Increasing employee pay is a bandaid on the real problem. Googlers think there are more interesting places to work. Not even a pay-raise, or a free massage can change that.
Facebook and twitter might have the "momentum", but they are on a niche (social) thats unstable at best. Google on the other hand is not only on several stable niche, but they are trying new things all the time.
People who are leaving for facebook/twitter are riding the horse while its still fat. Nothing more, nothing less.
It's a data miner's heaven.
People leaving for potential higher pay, when it's a lot higher, is natural. Also, working for a non-public company is often quite different than a public one. Facebook is private, so we really have no idea what it's like to work there, and they can do pretty much whatever they want with their money.
Also - engineers who can cop 3.5 million dollar raises just to stay somewhere aren't really concerned about job stability, yeah? They can find work easily.
The OCaml-based static analysis stuff is particularly interesting. They've got some smart people working over there.
Some people are leaving to Facebook to get rich, so by offering them more money, Google is setting up appropriate incentives for them to stay.
Fight fire with fire!
Also, Facebook's "vision of the web" is pretty crummy if you ask me, so I am surprised they have so much buzz. The only worse thing I can imagine than Facebook becoming the dominant player on the web would be Apple somehow acquiring or merging with them in an unholy alliance of evil.