> On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere

If paying people less encourages poor performers to find roles elsewhere, it encourages your high performers to do this even more probably...

It really depends on the organization, its mission, the employee pool, and the local cost of living.

Most software engineers are relatively well-paid compared to the wider labor market, even the engineers who are "underpaid". Kahneman's research showed that once you have enough money to pay your bills, making more than that has rapidly diminishing returns for your happiness. It's much more important to fit in - like your boss, like your coworkers, like your work, be recognized, have good work-life balance. None of that really requires above-market compensation.

When a firm pays below-market rates, it's a sign of one of two things: either they're abusing people who can't find work elsewhere, or people are happy to stay in spite of it. The latter are often really good places to work.

HN loves to complain about how money ruined the software industry. Let the people who will chase a raise from $180k to $210k go elsewhere. Let the people who want their moonshot at life-changing wealth go talk to a VC. There are other opportunities for people who realize that money isn't everything in life.