My guess of why companies don't pay current employees more, is that they believe, correctly or incorrectly, that good talents will naturally rise through the ranks and would be compensated reasonably, while the rest are simply replace-able cogs.
Sometimes we romanticize tech company too much that we forgot that they are, at its core, just like any other company, and an engineer is just a headcount. Faang sometimes has the ability to steer away from that perception, but it remains true for almost all non-faang. Everyone below leadership is replaceable
That's kind of tangential to the point of this conversation though. They're forced to do so via turnover rather than proactively raising wages, which hurts them far more in the long run.
If turnover is low, leadership will often assume people must be fine with their current compensation, since their data indicates the market continues to clear.
More than once I’ve seen startups go and do a round of comp adjustments after an uptick in turnover.
If my manager (lead of 15 devs) went to his shareholders that we want to adjust people's salaries so that they are more likely to stay longer (let's say this cost 300k a year), they would not approve it even if it meant we could reduce the number of devs leaving from 4 to 2.
If he said we need 300k for hiring two devs, it would be approved without a question.
Back-of-the-envelope math based on European salaries.
I’ve seen people go from “irreplaceable” to “not a good fit” when a new CEO comes in.
I’d argue companies are aware that good talent costs money and they are happy to acquire it internally or externally when the arise needs. If no need, then business as usual.