If you have an outstanding performance employee and he has submit his resignation for pay rise, what you will do?

I will be a listener for him, & I will give a time to talk about his feeling about his position in the company, then I will give him feeling that he is a very important in the company, At the last of the conversation with him, I would negotiate with him and and ask him about his requirements, and give him imaging that we are a seriously want him to stay with us.

If my excellent performer resigns due to low pay, and after analysis if I feel his/her claim is right, I will definitely review his/her salary and will match98% of his/her current offer.98% is because if he/she values my organization and wanted to work here for longer period he/she will not hesitate for a second to stay.
But if he/she is a greedy employee and wanted that2% as well, no matter if you match the offer, he/she will definitely try again and get a bigger offer.
Retain only those good performers who values the organization because only those employees will become an asset for the Company.

Retention of talent is the most challenging job for the HR professionals of current times and it will not be feasible to hire new talent, involving of course cost of hire so I would definitely negotiate with him and will ask him to stay.

negotiate with him and offer him a better package.
If any person is honest, hard working and the boss can see the performance on the financial books/profits it will be profitable to invest in higher package due to profit margin and it will safe cost and advertising the job again and other expenses but also you will see your business will even do better.
Why invest in a new management if you get more what you asked for from your current management.
At the same time why resign to get increase and not communicate with the boss for better package.
I believe the manager needs to have stronger skills than forcing his/her resignation on the boss for better package.

Outstanding employee must be getting what he deserves and if he has submitted his resignation just for pay raise then I will accept his resignation…..
Blackmailing / threatening is not an option for pay raise…..good human resource management will never tolerate this….
Yes by doing this outstanding performer will leave the company but we set an example for others that no individual is bigger than Company’s values….
And if we analyze the impact of cost of loosing outstanding performer versus the hiring and training cost of new individual, I believe we will get better person….
And if we retain our outstanding performer by giving him a pay raise then tomorrow few others will come forward and set a trend of threatening company……

If this employee has the skills and competencies for the job I will make an effort to get it on the incentives that are commensurate with his skills "job satisfaction"

First I am must be a good listener in order to let him say out all what he / she feel about , then try to let him smoothly feel that he / she is valuable to the company but according to the market status or company financial status as well , at the end I must think of anything reasonable and can be accepted as I am talking to an expert individual not a fresh mind , finally if we meet to a dead end I must advice to stay in the job till he / she find another accepted package either from same company during a period of time or through looking others site and employment fairs to find the suitable job package as in the final I have limit authorizations I can play within but I can recommended to his / her managers as a verbal advice from my side in order the manager don't have the feeling that he / she is complain.

A very controversial question indeed!! Loosing a high performance employee would mean finding and training their replacement which would mean productivity loss for a few months but at the same time, giving them a pay raise would mean other employees might also "threaten" to do the same.
If the company offers benefits such as health insurance and savings plans, my advice would be to meet with the employee and discuss the breakout of the total compensation including benefits with them so that they have a clear picture of what they are getting.
It would also be good to find out if they really want to leave because of the compensation or is there another reason behind it as well.
If it's just compensation related, creating a Career Development Plan which clearly outlines the employees career growth with the company can also be useful - if they are a high performing employee, they need to be eventually promoted to the next level which will increase the compensation.
If they know that in a few months' time, they might get promoted and get a salary increase, the chances are that they might stay.
If they still decide to leave, it's obvious that they want to "blackmail" the company and even though they may be great performers, they definitely lack professional ethics.

If it is for a higher position, I will not refuse his resignation.
However, if it is in the same position, I will ask him to give me a little time to try and give his demand.
If possible, I will offer him the pay raise that he is asking, but of course with adherance to company policies regarding compensation.
If the increment can be implemented within my authority I will do it as soon as possible, if not, I will escalate it to my line management and recommend that he gets the increase.

I will negotiate with him and try to retain him back

Evaluate what is more important for you in this moment.
What is labour market on this employee position? Will you hire the same specialist on the same price, including acceptence to the company, his knowledge of the bussiness, performance for company profit? Is it Key employee from the list in the company? When you reply the questions, and for example you see that importancy of this person is more then salary rise, try to find win win solution.
Employees with outstanding performance like challenging tasks, which give new knowlege and possibilities (participating in new interesting for him projects, more responsibility, proffessional experience exchange - participating in training programmes as trainer; managing some projects etc).
From one side it will give more motivation for him to work because will increase his sagnificance and proffesional knowledge, from another you will get possibility to use good sides of the employees in your company.
Give him this like a target for the next year or half a year.
It should be increase his loyalty.
For sure money has meaning.
Agree some not very big rise now + all nice perspective, another part after getting next outstanding results.
If you want to know which expactations of interesting being in the company is, just ask the questions, many questions.
Then you will offer him what he wants.
Salary is good to have with another motivating aspects.
In case you see that you have no reason to retain his, because many specialist on the market just ask the reasons and explaine that you have definite system fo salary pay....
To my mind Every HR Stratagy should based on attracting and retaining best talents.