The Peter Principle revisited

The Peter Principle: people will tend to be promoted until they reach their "position of incompetence." Laurence J. Peter.
I've been thinking about the Peter Principle* a lot this spring. It's the time of year many in education start looking for greener career pastures.
When most people think about the Peter Principle it is as an explanation for why people are not good at their jobs. I've never been a total believer in Peter Principle, working with many people who know themselves, appreciate their personal skill sets, and strive to do the best job possible rather than climb a career level until they find themselves unable to perform well. I'd put most classroom teachers and librarians in this category - they like what they do, feel competent doing it, and know they are making a difference in the world.
What I am bedeviled with are those wonderful people with whom I work who are career climbers and who have not yet reached their level of incompetence. These are younger, early or mid-career people who do great work at their current position and are looking for more responsibility, more challenge, and possibly more prestige, if not better pay.
As a supervisor and faithful district employee, I should be doing everything in my power to keep these folks where they are because they benefit the district. In creating a positive, flexible work environment, not micro-managing, and empowering whenever possible, I am proactive in this regard.
But I also recognize that in an organization/department of our size, career paths are rather stunted. If a person wants more responsibility and greater remuneration, he/she will probably have to move elsewhere. I've long come to accept that we are sort of a farm team for bigger schools and even the private sector in producing good tech people.
So when people in my department talk to me about other positions they've applied for, my question is always: "Will this new job offer you the opportunity to stretch, to grow, to be challenged?" and remind them that one has to make a hell of a lot more money to see much difference in the individual paycheck. If the job is bigger than the one they have, I'll do what I can to help them get it.
Doesn't everyone deserve the chance to rise to the level of their incompetence?
Any tips for keeping career climbers when you can't offer more pay or a lot more responsibility?
*The 1969 book The Peter Principle is now available as an e-book. I am going to re-read it.
See also:
Peter's Laws (The Creed of the Sociopathic Obsessive Compulsive)