This is exactly how we look at it. Those who are more valuable get larger annual raises.

Also, during a high turnover period around a year ago, we even bumped a few people up mid year when we normally do salary increases at the beginning of the year. These folks were very happy and I think it earned a lot of trust that we looked at the market rates, determined they were underpaid, and made sure they were at least getting what they'd get paid elsewhere.

There is nothing like an unexpected raise to make a person feel some serious company loyalty. I started a position at a new company a few years back, run by a friend and senior colleague of mine. He had been with me at the previous company and had observed while I fought and fought to get a raise to market rates in that position.

He called me a few months into the gig and told me that he felt I should be making more than my starting salary and that I was getting a fairly substantial raise effective immediately.

I can't describe how good that felt, after having had to struggle to demonstrate my value at the previous gig only to be met with bureaucracy at every turn. I'm still with that company and genuinely love working with them. I make a pretty nice salary, and though I'm sure I could easily get a 20% raise to jump ship, I'm finally in a place where I can say "nah, I'm happy where I am" and not feel like I'm giving something up.