iCloud password option for local users removed in OS X 10.11.4’s Users & Groups preference pane
Starting in OS X Yosemite, Apple introduced a new option to log into your Mac using the password associated with an Apple ID. As of OS X 10.11.4, this option seems to have been removed from the Users & Groups preference pane in System Preferences.
OS X 10.11.3:
OS X 10.11.4:
Apple’s KBase article describing how to set up users on OS X El Capitan was last updated on April 13, 2016. It does not include any information on using an iCloud password for a new user account.
This option still appears to be available on OS X 10.11.4 via Apple’s Setup Assistant. If you’re setting up a Mac for the first time and sign into iCloud as part of the setup process, you will be given the option of using your iCloud account to log in.