You should embrace the situation

This could be beneficial for you depending on whether or not you want to stay. You can now claim to be managing all this open-source software. You can claim a boost in productivity. You could potentially be able to claim to bring engineers with you if you wanted a management job at a new company, which is always valuable. Especially given that they are clearly passionate engineers. This assumes that you haven't damaged their trust in you too much.

Win for you. Win for your staff.

You all leave for higher raises.

Considering that your alternative is firing him and getting in trouble for doing so because of the cost and management here does not seem to be the caring type, consider joining the fleet as it sails outward to more promising land. I suspect that this will eventually cost you several engineers, for which you might also be punished.

The fact that management got bonuses and the fact that they would punish you for defending the company's interest indicates that this is probably not a company you want to be with long term.

This is a perfect opportunity for a great exit.

You should embrace the situation

This could be beneficial for you depending on whether or not you want to stay. You can now claim to be managing all this open-source software. You can claim a boost in productivity. You could potentially be able to claim to bring engineers with you if you wanted a management job at a new company, which is always valuable. Especially given that they are clearly passionate engineers. This assumes that you haven't damaged their trust in you too much.

Win for you. Win for your staff.

You all leave for higher raises.

Considering that your alternative is firing him and getting in trouble for doing so because of the cost and management here does not seem to be the caring type, consider joining the fleet as it sails outward to more promising land. I suspect that this fight with Peter will eventually cost you several engineers, for which you might also be punished.

The fact that management got bonuses and the fact that they would punish you for defending the company's interest indicates that this is probably not a company you want to be with long term.

This is a perfect opportunity for a controlled exit.