Preferential treatment is given to such people for good reason. Profitability!

In many cases, especially in niche arenas, there are no college kids, nor are few people willing to learn what might be an incredible difficult task. As an employer, why would I want to spend 1-2 years training 3-4 new hires to replace 1 screwey superstar. If I am forced to, sure... but I am not gong to take that big of a financial hit unless there is no other way.

The problem is that the daily guy who is consistant often times provides minimal value beyond the day to day activities. In other words the average employee.

The superstar fireman who comes in for the kill sucks at the daily stuff, but will recieve the lions share of praise... and when it comes time to get rid of someone as a function of finance, I will generally let go of the daily good worker over the infrequent superstar. This assumes that I can manage such an individual. Eg, if they are a whiner, no way! I won't put up with it.

This is not to say let someone get away with murder, one does have to tow the line, and there are some bare minimum standards that have to be upheld for legal purposes, but outside of that, a lot of slack can be given for key performance, even if its intermittant.

If we take it a step further.

Who would you prefer to operate on you, a top notch surgeon with terrible beside manner who rarely shows up for meetings and constantly cusses and screams, yet has a 95% success rate. Or a very nice easy to manage surgeon, super polite, always on time, but has a success rate of 60% (which is still better than a national statistic of 50% for a given difficult operation).

Granted, outside of a niche area, this discussion is moot. If you can hire a newbie, and get them up to speed in a couple months, why deal with the BS. If you need 3-4 newbies and a couple years, it makes the decision much more difficult.

Gillian
I think your approach is a good start. Just be sure to be pretty hardcore on your decision. I wouldn't go so far as to zero tolerance, as that can lead to almost an equal level of the problems encountered by letting the guy walk all over you via letting most anything go. If things do rise up occasionally, allocate 10 minutes at the end of the day or at noon to talk with him. Be sure he knows you will, and that after the 10 minutes end, personal talk time is over no matter what, and either its back to work, or time to go home. He may come to appreciate this stance as well. Just explain it upfront.

One other possibility, is to check into offering an EAP with your local hospital or medical service provider. They can be surprisingly inexpensive, and would offer you a number of benefits. First, it takes the burden off you, Secondly, it might help this fellow, and allow you to keep him on, Thirdly, it might be a useful tool for retention and recruitment of new employees. Fourth, it can improve productivity across the board. I'm pretty hard core, and do not buy into the whole mental health thing as a rule, but when I saw the numbers... it blew my mind. I think it can make a difference.