I feel like this gets tried in various ways at different companies. One of the antipatterns it tends toward is that people try to get moved away from teams that don't directly increase KPIs. Things like writing documentation, doing customer support, building internal tools, and other unsexy features get left behind. Meanwhile, all the most ambitious people move toward features that get people to buy things, click on things, focus attention on things, get angry at things, or be stuck on the platform.

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?

This sounds about as appealing as unlimited vacation. Which is to say, not.

I don’t want my immediate manager to have direct control over my pay or my vacation.