It's one of those universal truths that everyone knows to be wrong - yet many are forced to accept as inevitable.
Its much easier to hire a new person in your team at a great package than to get an existing team member's package doubled to match.
I guess the logic is that if the existing player is really worth so much, he would have been hired at a higher level to begin with.
There are at least three reasons why this logic is wrong:
1. Peole's learning curves and motivation levels vary. Some new hires take to their jobs like fish to water and start delivering a lot sooner than average. You cannot retain these people by taking them thru the normal corporate policies on raises. Doing so will only turn you into a training ground for the competition.
2. You might simply have made a mistake at hiring time and underestimated someone. Far better to admit the mistake than to lose a star.
3.In fast changing markets, the salaries of new hires vary significantly at the same level from year to year. What got you stars last year will only attract the B-players this year. As you add more incentives to attract the new talent at market prices, do the square thing and make that adjustment for your current stars who joined during the lull.