> A senior engineer says “I want a 40% raise or I’m leaving,” and the company’s ability to respond depends entirely on what their alternatives look like.

Except where I live there's a glut of people wanting any job they can find—for a variety of reasons ranging from high levels of immigration to layoffs in the last two years—and willing to accept discount rates because the alternative is being unemployed for another 3 months (New Zealand).

Both the employer and employee know this. So the employee is either foolish or risky enough for asking and gets turned down, or they do actually leave and the employer can hire a new senior engineer at below market rates to accommodate the specific learning they have to do for their new role.

End of story.