Quote from traumaRUs
In some facilities it has to do with career ladders - which are usually an internally-decided program.
Where I work, when RNs first start they are a Level I (Associate's degree) or Level II (Bachelor's degree) RN. It is only through lots of paperwork and extra effort that you can become a Level III or IV nurse - and even if you do all the paperwork, that doesn't mean the committee will approve it. BUT the reason people try to become Level III and IV nurses is that with each increase, you get $2.50 an hour more in pay. You must resubmit paperwork every year to keep your Level up.
There aren't exactly tests you can take, but sometimes getting your certification in a certain area will give you a few points towards the Levels. Usually you have to work full-time for 2 years to be eligible to take those tests though, and usually you have to set up the exams yourself, as the hospital is not the one who sponsors those tests.
You get many more points for being an active member of your unit and by advancing yourself as a nurse. Being in charge, being a preceptor, being on committees, being a resource for coworkers, etc. are all the things that help you become a higher level nurse.
This is basically to reward the nurses who go above and beyond, and don't just come to work and do their job and go home. If they want to do that, it's absolutely fine, but there are some who really put a lot of themselves into their jobs and it's about time they got some recognition (and increased pay) because of it.