Is it wild to imagine an ethically-run company has salary bands based on levels and makes offers within those bands based on maintaining internal equity?

I don’t naively believe all or most companies do this. But I have been a hiring manager at two that do.

No, I give them a range, and tell them the principles behind it. “My range for this role is $XX - $YY. How much we offer you depends on your skills and experience. If you want to negotiate for the high end of that range, you’ll need to be truly excellent. If you think that range is off for this role, I’m happy to talk about that, too.”

This is easy, honest, transparent, and gets both parties off to a good start. If I do my research well the range is pretty close to the market for what I need. If the candidate wants more they can either argue with me, or say goodbye and find another position.

Is "truly excellent" a measurable quantity and do you tell the candidate exactly what level they need to reach and what knowledge they need to have to get the highest comp? If so would you accept a candidate taking a few months to hone their skills and come back to you at the same stage of the interview?

Do you put in transparently (after all we're talking about being honest and transparent here) in the job description so that candidates know beforehand how they'll be judged?

Do you let the candidate apply again a year later? if they have grown and learned a lot then there's certainly no reason not to hire them this time.

If so then yes, your process is honest and transparent.

I don't typically work in places big enough to have explicit salary bands, and I don't usually run big headcount groups like engineering. So I don't have much experience with bands and guidance around them.

All the rest of it, absolutely yes. I don't hold a grudge if someone fails an interview, unless they're truly an asshole, or dishonest, both of which are exceptionally rare.