[thedufer]

Where I work, we have a similar system of transparent salaries. There is a scale, but it is not very granular (the rule of thumb is that if most people couldn't guess a given employee's salary level, they're in the wrong one) and dependent on skills and industry experience. There is a good description here: http://www.joelonsoftware.com/articles/fog0000000038.html (SatvikBeri also linked to this article). That is still relevant except for a few points - we no longer give stock options and reviews are annual instead of biannual.

> If a good employee has an offer for 20% more than they are making...

We let them leave. That said, it doesn't happen often (I don't know of a time it did). Our salaries (and annual bonuses) are generous, and any differences are more than made up for by various other perks.

That said, we do lose new hires to bigger offers. If this happens too often, the entire pay scale gets moved up to reflect market changes and/or inflation.