I write a lot of military/historical games - the In Harm's Way series is up to five games now, with a sixth in development. A central focus of these games for characters is rank. None of the games I write have XPs, character advancement being taken care of by aging, but the IHW games have a mechanic which is tied not to skill increases but to rank increase.
The mechanic is the Notice mechanic. PCs advance in rank by accumulating Notice. Notice is awarded for doing things that get you *noticed*, like shooting down enemy planes, or boarding an enemy Frigate, or taking a heavily defended position. The more spectacular the feat, the higher the award.
Notice is awarded in character by the commanding officer via "I wrote you up in the dispatches", or a medal, or maybe just an "attaboy". Once the PC has accumulated enough Notice, he gets promoted. Of course, if you screw up, you can get negative notice, also given in-character.
In the games set earlier in history, characters start with an initial award of points called Interest. This is to simulate the political pull of the character's family. It is re-awarded at each rank, though it becomes a diminishing relative amount as the point totals needed to advance continuously rise with each rank. Games set more recently dispense with this Influence, as the military becomes more of a meritocracy.
Why award the points in-character? I just like tying it all into the game. Besides, if the CO isn't aware of the feat, no points are awarded - after all, it signifies doing something that your CO notices, that differentiates you from the crowd. It's fitting to award it in character. The CO doesn't have to be there, he just has to be aware of it. Also your CO gets a fraction of your points. Anything you do reflects on him too! If your CO is another PC, way cool!
Speaking of which, in games I have run using this mechanic, the players never seem to resent the success of their fellow players. Many times PCs end up in command of their fellow PCs, and it's all cool. The competition is fair and open, and that seems to make a difference - it isn't like the players bought their command. They won it.