And implicitly tell all your other employees that they better go searching for new jobs or else they won't get a raise, ever? The result is that going out to do interviews has effectively become part of their job description, because apparently that's what you pay them for.

It's all game theory, in a minefield of unintended consequences. I take the opposite approach: an unspoken but clear attitude of "you know you won't be able to buy me when I excuse myself with a better offer, so better ask yourself now than later how much you actually want to pay me". And no, that certainly does not make me fabously rich (but there actually was a time when it worked much less bad than I would expect, quite amusing in hindsight)