As cur notes, some of this gets into proprietary information. But, as someone who worked in hotels for over a decade, I'll provide my thoughts. My career included various jobs at the Front Desk and Reservations/Revenue Management. As such, I dealt directly with how elite-level frequent guests were "welcomed" and potentially upgraded.
(These are my views based on my experience. I did not work in a Marriott property, but all hotels in the city where I worked generally operated in the same manner. Still, I'm not trying to speak to how every hotel handles this issue. Nor am I saying that there weren't many situations where that normally happened wasn't thrown out the window due to extenuating circumstances.)
Incentives: In terms of handling elite-level guests, it's more about the stick than the carrot. If a hotel doesn't honor the basic requirements as listed under the franchise agreement (which mirror what guests see in the Terms and Conditions of the frequent guest program), they might be penalized. All hotel groups conduct an annual review of their franchises. Adhering to brand standards like handling elite-level guests will be part of that review. If a hotel has too many negative marks, they risk de-flagging. But, it takes a LOT of problems for that to happen.
Personally, I've never heard of any hotel group offering positive incentives to hotels for treat elite-level guests like royalty. With the exception of some health and safety issue, hotel groups tend to let their franchises run their properties as they see fit.
It's worth noting that there have been some reports here at FlyerTalk over the years about some hotel groups telling their franchises that they shouldn't be providing extra perks to elite-level frequent guests. I believe the thought process behind this concept is to create uniformity across the experience within a certain area or country. For example, the hotel group doesn't want the guest to get a full breakfast (more than what's required) at hotel A and only a continental breakfast at hotel B because it makes hotel B look bad even though they are following the rules.
The Primary Customer (for the Hotel Group): One thing to remember is that primary customer for the hotel group isn't guest. The main business of the hotel group is selling their brands to hotel owners. The guest (frequent or not) isn't nearly as important as those hotel owners. As such, it's in the best interest of the hotel group to keep their franchisees happy. One easy way to do that is to avoid micro-managing the franchises.
It's worth noting that each individual franchise is a separate business. By design, many aspects of the individual hotel are walled off from the hotel group. Even though each franchise uses proprietary software provided by the hotel group, no one at the hotel group has unrestricted access. Even if they wanted to, no one in the chain's Customer Service office can look at the billing system or the way upgrades are distributed at an individual hotel. That fact means the hotel group can't really audit how individual hotels hand out elite-level upgrades.
The Best Customer (for the Hotel): Here is the inconvenient truth that most FlyerTalkers don't like to hear. The best customer of an individual hotel is not the elite-level frequent guest. The best customer at a hotel is going to be the company/group/organization that provides the most room nights (and other income) annually.
It's really a numbers game. At best, an individual can provide 365 room nights for a hotel. A local company might provide thousands or even tens of thousands of room nights annually. As such, it's in the best interest of the hotel to prioritize that company's guests over an elite-level frequent guest.
For example, I used to work in a hotel where 40 to 50% of our room revenue came from one company. That meant that our most important customer was the person responsible for negotiating that corporate contract. For all the years I worked at that hotel, I never remember that person every spending the night.
Hotel groups understand this fact. They purposely word the Terms and Conditions of their frequent guest programs to give franchises flexibility in terms of upgrades. All the programs specify that upgrades are based on availability at the time of check-in. So, a smart franchise will set up procedures to upgrade their most important corporate clients the day before or the morning of arrival. Additionally, any repeat frequent guests of that hotel might also get pre-upgraded. Then, the rest of the elite-level frequent guests will get whatever's left over when they arrive.