[TomSawyer]

I'm reminded of the Netflix slide deck that was making the rounds, last year. Adjusting pay, yearly, based on the market value of the employee seems like an ideal solution to this problem. If you stay at a typical company for a year you might get a 5% raise and have some seniority and relationships under your belt. This model tends to undervalue the true costs of replacing you and the likelihood that there's another company willing to pay 10%+ over your current pay.

[sgt101]

In fact you can pay under the market, a bit, if you treat your people like humans, develop them, stretch them and insist on a positive working environment (no rudeness, fair dos for everyone even if they look, talk or smell different). People will not switch away for minimal reward and considerable risk of being landed in a dead end with a bunch of sociopaths. Also many people realise that their current track has 5/10 years of seniority to build - and then that's your lot. The option of switching to management or to tracks like architecture or even non-functional work like finance or intellectual property is attractive to many people.

[usgroup]

Well said. Also think that the cost of replacement is usually not included in decision calculations at almost any point in time. Perhaps paying N above market may actually be the cheaper thing to do.