Damage to the company through professional errors or consistently poor performance. If an employee is terminated due to performance, it shouldn't be a surprise. Good managers try to help struggling workers with a development plan following a negative performance review. But if that plan doesn't lead to improvement, the employee probably knows the end is near. Put yourself in the shoes of the employee.
Some low achievers have no motivation to find something else until they are forced to do so.
You think you're being nice by not firing someone, but in the end you're doing a disservice. The employee is most likely unhappy and frustrated, but at a loss for what to do next. In the end, you will help the employee move on to a fresh start. Also realize that if you don't act quickly, the employee can develop a bad attitude that may spread like a virus through the department. The more others have to pitch in to make up for a poor performer, the more they too become frustrated and angry.