>Do you take this position when dining at a restaurant? When your food is amazing, do you pay more for it? When it's poor, do you pay less?

Actually, I do. I leave tips depending on the quality of food and serving.

>Why should this kind of relationship not apply to employees? The only difference being an employer should probably do more to try to get performance up before severing the relationship.

It applies to employees as well. Employees might leave for a place with a better pay, actually, I know a lot of software developers who change the job once in 2-3 years to make it more market because their employees don't think they need to pay more. If employer is doing something which is quite unique, and people need to learn this on the job and it takes a lot of time, not paying good performers is detrimental to the business.