This leaves out the most obvious reason - it's better financially for the company. If every employee was highly mobile, aware of their own value and motivated

This leaves out the most obvious reason - it's better financially for the company. If every employee was highly mobile, aware of their own value and motivated to be always on the hunt for new opportunities, then yes, companies would need to have some system for making sure new starter salaries were in line with existing employees. But they are not. Bob is highly introverted and it took him years to make the workplace bonds he now has with his colleagues. He doesn't want to start over. At Carols previous startup, the CEO turned out to be a psychopath. She values the stable leadership at this company. Tim is an idealistic junior. He know his friends earn more but he's drunk the Koolaid and he believes in the company's mission. And Mary likes this company because it means her family can live next to her parents. For any number of reasons, it's just not necessary for the company to pay market rate to every existing employee. Inevitably some will leave to get higher pay - they will be balanced out by new people coming in, also at market rate.