Your heart is in the right place, and I agree with you. I think you have a few mistakes here though.

I really think the right thing to say here is simply "find a way to measure impact/value, and reward it" and leave it at that. Since that is the real challenge, and most companies stink at it, that is why you see companies treating their underperformers not too different from the overachievers. It isn't that they don't want to reward the best people, it's that they don't know who they are, and their policies around pay/promotions (many of which are well-intentioned efforts to ensure compliance with EEO and D&I initiatives) don't provide the flexibility for this. Without a clear, objective way to measure impact/value and tie pay and promotion/retention/separation policies around that metric, this is a non-starter.

The other issue which you have sidestepped is that the business models typically can't sustain this. If someone was hired at $100k/year, you realize that their value to the company and market value justifies paying them $120k/year, that's great... but it doesn't generate the revenue to sustain paying them $120k/year, that's a big bump. Even a lot of companies are struggling to do COLA pay raises a lot of the time, never mind rightsizing a significant portion of the workforce to market conditions. Pay for engineers is simply rising far faster than businesses and their revenue models can absorb, unless they are hypergrowth companies and/or have a strong investment behind them (which is, of course, the reason why engineer salaries are going up so quickly...). But your typical company? No way can they increase revenues exponentially while keeping headcount stable or on a linear path, so that they can put salaries on a rocketship and retain people.

J.Ja