The issue of incentives is a bit more complex, but boils down to this. Often, we end up, in effect, punishing our best performers. They get all the tough jobs because we know we can count on them and the poor performers get the easier work. People have to know how to do their jobs. Capacity is important for obvious reasons also.
Motivation is important also.
A strictly person-based definition of performance is that performance is a function of motivation and ability. We can work on the ability. We may have a corporate university and provide excellent training for our employees, focusing on the skills that will be needed tomorrow as well as today. Our promotion and selection systems may be good enough to ensure that employee capacity is never an issue. But all this may not be enough if there are major problems in the system factors.