Small companies often work differently, but this has been like this for as long as I can remember in larger companies (and I'm very nearly 50). Usually there is a budget allocation for raises. Managers rank their workers in ordinal fashion. It's often set in quartiles, lowest quarter is placed on the "must improve" list, second lowest gets no raise. Third lowest gets moderate increase (unless they are hitting the top of their band). Highest gets large increase/band increase. Often these sorted D level groups are mixed up in the C level and at the margins D levels can argue that their employees deserve to be bumped up to the next level (which is why it pays to document all your progress for the year -- it gives your manager ammunition when they compare you to other groups). Finally there are X spots for band increases/exceptional performers (which get paid above their band rate, but do not increase in band because their current function is essential to the team).

Like I said, in large corporations it literally pays to have a politically savy manager and to have documented every single thing you've done during the year. Bonus points if you've condensed it down in a presentable fashion.

I had a friend who made it into management in a large corporation. He decided to do things differently. He told his entire team, "Tell me how much money you want. I will tell you what you need to accomplish to get it." He documented the hell out of what his workers did. His team killed all the other teams -- just steamrolled them in terms of productivity, so he got everything he asked for. Made a lot of enemies, though ;-)