The 22-year old has signed a four-year deal with the Canaries after rejecting a new offer from Barnsley with the fee still to be decided.
The fact that Butterfield came through the clubs youth academy will see a tribunal decide a fee for the midfielder as he is under 24 and Hill has lashed out at the system which will more than likely see only Norwich benefit from the transfer.
"It's going to go to a tribunal, but we won't get what we deserve for Jacob," Hill told the Sheffield Star.
"I haven't got any problems with Jacob, we've got a superb relationship, it's the system which I don't like.
"The only people who will benefit from this deal is Norwich City.
"Jacob will be playing for them next season and we might not have had the tribunal to see how much money we'll get for him.
"Jacob's a great player and we'd love to have kept him, but he wanted to play in the Premier League and there was nothing more we could do to keep him.
"I wish him every success. I think Jacob is sometimes misunderstood, but we gave him the platform to develop as a player and I know he takes his football very seriously.
"The offer we got from Norwich was an insult to myself, the club and a massive insult to Jacob Butterfield. I know why Norwich did it. That's what Premier League sides can do."