You can't have 5 people all leading a team. A good manager will give employees who want to lead an opportunity to do so in smaller ways, and when it comes time to figure out who gets promoted into a leadership role, being able to compare notes of how well each candidate went is essential.

Even for non-managerial roles, there may not be budget to promote everyone. Especially at larger companies where a promotion can be an extra 50k+ per year per employee, promoting all 5 people means there isn't budget to hire someone new, and those employees aren't suddenly working 20% more efficient thanks to a new title.

In particular everyone doesn't have the same experience, market value, expectations and behavior associated. For instance you will have a manager that is super happy with what an employee does, but in practice the employee is already at the top of the game, paid accordingly, and has a special status in the company.

This employee's raise will be proportionally a lot lower than a junior guy who went above and beyond his role and could leap two ranks ahead with the skills demonstrated.

Both employees are valuable and merit praise, it just won't translate to the same proportional amount.

A reason which is valid on the surface but difficult to implement properly is "it's bad for morale if deadweight employees get promoted just the same as people who contribute."