I think what this misses, which I saw in another comment, is the take here is an individual one.
If someone leaves and gets a 20% raise, while it may be an isolated incident, I believe it's more often than not an example where the market rate has shifted up and a company is slow to catch on.
While you may find someone new who's willing to accept $x instead of $1.2x, there is likely a large difference between the person being hired and the person leaving which represents the 20% discrepancy. And there's a cost on both sides that's not captured in the 20% differential.
As others have said there's the loss of institutional knowledge and know how. But the new person may also be more junior or is switching domains and so has less experience and thus willing to accept a lower salary.
It also takes a decent amount of time to hire someone new. Usually at least a few weeks. And I'm sure it can take longer. Sometimes 1 person leaving also means you really have to hire 2 people to be as effective as you were before. And of course, the new hire may end up asking for $1.2x anyway if they negotiate.
When all this is said and done, my personal belief is a 20% raise is far cheaper for retention just by the numbers.
There may be several non math based reasons for not offering a 20% raise to retain someone, but purely by the math I think its always going to be cheaper to give a 20% raise.
TLDR: I think this possibility is a false equivalency that just because you can hire a new person at $x means you're in the same spot as before.
This was a growing company making an active effort to pay market rate - I realize this doesn't apply to everywhere.
At the point where the market rate has shifted that much and my employer hasn't caught on, I'm out the door myself. ;)
"Maybe the replacements suck in comparison" is certainly something we would've noticed - happily, it wasn't the case.
But we were hiring basically constantly, since there was no team that had enough people for the work the company wanted to do, even before attrition. So we had a good feel for what we could get for the money. If someone on the team can do better elsewhere, though, more power to them - I would certainly take that opportunity too.
Thanks for the response and glad to hear the new hires have been good!
Admittedly I'm a little burned on this issue. My previous (and first job) was severely underpaying me and all my coworkers. I stayed there for 3 years, wanted to leave after 1.5/2, put a pause on it when covid hit, and finally completed the move earlier this year just around my 3 year mark.
Leaving got me an 80% raise in total compensation and 4 other people on my team/org all left with at least a 50% bump.
All within a few weeks of each other too o.O!
It's such an interesting dynamic and market today and so fascinating to hear about people's experiences as they jump around. Thanks for sharing your perspective!
If someone leaves and gets a 20% raise, while it may be an isolated incident, I believe it's more often than not an example where the market rate has shifted up and a company is slow to catch on.
While you may find someone new who's willing to accept $x instead of $1.2x, there is likely a large difference between the person being hired and the person leaving which represents the 20% discrepancy. And there's a cost on both sides that's not captured in the 20% differential.
As others have said there's the loss of institutional knowledge and know how. But the new person may also be more junior or is switching domains and so has less experience and thus willing to accept a lower salary.
It also takes a decent amount of time to hire someone new. Usually at least a few weeks. And I'm sure it can take longer. Sometimes 1 person leaving also means you really have to hire 2 people to be as effective as you were before. And of course, the new hire may end up asking for $1.2x anyway if they negotiate.
When all this is said and done, my personal belief is a 20% raise is far cheaper for retention just by the numbers.
There may be several non math based reasons for not offering a 20% raise to retain someone, but purely by the math I think its always going to be cheaper to give a 20% raise.
TLDR: I think this possibility is a false equivalency that just because you can hire a new person at $x means you're in the same spot as before.