The thing that makes me think the system is broken is how they'll avoid larger raises at all costs even if it means losing great engineers with lots of domain knowledge.

The cost of replacing this is immense to an organisation, even if they can hire a similarly skilled engineer they've:

1. Had to absorb hiring costs 2. Search in a competitive market for talent 3. Distract team members with another round of interviews 4. On-boarding costs whilst the engineer absorbs all the lost domain knowledge. (This is the big one).

Once all that is taken into account it's probably getting close to a full yearly salary of the engineer they just let walk. I still feel it takes a good 3-6 months for an engineer on complex domain projects to really feel comfortable regardless of their seniority.