Technology

Seen it numerous times since the mid-90's.

Preferred folks will stay because they're part of the in-crowd (hard to know what that is, but it's senior management building their own little fiefdoms).

The performers have options, so are either part of that in-crowd, or have opportunities elsewhere.

That's because the top ones have better options out there while the ones below, who are worse performing in the first place, often have no option but to stay, ignoring their fear and discomfort.

skim the top employees and are left with the bottom of the barrel that performs even worse

It's called the Dead Sea Effect.

Having been a senior expert in a high demand area for most of my career (and, modesty on the side, pretty good at what I do), I couldn't agree more.

People really good and senior in expert domains come in two styles:

• The kind that complains that "it's the same everywhere", are miserable and never change jobs, who eventually stagnate in terms of professional growth because their professional experience is so narrow (to progress professionally beyond a certain point you really need to work in different places and have different responsabilities so that your knowledge is broad enough and well rounded enough that you start getting the meta part of you job - work processes and stakeholders - that becomes important at the senior levels even outside management).
• The kind that has a well rounded experience, worked in a bunch of places and is comfortable with the whole "getting a new job" process (both interviewing and starting a job in a new place) so can walk out the door and have a new job tommorrow paying the same or better.

Whilst, both kinds generally value stability (though the former overdoes it) as there is comfort in the familiar and people generally also make friends were they work in if they're there long enough (in fact, large Tech companies heavilly push for "your work is your family" exactly for this reason), the second does have the confidence to know their skills are in demand and hence they can easilly find another job, compared to more junior professionals with less expertise makes more money (also a product of changing jobs once in a while) and usually have more savings, so have more freedom to move (both in financial and mental terms) hence a lower threshold for how much shit they will take: push them and you'll easilly lose them (and, from my experience, they're the hardest kind of professional to replace).

I would say that in a company, of everybody it's the second kind of senior expert who has the more ease of moving and are more comfortable doing so: they have the most pull from the outside, the most savings to cover any financial risk (and, as pointed out somewhere else, people have a higher income growth from moving jobs than staying in the same job, so even amongst senior experts the type #2 tend to earn more) and the most experience with the whole process of finding and starting a new job.

Why ends up happening is you skim the top employees and are left with the bottom of the barrel that performs even worse because they are in a state of fear and discomfort.

Sounds like the definition of insanity, doing the same thing over and over and expecting a different result (keeping the best, getting rid of the rest)