They're greedy, so they refuse a small pay bump to keep the current people happy.
Their bet is that they won't actually leave if they get rejected on the raise. This is where the stupidity comes in, they actually think people would be loyal and stay despite requesting a tiny raise.
What happens instead is that people are, obviously, annoyed and start looking elsewhere, where they'll get a much larger pay bump anyway. Now the idiots are forced to look for new people at much above what they could've paid to keep the old person, because no one is going to accept a new job below market rate.
Their bet is that they won't actually leave if they get rejected on the raise. This is where the stupidity comes in, they actually think people would be loyal and stay despite requesting a tiny raise.
What happens instead is that people are, obviously, annoyed and start looking elsewhere, where they'll get a much larger pay bump anyway. Now the idiots are forced to look for new people at much above what they could've paid to keep the old person, because no one is going to accept a new job below market rate.
So yes, stupid and greedy.