How Pulling Our Investment in 'Average' Employees Made Us Anything But Look out for these three red flags indicating that you've made a mediocre hire.

Every leader knows that bad employees are bad for business, but average employees can be even worse. A recent McKinsey & Company paper suggested a reason why, saying that average employees' performance ratings do not indicate future performance.

Related: How to deal with average to slightly below average employees

Several years ago, the Harvard Business Review outlined the massive effort average employees require to be trained and maintained, as well as to function. Zappos' CEO Tony Hsieh has estimated that his company has lost more than $100 million since its inception over its efforts to turn the wrong people into good fits.

Yet, while everyone deserves a chance to succeed, why keep an average employee when a high performer or future leader is out there?

Average employees aren't average everywhere. Sometimes, the right person is just sitting in the wrong seat. Letting these employees go can be difficult, but when the "right" seat is one at a different company, parting ways is likely better for everyone involved.

How do mediocre employees present themselves? Here are three red flags:

1. They don't acknowledge when they're falling short.

The best employees always see opportunities for improvement, while average ones think they're doing well in every area. Self-awareness is a hallmark of a great employee; if someone on your team lacks it, he or she could be holding back the rest of that team.

Professors at DePaul University conducted an experiment on how self-awareness relates to a team's effectiveness: Teams with members who were convinced they were contributing more than they really were turned out to be adjudged as being less effective. The chances of their teams' success were actually halved.

This issue is bad enough on its own but is magnified when an employee continues to repeat mistakes after being properly trained. We all have blind spots, but great team members strive to identify and correct them. In fact, there's a practice Benjamin Franklin followed to remain self-aware of his personal "net worth" -- he maintained a "balance sheet" of traits about himself that he admired, and traits he found to be liabilities.

Franklin believed he could grow in character through just this kind of self-awareness (and today's research indicates he was right). Conversely, average team members deny blind spots' existence or think everyone else is overreacting to their missteps.

Related: 12 Self-Awareness Exercises That Fuel Success

2. They're unwilling to learn new skills (or improve old ones).

As leader, you should gauge employees' willingness to improve by how they receive feedback. Those who are unlikely to change or grow tend to take feedback as criticism. On the other hand, those who strive to be better appreciate feedback as helpful advice on how to improve.

Average employees fear failure and the appearance of incompetence. They don't take chances, even when those chances could teach them new skills. Great employees are those driven by goals; they accept that they make missteps if they can learn new things from their efforts. They own their failures and seek challenges -- even when those failures are due to circumstances beyond their control.

To discover employees' willingness to improve, give them the freedom and flexibility to explore their passions at work. 3M instituted this philosophy decades ago, leading one employee to invent the Post-it in his downtime.

At our company, we offer a program called AP Fellows to help our team members grow personally and professionally by learning leadership skills. Team members have to apply to join the program, do homework, give presentations and be willing to deeply engage with one another. Some who go through AP Fellows come out realizing that while they love working at AP, their career passions lie elsewhere. We fully embrace that and do whatever we can to create a smooth transition to the next chapter of their professional lives.

3. They love to play the victim.

While great employees seek solutions, average employees love it when an adequate excuse presents itself. They focus on problems, and when a big one comes along, they point to that as the reason they couldn't accomplish their goal.

Obstacles truly are too large to overcome sometimes -- but the question is how the person handles it. Is this employee glad to be rid of the responsibility or accountable for his or her inability to finish?

Average employees seek opportunities to relinquish control -- and accountability along with it. This mentality can be dangerous if left unchecked. When one employee seeks opportunities to pass blame, others may feel unfairly saddled with that responsibility. What's worse is that the blame game spreads like the flu: A study by professors at Stanford University and the University of Southern California revealed that watching and/or hearing someone blame another person can cause others to do the same.

If this pattern starts to develop at your company, identify the culprit quickly and start an honest conversation about expectations.

For example, a client recently presented us with a complex affiliate recruitment challenge. It was what some business folks like to call a BHAG -- a big, hairy, audacious goal -- with a tight deadline. On the surface, the project never should have been completed. There were too many opportunities to fail and not enough resources. If just one team member had claimed "victim" status along the way, that declaration might have killed the whole endeavor.

Fortunately, our team members all stayed accountable, believing in their collaborative efforts. What easily could have been a missed opportunity turned into a huge accomplishment.

Related: How to Identify Mediocre Employees Before You Hire Them

Identifying and terminating people who aren't stretching their abilities doesn't mean issuing a sink-or-swim ultimatum. When it becomes apparent that an employee will require a disproportionate investment to succeed or may never reach the level of his or her peers, we initiate our Mindful Transition program.

Solution: Mindful Transition

Mindful Transition is our solution to positive employee departures. Throughout our organization, we readily encourage open communication about goals and expectations. If and when our culture or the type of work we do is no longer a good fit for a team member, we provide flexible time for him or her to transition into something that is.

This could be a job at another company or even the effort to start his or her own business. All we ask is that team members be transparent about their willingness to move on and maintain an acceptable standard of work while they're still with us.

Average employees shouldn't dictate a company's success. Demand excellence from employees, give them the resources they need to achieve it and reward them when they meet expectations. If an employee doesn't meet those standards, initiate a Mindful Transition to put both parties in a better position moving forward.