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If someone leaves their job simply to get a pay increase, that indicates to me that they didn't have much commitment to the organization or were in desperate financial condition, so it might be better to have them leave now rather than later after you've invested more money in them.

I've seen it happen at places I've worked, as I'm sure you have. But I agree with you Carla, that there are many reasons why an employee decides to leave a job. And sometimes money becomes the primary reason, especially for lower level jobs with limited opportunities to dramatically increase their salary.

If you pay less than the competition, you should expect to have demotiveated employees.
If you pay higher rates to attract new employees, current employees will resent it.
If you use year-end profit as a target for bonuses, employees will not see a direct link between their efforts and their bonuses.

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