[ryandrake]

Or they leave for a company paying new hires market rate.

The job market doesn't care if your company had a mediocre year, any more than your suppliers care. If the price of screws or cables goes up 8% you either pay it, look around for something cheaper, or negotiate. Somehow, when it comes to labor, companies think paying “what we paid last year plus N%” makes sense.

I guess the take-away here is: Companies by and large do not worry about poaching. Rather, they are willing to live with it because they see the alternative as too expensive.