Chris Anderson has some great blog posts regarding the review season at Microsoft. One in particular I enjoy is called "Forced Ranking.". His "Ah, review season again..." follow-up is especially revealing:
I would almost take this to another extreme (but not quite) - your bottom 5% should be cut, your top 5% should be given away. A strong organization should be growing new talent, and should be farming them out to the rest of the company. If you have super star performers in your team, give some away (not all of them).
Chris represents a terrific shift in thinking: rather than taking on the burden that every low-performing employee can be saved, you have to transition to getting those people out of Microsoft. I'd be quite happy if over the next year Microsoft fired 5% of its current staff and encouraged the healthy pursuit of other opportunities elsewhere for another 5% (good attrition mostly, but I'll take some bad attrition if it helps revitalize the software economy).