This leads to a lot of doing the bare minimum, since any effort beyond what is necessary to keep the job is wasted effort. You will get paid more just for existing longer, so just hang on. The only real way to get more money is to switch jobs, which is more about negotiation and politics than being good at the previous or next job. Most people aren't ambitious enough to repeatedly job hop, but would be ambitious enough to chase more money at their current job, were the opportunity presented.
The only way to fix this is to encourage larger variations in salary between high and low performers and get the union (I've done my time) mentality out of these organizations. It will never happen for the government.
Sure there is, that organization is called having your own business, or consulting.