Is false hope an understandable phrase? It sure is, and it's quite recognizable, too, with much thanks to Paul Simon for that.
According to Wikipedia, it "refers to a hope based entirely around a fantasy or an extremely unlikely outcome."
A related phrase – raising hopes – is used to when something makes people more hopeful about a situation. When those hopes are unlikely to be realized, the phrase raising false hopes is sometimes used, as in:
Some clinics have already been accused of raising false hopes through false advertising or making false claims about success rates (from the book Gene Technology and Social Acceptance by W.P. Von Wartburg and J. Liew)
but even raising hopes can be used by itself (without the word false) when the context clearly indicates that the hopes are tenuous, if not misleading, as in this example:
Politicians are often accused of raising hopes, which they know full well cannot be brought to fruition (from a 1976 article in New Scientist)
As for a single word to express giving false hopes, the verb tantalize comes pretty close, which Macmillan defines as:
to make someone feel excited by showing or offering them something that they want, often with no intention of giving it to them
The word has an interesting origin, being derived from the Greek mythology character Tantalus, who was "punished in the afterlife by being made to stand in a river up to his chin, under branches laden with fruit, all of which withdrew from his reach whenever he tried to eat or drink." As such, the notion of false hope is certainly embedded in the word.
The noun form is tantalizer, so, getting back to your original question, one could say:
The owner is a tantalizer when the discussion comes to salary increases.
although I think it might sound more natural to use the word as a verb:
The owner tantalizes his employees when discussing salary increases.