Tenure and Pension (two things that are not as common in the private sector) work to replace lost wages available in the private sector. Remove one, and another part has to balance out - that is plain labor economics.
The unique nature of academia is the very long-term nature of the ROI of a given employee. In the tech industry, we use options to keep certain critical employees around due to the cost of turnover. The less critical, the fewer options. I have people on my team I could replace tomorrow - their option grants reflect that.
With faculty, their research can take years to manifest itself. From hypothesis to journal publication can be years, and what you do not want to do is have someone leave just before they can announce their breakthrough. If that happens, another university gets the credit, the rankings, the better students, etc. Tenure helps keep top faculty around.
The path to tenure is tough (a friend of mine just found out that they won’t get it). This friend has been working for 5 years as an Assistant Professor, and now must find another position. They will have to leave the university, and hope that a position is available somewhere in the nation. For faculty positions in a given field, openings are few and far between and are scattered across the globe - the job market is an interesting one.
Another issue around measuring excellence is that much of the review has to be done by outsiders. Journal publications are based on reviewers in your field -and more there is rarely another person in your specific narrow field at your university.
Finally - teaching. There are some great teachers who do poor research. They end up at colleges that are focused more on teaching. In California, that would be the Cal State system and the community colleges. If your research is stellar, and your teaching is good and your service is sufficient - you can get tenure at one of the University of California schools.
There are some great researchers who are good enough teachers, who are great teachers, and sometimes who are poor teachers depending on the classroom. Some are better with graduate students, others are good with seminars, some know how to entertain a large lecture hall of 400+ students. Each room takes a different touch and feel and style.
So how about those students? Well - SOME are there to learn. Others are there to get their ticket punched with a degree. A third group is of the Jimmy Buffet category “Send you off to college to try to get a bit of knowledge, but all you want to do is learn how to score…” The BEST students go to office hours, and even more they do joint research with faculty if they are driven and lucky. My faculty friends regularly have dinner parties of undergrads at their homes for those students who have come in to work on research in a lab of some sort. I did some work with faculty when I was an undergrad, which convinced me to NOT go towards a PhD - it did not appeal to me at the time.