First, they are overly simplistic. Pegging someone into one of five slots tells you very little about that person. Grades don’t tell you about the child’s individual work, his or her unique struggles, style of learning, and achievements. Some of the most important qualities of a person’s learning cannot be measured.
Second, when grades are given as an extrinsic reward for a good performance, students are less likely to choose to learn for their own reasons.
Finally, no matter what system they are based on, grades inevitably invite you to rank students against each other. This contradicts our beliefs about the value of people and the purpose of learning. Kids are not in a race with each other in which there are winners and losers.
Instead of grading students, we encourage students to challenge themselves, to find something that is important to them, to evaluate their work, think about what they did well and what they could have done better, and what they'll do differently next time,
The traditional way of encouraging children to want to learn the things that we want to teach is by giving rewards for success: prizes, privileges, gold stars. Two grave risks attend this practice. The first is obvious to common sense, the second much less so.
The obvious risk is to the children who do not get the stars, for this is just one way of defining them as failures. The other risk is to all the children--"winners" and "losers" alike. There is now a substantial amount of evidence pointing to the conclusion that if an activity is rewarded by some extrinsic prize or token--something quite external to the activity itself--then that activity is less likely to be engaged in later in a free and voluntary manner when the rewards are absent, and it is less likely to be enjoyed.
Margaret Donaldson, "The Desire to Learn," Children's Minds (1979)
...the premium so often put in schools upon external "discipline," and upon marks and rewards, upon promotion and keeping back, are the obverse of the lack of attention given to life situations in which the meaning of facts, ideas, principles, and problems is vitally brought home.
John Dewey, Democracy and Education