"One of my best employees told me that he is considering another opportunity that offers a substantial increase over his current salary. He's already at the top of his pay grade. What can I do?"

This is the basic problem underlying job-based salary systems. At some point, employees "top out" and the only way to offer higher salaries without changing the underlying system is to promote employees into higher paying jobs.

Are there open positions at higher levels in your employee's job ladder? If no promotion opportunities exist, or if the employee is ideally suited to his current position, look carefully at the nonsalary elements of the compensation package. Can you increase the value of the employee's overall compensation package by offering short-term bonuses or long-term stock options? In the long run, however, it might be wise to review the market data associated with the employee's pay grade. It may be that your problem isn't limited to this employee.

If jobs in your organization are undervalued relative to benchmark jobs (and the external market), it may be time to adjust the salary ranges associated with the job ladder.