The problem I have: The CEO (and the investors, or the whole industry) is obsessed with ARR per employee. That's the key metric (in their mind).

It doesn't matter how much the employee costs. Let's assume you can hire two Juniors or one Senior for the same salary. If you have to optimize for ARR per employee - you can only hire one person. And if you have the choice between hiring a Junior or hiring a Senior... you're going to hire the Senior.

Goodhart's law fully applies here.