[high_derivative]

I don't understand how this is different in any way from bands which employees are placed in based on performance? Im not trying to be combative, I genuinely do not see how this would realize any different outcomes. It just seems to shift definitions around.

If employees A and B both are in the same band, both do not get promoted in a year, but have different performance ratings, I assume they will end up with different 'performance based pay' raises. Where is the difference to moving them to a different place in the band?

[peytoncasper]

Largely because performance based pay does not have a fixed upside.

Contrast this with a salary band which does have a fixed maximum.

[joshuamorton]

Both of these can be false (or mostly false). For example at most big firms, performance based comp has a known upside. Something like your bonus is x% of your salary multiplied by some performance indicator based on your eval, and the max is like 2x or something.

Similarly, salary bands can have soft caps, where growth becomes harder as you're further from the minimum, but never becomes impossible. Neither approach is necessary better, but all are used in different places.