I have have just started as an HRBP at a new organization (approx 300 people, privately held), and eventhough I thought I had seen just about everything in my 20 years of HR, I am not familiar with a practice that I am seeing here and would like some other feedback.   Apparently, this is a fairly common practice at this firm (located in the bay area)

We have a situation in which employee A is performing (in terms of contribution to the organization) at a mid-tier level and yet is being paid at the upper tier.   We have two people (Lets' call them people B) at the upper tier who are invaluable to the company and one may be leaving because of her desire for more $$$.   Person A can't do his job effectively if Person B leaves.
There are no extra dollars for salary and in fact, everyone took a 5% paycut last year.

Manager wants to move some of the dollars from Person A to Person B -- so that person A is paid at the appropriate level for contribution and we are able to retain Person B.

I am told that if Person A left tomorrow, they would replace that person with a mid-tier salary.

To me, this seems like an ER nightmare and it seems like we are using employees salary as a bank account to pay for others raises.   Am I missing something?  Thoughts?