How do we value each student's individuality while honoring a work ethic of higher order standards?

We wish for each student to develop to his/her full potential, but oftentimes, we end up watering down expectations for all students in an attempt to grade everyone based on the same standards. Our goals become a version of a Kurt Vonnegut story where the more gifted dancers must wear weights on their ankles, so they perform like those of lesser ability. In the end, these restraints hurt everyone. Those with weaker skills feel no motivation to strengthen these weaker areas, and those with greater skills learn that there are no rewards for performing at this higher level, so why bother. In fact those with greater skills are often punished and forced to wait in idle until others complete work, or else do even more of the same work they already completed and understand fully, etc.

I would like to hear your ideas.