In our company, I have seen countless cases of a situation, where there is an employee working for a some salary. They want a raise of 5-10 % (sometimes supported by immediate manager, sometimes not), which is eventually refused by one of the various degree of corporate food chain unwilling to grant off-cycle pay increases, which leads to the employee leaving the company for a better offer.
Subsequently, another person is hired to the same position as a replacement at about 20-40 % higher salary than the leaver.
Now the problem seems to lie with the pay rise policy, restricting it mostly to the yearly performance cycle (which has the benefit that employees do not need to actively open the topic, as it should be opened from the employer's side every year; and the disadvantage that the expectation that everybody performing well is expected to get something, meaning the pay rises generally do not exceed 1,5 %). Any pay rise out of this cycle needs to be approved by the CEO himself (we are talking about company with tens of thousands employees).
Now I can understand the underlying reasons how such silliness can come into existence, however my friends from other, similarly sized companies (working both in HR environments and low-to-mid management positions) indicate they suffer from exactly the same thing.
Thus my question is - why is it for a manager often much easier to hire a replacement with substantially higher salary than to give an existing employee a modest pay rise? Are there some underlying economical factors? Or a strategy to discourage people to ask for raises? Or is this just another quirkiness of the disorganised evilp-producing factory that most corporations are?