It's more about producing a quality culture in order to produce a quality product. You can still recognize people for performance, but not by an unverifiable and arbitrary rating scale. You can still promote people, but do it in the open by agreed upon skills, merits, and experience. Your goal shouldn't be to demotivate people by negating all forms of reward, but to motivate them by rewarding in the clear based on agreeable reasoning.
The key is in the culture: enable people to take pride in their work. It turns out from 10,000 feet, what most people want isn't, in fact, simple monetary recognition, that this is a by-product of the dysfunctional reward-seeking individualistic culture, looking for any way to find self-worth and recognition in a system devoid of true value. Any port in a storm.
What people really want is autonomy, mastery, and purpose from their work, and a culture that enables them to love what they do while being fairly compensated and challenged. Deming's ideas are meant to enable this type of business, and entirely remove the type of childish game playing over simplistic rewards you're talking about.
You go from a simplistic carrot-and-stick reward-seeking and punishment-avoiding mentality (and all the complex structures of negative reinforcement and behavior avoidance built around it) to a functional culture, devoid of fear, enabling people to do work that they can feel proud of.
If you have people who really are superior, they'll want to be challenged, to work with other great people, and to be fairly compensated. If you have sub-par people, work on raising them to another level: Point 13, "Institute a vigorous program of education and self-improvement."
Furthermore, your top performers are your outliers: the tiny sliver on the end of your bell curve. You need to start by realizing that statistically, improving your entire culture is going to improve your company more than desperately keeping hold of your top 2 rockstars using methods that are demotivating everybody else. It turns out, the things you do to improve your systems and culture are the same things that top performers want. They'll leave if they're not feeling fulfilled—if bonuses and money is all they want, screw 'em, they're culture thieves anyway. But what they probably really want is work that is real.
Easier said than done, but Deming gives an excellent prescription for how to do it, and it's fully backed up.
The key is to realize that you cannot do these things in isolation. That was his last point: "Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job." You can't just remove part of your existing system because of one suggestion: you need to replace it with another, better one.
PS: Here's another writeup I did on this subject recently, delving into much more detail: https://news.ycombinator.com/item?id=6704645