Pliny The Elder asks:
What insight can you give into the decision making process behind the reader's job?
What kind of scripts make it past the reader, and which ones fail?
Do you err on the side of passing a script upwards, if it has a glimmer of potential? Are you told to favor various genres?
All good questions, some with more complicated answers than you might expect.
The number one credo every reader has to live by is to serve the client. Sure, we're there because we've proven our worth and our input is valued... but we're also there because the really important people simply don't have time to go through every submission. We're there to take the bullets on the bad scripts so they don't have to.
You know how on the old Star Treks there'd be a landing party that consisted of Captain Kirk, Mr. Spock, Dr. McCoy... and some guy in a red shirt you never saw before? Remember why that "red shirt" was there? So that when trouble came along, the red shirt was the one who got killed and the Captain could go about his business. In many ways, the reader is the red shirt. If something gets past us and threatens the Captain, it had better be something he wants to deal with.
This is why readers are so hard on the scripts they see. If we're saying something is worth the boss's attention, then it had better be damn good. You know what? I'll amend that slightly. It doesn't need to be across-the-board impressive, but it had better have something in there that makes it worthy of the boss's attention.
This is the second aspect of serving the client - know what your boss is looking for. Most production companies have fairly defined identities. That's easy enough to suss out just by looking at the sorts of films the company has made in the past. Granted, some are more defined than others. If you're reading for Platinum Dunes (Michael Bay's production company), you'll probably be getting a lot of action submissions and a lot of horror submissions. Here's PD's resume of released films:
The Texas Chainsaw Massacre
The Amityville Horror
Friday the 13th
A Nightmare on Elm Street
Only two of those are not remakes and pretty much all of them are horror/thrillers. The IMDB Pro page also lists several scripts and pitches which they've purchased, most along the same lines as the examples above. Bottom line: if you're a reader at PD, you're probably going to be less inclined to pass a romantic comedy or a character drama up the ladder unless it's extremely well-written. (And yes, for unfathomable reasons there are plenty of production companies that get submissions that are "off-model" for them.)
Also, there's probably a chance that you'll go a little easier on some horror films or thrillers. The writing might not be perfect, but maybe there's a premise you see worth developing. Perhaps it simply looks like it could be done on a low budget and is essentially actor-proof. Maybe you read a script and think, "Not my cup of tea, but the company knows how to sell this kind of thing and there's a market for it." Cases like that are what "Consider with Reservations" was made for. Then you can hammer the weak spots in your coverage but still point out the potential the material has.
A company with a less rigid identity - like Imagine Entertainment - allows for a slightly different approach. There you might be open to a wider variety of genres, but as a consequence, you'll probably be more discriminating about the writing quality. Good writing will rise to the top, and as a reader in a place like that, you're probably going to be holding back the Consider ranking for a script that you'll remember for a long time.
For the writers, this is where most of the lessons I've tried to impart in this blog come in. Do you have a solid hook? Do you have vivid characters? Is your pacing effective? Does your story have strong structure? Is it visual? Is it memorable? Is there a market for it?
If I'm reading for Platinum Dunes and I get the script for Friends With Benefits, it probably doesn't stand much chance of doing better than "Consider with Reservations" since it's so off-brand for the company. On the other hand, at Imagine the brand is so diverse that Friends With Benefits just has to be a good script for me to run it up the flagpole.
That's on the production company side. The agency side is somewhat different because when you're dealing with established, repped writers, then all kinds of politics get involved. For the unrepped writers submitting, the focus is less on specific genres (unless you're writing unmarketable swill like 150-page period costume dramas) and more about proving you can write excellent. And if you can't write excellent, you'd better be able to write commercial.
As for if I error on the side of passing a script upwards, if it has a glimmer of potential, that's something that's judged more on a case-by-case basis. I always look at it from the point of view of, if my boss calls me into his office and says, "You like this? Why?" I should be able to defend it. If I'm half-hearted about it, I'll give it the "Consider with Reservations" treatment and be very specific in my coverage about what I think has merit while pointing everything wrong with the script.
I think the times when I'd err on passing the script upwards would be if it was a really original, clever screenplay. If you could feel the talent coming off of the page, even if the pace was a little slow, or the idea just a little bit odd. But honestly, if you've been reading for the same people for a while, you'll start to pick up the kinds of things they respond to and the sorts of things they don't care about at all. Some execs might be drawn to the quirkier material from raw writers, while others simply aren't inclined to take a chance and nurture something like that.
I hope that gives some insight into the process. There are so many variables in the reading/coverage process that it's sometimes hard to give a general one-size-fits-all-answer.