I just left my job at one FAANG for another FAANG. I felt like I was under-compensated and talked to my manager, they said "well, go get another offer and show you're worth more". I went and got an offer that was nearly 60% higher and at a higher ladder level. My manager and director tried to retain me, but upper management "did not want to play that game", which I guess is a nice way of saying I'm not worth that much to the company. I did get a nice raise and a big bonus and a big refresher but it wasn't anything near the other offer.
Now, I kinda liked my job and team - but TBH it wasn't the most amazing role ever - let's say it was 7.5/10. If all things were equal or the difference was insignificant I would have stayed probably. I wonder how much I would need to love my job to have stayed regardless of having such a higher offer.
This time, upper management was right and your manager was a fool. Once you have another offer, you're already halfway out the door. Encouraging employees to find other offers before they get a raise is encouraging employees to leave.
If you want to keep them, just give them the raise.
Now, I kinda liked my job and team - but TBH it wasn't the most amazing role ever - let's say it was 7.5/10. If all things were equal or the difference was insignificant I would have stayed probably. I wonder how much I would need to love my job to have stayed regardless of having such a higher offer.