're above average. So HR forces managers to find some losers.

If a coworker is given an above average grade, it means I'm much less likely to get one.

But in practice it doesn't matter too much because managers tend to distribute grades depending on time since last promotion/significant raise, to be able to justify the next one.