* Automatically raise their pay every year. It doesn't necessarily need to keep up with market, but they need to know that they aren't being suckers by staying at the job.
this! I can't begin to tell you the number of bad managers I've seen offer the competitive pay rise only _after_ they've been given notice. that just drives home how completely you've been screwing me up until this point...
edit: ok, perhaps not screwing me. but if you know I can make significantly more elsewhere, you shouldn't act shocked when I take the opportunity...
Bingo. Companies should have (at least) two mechanisms for raising pay: a 1 to 3% (tied to some measure of inflation) increase everyone gets, and a variable rate tied to their performance/company success/etc.
