Because in most organizations, hiring comes out of HR's budget. Raises come out of departmental budgets. On paper, it looks like it saves money to the accountants.

It's stupid, because companies don't bother to track how much they waste on losing trained employees + damage done by inexperienced ones during onboarding. But that would be hard to track with robotic, sterile metrics, and God forbid executives actually trouble themselves with knowing how their business functions

I wouldn't say it is for every company, but I'm betting they've done a cost/benefit analysis. It allows them to spend less money in the long run by focusing their spending efforts.

The cost to lose employees and replace them with higher paid talent is more cost effective than spending money to retain current talent. Figure with job inertia and just straight up employee psychology, they can keep existing employees marginally happy and deal with the outliers.

Personally, I've seen companies that do it both ways. I had a previous company that tried to get as much talent as possible and just churn through employees that all left once they saw their value. And, you could try to counter offer the valuable ones or just move on and burn through more employees. My current company stresses market adjustments and comp increases to keep current talent as much as possible because they don't want to deal with the time lag needed to bring new people in as replacement.

The second company is way more enjoyable to work for.

Probably because there is now an expectation of receiving a higher salary when you change jobs.

The reason is that even with uncompetitive salaries, most people won’t switch.

I know people who know they are underpaid and could get more elsewhere, but don’t switch because they are comfortable and all their friends are at their current job.

So if you pay less money and retain 90% of talent, you can come out ahead financially than if you give everyone raises and retain 98% of talent. Problem is of course that the people who do leave are often the top performers.

There are exceptions. Many high powered consulting firms have an “up or out” type of system where you either get promoted (with a huge raise) or basically get fired. Among large companies, Costco is famous for paying very high salaries and treating people well from the people who stock shelves to the senior executives. But it’s rare!