I'm a bit split on the way you described it. I'm a supervisor. Yes, each position has a target salary range (TSR). For simplicity, let's say it's 50K to 100K. They divide it up into five sections of equal size. The middle section contains the salary midpoint.
You are correct in that the "algorithms" used by the BSMA software automatically tries to speed people up until they get to the midpoint, awarding a higher % BSMA, then it gradually slows down the BSMA % once you hit sections 4 and 5.
So say there are two employees, each with the same rating. One is in the lowest quintile, and one is in the highest quintile. All things being equal, the person in the lowest quintile will receive a higher BSMA percentage than the one in the highest quintile.
The person in the highest, by nature of having a higher salary, might still be getting a bigger raise in dollars. In this scenario, the lower person could getting something like 3% of 50,000, and the higher person will get 1.5% of 100,000, i.e. the same amount.
The idea is that people doing the same job by title are 'kinda sorta' doing the same work. Or they should be. There's nothing inherently wrong with that. But to your point, it means that experience of the best people does not seem to pay off as they grow their expertise. The company's answer is for them to get another job in a higher salary band. Obviously that just means that the best people often leave behind what they are (a) good at and (b) like to do.
I had some people who were really great at what they did, but they were stuck in a title that had no progression opportunities. They didn't want to leave, and I didn't necessarily want them to leave. So I tried to do what I think good managers should, and that is create another job title that describes their day to day duties and competencies more accurately, and make sure that job has a higher TSR. It's not impossible. In fact, it's not even that hard to do, if you have a willing HR generalist working with you..which I admit can be really hit or miss. Mostly miss.
But good managers ensure that experience and performance is rewarded. Sorry yours didn't.