Potential indicates whether someone will be able to succeed in a bigger role in the future. It is a person’s ability to grow and to handle responsibilities of greater scale and scope. “Greater scale” means a job in the same are but with a larger budget or staff; “Greater scope” means a job involving activities of substantially more breadth and complexity.

A high-potential employee is one who has been identified as having the potential, ability, and aspiration to hold successive leadership positions in an organization. Once identified, they are often singled out for focused developmental opportunities designed to prepare them for future leadership positions.

Having high-potential is very different than being a high-performer, although they do tend to go hand in hand. Most high-potentials are hig- performers – that is, they perform extremely well at just about anything they take on. But not all high-performers have the capacity to be a high-performer at the next level or two – they may have maxed out their potential and are perfectly suited for their current role or level of work.

Mistaking a high-performing employee for a high-potential employee can be costly. If an organization is not able to distinguish between performance and potential, it will have difficulty identifying talent.

High-potentials can be difficult to identify, for two reasons. First, high-performance is so blindingly easy to observe that it drowns out the less obvious attributes and behaviors that characterize high-potentials, like change management or learning capabilities.

Second, few organizations codify the attributes and competencies they value in their ideal employees–which means that managers don’t know precisely what to look for to assess potential. As a result, most managers focus exclusively on performance, and that can be a problem. When performance is the only criteria employees are evaluated on, high-performers will be the only ones moving up, and your high-potentials will be moving out.

Summing-up: If people are your most important asset, as companies like to say, then high-potentials are vital to your future. You should definitely value and reward performance, but high-potentials are the future leaders, the future of the company.