Although there are other ways to limit corruption risk, namely process and transparency. In the Australian government you can pay someone higher than standard pay through an Individual Flexibility Agreement (IFA). But in order to do so there’s a whole process the manager has to go through where they have to justify the higher salary on a limited set of grounds (e.g. higher market value of role) and then get it all signed off by someone higher up the chain.
That’s the process side. On the transparency side you could publish everyone’s salaries and then it becomes obvious when a manger is paying their second cousin way above normal for some strange reason.
To move to a system where "good people make more money", someone has to decide who the "good" people are. That person is susceptible to corruption. Moreso than in a private enterprise and with wider consequences, because government is not a business. So overpaying people doesn't have the same consequences as doing it privately.
There are various *demo (lab, acq, I think some others) that are basically the same as NSPS (in principle) and ostensibly merit based. But they're also capped because of the correspondence to GS grades. Pay can increase much faster, in theory, than under GS but also you can be denied any raise except the general pay increase (below inflation, so a real pay cut even if a nominal pay raise) if your performance is poor.
There are some jobs that will push you through grades on some regular cadence (usually 6-12 months in each grade), but those are usually "internships". New hires getting brought in at $50-60k/year GS-5 or GS-7 positions and moved up over 2-4 years into a GS-11 or GS-12 position. After that, they're back to competing for positions again for anything higher than GS-11/12 or whatever their target grade was.
If managers could set arbitrary salaries, the employees could just agree to cut their manager in on 10% of their raise.
This probably happens outside of government, but it's just the private org who loses money, so it's up to them to stop it. But in the case of the government, it's the taxpayers who lose.