After reading the article, I chose the path of giving Eric another chance through the use of a performance plan. Mainly because it didn't sound like a formal review with a performance plan had been attempted. I have worked with some Erics who thought quite highly of themselves regardless of their actual delivery. Luckily I was not in a management position. However, as a coworker you still get rubbed the wrong way when you see someone getting away with a lot and not living up to their title (or salary!).

No matter how much of a jerk that sort of employee is being, they deserve the chance to change things. Having their faults and a plan in writing and signed by both parties puts everyone on the same page and clears up any potential HR issues should a firing occur. Plus, even semi-competent workers have business knowledge that cannot be replaced immediately by outside hires. So unless there is another person in the company who has the business knowledge and the technical knowledge to replace him, I think it is usually better to try and work with who you have first.