I read this as the cost is affordable to the company but not worth his output.

>> He's hardworking but simply not able to perform up to the expected standard.

May be he is not assigned the correct role/responsibility. Not every employee is going to be proactive to ensure the correct fit. If that is not an issue, then obviously PIP is the more humane way to go and combine it with a cut in his salary and revert it back when he meets the expected standards.

Suggesting a cut for the duration of PIP will also tell you how much he values the job, agrees with the areas of improvement and is willing to the work on it. If he is not willing to take a cut, then may be he knows he is not producing the expected output.