You have to hire the best person who comes along. No one in their right mind would ever do otherwise. That’s how for-profit businesses work. So sometimes you do pay whatever the person is demanding, just to get the right employee.
Sure - but not everyone. Most people would be pretty uncomfortable trying to get a 20% raise, because someone else told them to.Put it in context - maybe you just got a raise. Do you feel comfortable demanding 20% more on top of that? Or maybe you just screwed something up at work - do you feel like demanding a 20% raise?
But even then, there is a limit in their minds. It is like any bargaining. No matter how good one is, employer is going to have a cap on the value of the job itself. Otherwise even the best of us could demand $1 mil and get it.
(And this ignores official budgets.)