I've had many great internal transfers. You need to dig into their CLs, bugs, docs, and (yes) perf and have a couple of fit interviews first. You don't get that kind of signal from external candidates. With external hires though much of that ground work is essentially shouldered by recruiting, the interviewers, and hiring committee.

I fully appreciate that it's no fun for anyone to manage that kind of a situation, but the strategy I use is to just be really frank with the employee. Their attitude is a net negative to the team and if you don't see that changing they're not going to meet expectations.