They base it on a mixture of factors. But yes getting the 'basic bread and butter' in teaching is important. E.g. Effective Classroom Management, Proper Book Checks, Contributions in Committee.
The stretching part/opportunities e.g. CCA head, NLC, Cluster/National Sharing etc. are ways to 'test' the GEO3s (who probably are already on an above average CEP) to see who can exceed expectations and manage the workload. This is a bit similar to how teachers give more difficult questions to sieve out the 'A' students.
The following is an example. Speaking from experience, I am handling a GEO3 officer (Not scholar but higher CEP) in my school. Currently a CCA OIC, presented at a National Conference this year, headed school events as IC/2IC, participating in NLC in 2021. His progression as below
2017 Jun - Graduated as GEO2 [2nd Upper +
NS] - 4.1k salary, Performance C+
2018 Oct - Promoted to GEO 3 - 4.8k salary, Performance Default C
2019 - 4.9k salary - Performance B
2020 - 5.1k salary - Performance A
He will be due for promotion to GEO 4 in 2021 if nothing goes wrong. He has proven himself to the school that he can manage multiple tasks and do them well. So definitely he is a notch above the other GEO3s who may just be doing their 'bread and butter' teaching, no matter how well the results of students are or how well the students have done.