[vcool07]

The reasoning provided by someone to me was that at a org level, it's more cost effective for the org to replace those 1-2 departures with the market rate salary, than raise the salary of the whole team to the market rate.

Many people stay back in a company even knowing they could probably get more if they try else where (ex: work like balance, friends, job security in the long term, exciting work etc). When a org has sufficient no of such ppl, it doesn't matter to them when they lose some 1-2 start performers. Also, there's no guarantee those star performers would stay back even if they are paid higher salaries !!