It's just impossible for everyone in a company to be a team lead, so not everyone can become that to become an L5.
Which leaves the other option, to become an L5, which is to be an "exceptionally strong individual contributor" and being that "on an ongoing basis". Not everyone in a company can be an "exceptionally" strong person, otherwise it wouldn't be exceptional any longer.
You're saying the expectation was to either become L5 or get out. So now we have all these PhDs and super achievers working at Google, but only some of them can be exceptional vs. the others.
You were exceptional vs. regular people and made it to L5. Now comes in a super achieving PhD that's a tad better than you and now he's exceptional. You are no longer exceptional. You're just an average super achiever. So get the eff off Google's lawn. Stack ranking completed.
Unless you found one of those rare teams that stays together for the long haul, but the experience with such a special phenomenon should make it more than worth your while.
If L4s are not getting opportunity to lead, they are on a sinking ship anyway and the smart ones are LeetCoding.
(Obviously this all reflects the crazy economic moment of the last 10 years in Silicon Valley, but so does the level system you're critiquing).
Teams do not expand until infinity. In fact, it is often better for teams to not expand.
If you are expected to be leader after two years, because the teams are expanding regardless of whether more people are needed and because everyone else is fresh new, then there is issue with managemet
I don’t expect that to last forever, but it’s the context that this system is built for.
It's not really that chill, and if you don't continue to do those things (lead or be exceptionally strong) that will show on your perf and therefore your compensation. Going from L4 to L5 means committing yourself to doing that on an ongoing basis. Remember at Google that "consistently meets expectations" is only a 2 out of 5 rating, just above "Needs improvement."
Coasting at L4 ("SWE III") could be fine. Large independent technical contributions, manage your own priorities, participate in design, etc. Solid individual contributor. Really equivalent to "senior developer" at most other jobs.
But now let's say you want to go transfer to a new project. The manager on the other team sees you've been at Google many years, but still at L4. Hm. Results may vary.
Not everyone makes a good team lead. Especially in a place like Google surrounded by PhDs and super achievers. But the expectation at Google up until very recently was basically that you should become that, or get out. Now in the last few years, it's been stated it's perfectly fine to plateau at L4. But I'm not convinced that that's the reality of the culture or expectations of managers.