Reds, Yellows Greens

First, an answer and then a comment. 
I *suspect* that your company was looking for some way to start instituting some performance improvement (nothing wrong with that) and this is their way to try to segregate folks based on performance.  R/Y/G  (sometimes called R/A/G or "rag" for red "amber" green) is a somewhat common project management status tracking vocabulary.  I *assume* that someone is thinking to apply it to people.
I *suspect* that your firm is trying to have you start thinking about your folks differentially (again, a good thing, really).
Comment: it's a really dumb idea unless they give you some sort of guidance.  Otherwise, you'll have, as happens in performance reviews, one manager's yellow is another's green (or, red).
So, for now, let's assume guidance is coming.  Trust that they'll help structure your thinking.  That said, wouldn't hurt to take your team and start thinking this way.
Mark

Thanks for the comments.
You are right on with your assumptions and your comment.
I *hope* guidance is coming, but if not, I use what I learn here to shock and awe.

We use a similar method (A/B/C) but for me it is much too vague.  Has anyone used a more successful method to rank and measure employees?

A previous company I worked for had a scorecard for core competencies that worked very well.

Each function that was core for each job role was scored across a 1-5 scale. Each point on the scale was given a detailed description. So (a crude) for example for MS Excel that specifies different levels of excel that are needed for someone in the Purchasing Department would be:

1) Has no knowledge of MS Excel.
2) Uses MS Excel to review data - has no knowledge on creating spreadsheets or manipulating data
3) Basic MS Excel User - Able to create and format simple spreadsheets and use simple formulae (e.g. SUMs)
4) Medium MS Excel User - Able to create and manipulate more complex data and formulae (e.g. VLOOKUP and IF statements)
5) Advanced MS Excel User - Able to create and manipulate more complex data and formulae (e.g. Nested IF statements and complex spreadsheets that look up and display data from other sheets)
Note that you might be happy with this same grading for all employees at the same company or you might need different descriptions for the 1-5 scale for requirements for other roles.

You then work out for different roles, what grading in each competency would be needed. So a Purchasing Manager might need grade 5, whereas an Assistant Buyer might only need a grade 2 or 3.

Then each person scores their own competencies and we did this before knowing what the expected grade was for our role. The Manager then also scores their team, again not knowing which grades are needed for which role. Then the both people get to see both sets of scores against the required scores and get to meet up and adjust any scores that were not agreed at the same grade. Sometimes an employee might be highly developed in an area that is not currently used in their job role and as their manager you may not know they have these skills. For example someone may be fluent in French and you didn’t know because it was nothing to do with their current role and it hadn’t come up in O3s.

Then the manager and employee can work on a training and development plan where there are shortfalls between the required grade and actual grade. Also if the employee wants to improve and become a more senior level in their department or a completely different department, they can check their grades against the requirement for the other role and train (or be coaches) towards the levels they need.

This needs a lot of time putting into it to develop, but when it was done thoroughly it worked very well.

Good luck!

Thanks for sharing your process!