Let's say I'm a competitor, and I find that Niel (randomly picked) is someone I want to hire. All else being equal, I offer him $100k (website says he's making $88k). He comes to his boss to say "I like it here, can you match it?"
This sets a terrible precedent. I've been in places where people knew they had to get a better offer to get a raise, so the entire office was job-hunting. Much better to figure out some benchmark ("To get the best folks we pay in the top quintile and insist on no OT" or "We pay modest base salaries, but give double the usual equity to share upside and incent people to act like owners") and then stick to it. Top people will rarely leave for a small raise, though they will leave over disrespect or boredom.
This sets a terrible precedent. I've been in places where people knew they had to get a better offer to get a raise, so the entire office was job-hunting. Much better to figure out some benchmark ("To get the best folks we pay in the top quintile and insist on no OT" or "We pay modest base salaries, but give double the usual equity to share upside and incent people to act like owners") and then stick to it. Top people will rarely leave for a small raise, though they will leave over disrespect or boredom.