Nope, it’s a terrible one. Everyone will be constantly looking for new jobs. And would do the bate minimum to not get fired, that’s the contract you’re signing, bare minimum pay for bare minimum work.
Regardless of what you do, it’s likely that you’ll need multiple times the amount of employees to get shit done, because one dedicated employee is worth several doing bare minimum, depending on the job some works simply won’t happen because no one gets paid enough to do them.
Besides that you’ll suffer brain drain, i.e. anyone good enough will leave you, and they won’t accept a raise to stay because if someone offered them double their salary and you tried to match it they would immediately see the bullshit you’d put them through and know that the only way to get a better pay again would be to get a new offer from someplace else.
Anyone bad enough that other companies don’t want would be stuck with you, but there’s a reason other companies don’t want them.
You wouldn’t be able to pull any new talent, you’d get stuck just getting people no one else wants because they’re the only ones willing to work for that low.
As someone who’s been on the hiring side there are some legalities involved on what to answer here. But I’ve always made a point of telling people who asked why. However I’m not in HR, so lots of people might get filtered before I even got a chance to interview them.
Also we asked candidates to do a take home and we talked about their solution during the interview, so most people got a good understanding of why they were rejected, but a couple of times people asked afterwards and I replied to them with the reasons we considered they were not at the level we were looking for, but that we would keep them in consideration for a more junior role if there ever was an opening.