I have started to believe that an employee has maximum valuation from his/her employer on the day they announce they will quit. Suddenly the whole organisation gets down to trying to convince the person about how the organisation believes in the person and has great things lined up for their careers. Also in many cases offer to increase their salaries manyfold and promote, transfer, or do whatever will get the person to stay back.
The same employee may have been refused a more than 10% increase a few months back, in the garb or market pay competitiveness, budget, internal parity and so on and so forth. Also the company would have refused promotion / transfer on various other pretexts.
Recently someone narrated a story about how a very smart employee did outsmart his employer and beat them at their own game. The person put in his papers and the company offered him a 40% increase and asked him to stay back. The person agreed, took the increase letter, went and negotiated with the hiring company and got a significant increase over the increased amount. The new hiring company obviously thinking very highly of this person's credibility since the current organisation was willing to bend backwards to retain the employee.
Today I understand that in that organisation everyone thinks that if they can bring an offer back and negotiate with their current employer they would be able to get the increase they did not get during increment time. I don't blame them.
Employers need to start thinking more long term given the demand situation for talent and understand that offering significant increases to employees who put in their papers is a very risky tactic, which has far higher negatives than positives and will hurt the organisation in the long term and send wrong signals to all other employees.
My simple thought is that knee jerk reactions will always create more complications. Try and retain people through more long term measures, let a few people go, after all the others need a chance to grow in the organisation as well.