How should I deal with mediocre employees?

Constant training, development & motivation of these employees is very important as far as driving or pushing them from midiocre level to better performance levels. Don't discourage, abuse or criticise them especially in public but instead motivate them and give them something to live for or work for. Entice or lure them through various motivation aspects for instance you can develop a monthly, quartely or half yearly reward system to reward every employee who works harder.

First you should determine why he is mediocre? Then, you must motivate him, train, assist, encourage, direct, control, allow him to feel better at work, improve its relationships with his colleagues, correct its mistakes and failures, allow him to discover his strength, 

You should gratify him and consider him, improve its performance, dynamism, skills, abilities. 

Most employees are mediocre, so it's an important question.  The key thing about mediocre staff is where they are headed.  Most are happy being mediocre and will continue to be so.  Your job is to spot the ones who are drifting towards becoming bad employees and preventing that from happening, and identify and help the ones who want to be good.