Discrimination is no longer about harming people who are different, it is about withholding help.- Mahzarin Banagi
How would you like more work and responsibility for the same pay? The basic concept behind this is called the "dry promotion" and most employees have gone through the experience of this. Unofficially, this naturally happens in every job, because the reward for a task well done is another more difficult task. If an employee is talented at their job and has a good work ethic, responsibilities will grow over time because they will volunteer for them and the company will trust them enough to give them more.
As a manager, I would avoid giving a dry promotion at all costs. The deal you are making with an employee is that in lieu of compensating them what they are worth, you are going to titularly designate they ARE worth a higher value and make them more marketable to find a different organization that is willing to compensate them at that rate. You should expect that within three to six months, they will be actively looking at other opportunities. Don't be upset when they tell they are moving on to another opportunity, because the deal you made with a dry promotion was to encourage them to do exactly that and it is far too late to offer to salary match because you've already established you're willing to underpay them if you can get away with it.
It may make strategic sense in a thin line of circumstances to offer a dry promotion if you are confident you will be able to correct compensation relatively quickly. You have a salary freeze, something I saw a lot during the pandemic, and you can work with your employee to do the dry promotion with the understanding when the freeze lifts, you will make their compensation right. You may need to wait until a round of funding or a rise in revenue to adjust compensation and that could make sense. In all of these scenarios you should acknowledge that you know you need to raise this person's salary and do it as soon as the blocking conditions are removed.
Should you take a dry promotion? If your caree goal is to increase responsibilities and compensation and you're willing to switch companies to do it, than absolutely. In the white collar and technical industry, people who switch jobs every two years see promotions happen faster than people who stay at the same company. So if that's your goal, then take the dry promotion at the company you're at, because it's no skin off that company's back, and then correct it by getting hired into your next company for more compensation. Rinse and repeat.
The other place, which makes me sad, is gender specific. Men are more likely to get promoted on their potential and women are more like to get promoted on their experience. In terms of dry promotions, that means, the benefit women more than men. It allows women to show they can do the work of the next job title and compensation level.
So bosses? Be very, very careful with the dry promotion. Employees? Want to grow your career and willing to switch companies? Go for it.