You are assuming that monetary compensation is the only motivator for employees. And that's simply not true. Once people have enough that they can feed their

You are assuming that monetary compensation is the only motivator for employees. And that's simply not true. Once people have enough that they can feed their family and put their kids through college, money isn't as important a motivator. So while you do want to reward your superstars, it follows that (a) the fact that lower performing employees get paid less may not be so much of a problem, so long as they are adequately paid (i.e., not "peanuts"), and (b) money may not necessarily be the best way to do this --- you need to make sure that their good work is recognized, and you need to take into account what they want to work on. At the end of the day, it's going to be the other things; a fun/pleasant workplace, development tools that don't suck, a collegial environment, which are going to be more important for most employees once their basic needs are met. Perhaps in a startup environment, where hours are long and the pressure to ship trumps everything else, people forget about these things and think only about the compensation which will hopefully be coming over the horizen in case the startup makes a successful exit. But in a more mature company, I'll suggest that an attitude like that is extremely short-sighted.