You work hard. Your team works hard. You treat people well. People like you. Your company grows.
Your worst people "cover their cost."
You're not in business to cover your cost. You're there to make money. You're there to grow. You're there to help your employees grow and develop. Everyone is there to earn more money. Ask your staff, do they want to make more next year, or less? Even the people who are average and just cover their cost want to earn more. If they just cover themselves, do they deserve a raise? Why will you give them one? Because you don't like confrontation, and you're afraid to cut a "nice person." Mistake.
When you have subpar performers, it lowers the work to everyone else. You think your new people aim towards the best person. Not true for everyone. Most people look at their peer group and see what everyone else is doing. Consciously or subconsciously people see the minimum and know they need to beat that. Human nature. The joke of when you and others are being chased, you don't need to be the fastest, just need to outrun the slowest person. That's work.
When average and subpar is acceptable, it lowers the output of everyone. They think, if that's acceptable, I don't need to crank it out. Everything drops, and you don't even realize it.
It will be hard to let people go. You will realize they aren't happy either, and that's why they aren't giving it more. You're being fooled because you think they are nice. Nice people don't tell you they love it and then not give it their all.
I've heard that stack-ranking is passé. From the 1980s. That's crap used by people who want to sell a concept rather than use what works. If your management team isn't ranking their staff quarterly, they are telling you they are afraid of confrontation.
It isn't hard to find someone who can "cover their cost." When that's all someone is doing, and they aren't wanting to grow and be better, it's time to make changes. You owe it to the people who are busting their butt. You owe it to yourself. And, you owe it to your company.