I strongly disagree with this. It may be true at many companies, but not anywhere I would ever work (esp. as a manager).

Requiring people to have a competitive offer in-hand basically says, "if you want a raise, go interview somewhere else." That's toxic and only effective for the people who game the system.

Responsible employers owe their employees a fair (according to market, their peers, and their contributions) wage, not the minimum they can possibly get away with paying. It might save you a few bucks in the near term to play stupid games with people's comp, but the attrition will kill you in the long run.