Doesn't this say more about the flaws of the business and/or the management than it indicates this being a good idea? Many of the most successful software companies do everything they can to attract and retain the upper end of software engineers and they don't do this because it's bad for businese. Presumably they do this because it provides more value for the company than having more programmers or trying to save money on salaries/perks.
Perhaps, but I actually think getting the best and brightest is more of a factor of having tons of VC money. In that case, you need to move as fast as possible, and every little bit helps. If you are building a niche business with limited TAM, you just don't need the top tier, assuming of course you aren't building something groundbreaking from a tech perspective.
