It's important to remember that Schmidt was on Apple's Board of Directors at the time this occurred (he joined in the fall of 2006.) The Board was hand-picked in its entirety by Jobs.
These are power guys, and if Schmidt doesn't do something strongly, he will be perceived as weak. The implicitness in this email was a basic alpha-male locker-room challenge for Schmidt to show if he had any balls.
To me, this looks like a survivalist-move on the part of Schmidt to show Jobs he is "in charge" at Google. It's obvious Jobs knew how to push his buttons; otherwise, why would he (Schmidt) jump when the CEO of another company (Jobs) said "jump"?
Such locker room / schoolyard pissing contests show lack of leadership, creativity, compassion and humility. Very Wall Street.
Without a source of what was in the policy manual it's really hard to armchair quarterback, but such 1 strike and you're toast really sends the wrong message to everyone.
The message back to Jobs should have been, It's taken care of. Won't happen again.
Internally, IF the policy said violate A,B or C and termination applies, I can't quibble.
Otherwise, people make mistakes and should be handled as such. That what makes companies "Great Places to Work" and not the next job to pull a paycheck before the next one.
When an animal trainer gives a dog a cookie for jumping through a hoop, it's beyond question that the trainer intended the dog to jump through the hoop. Even the dog understands that. That is exactly the situation here.
I recommend reading this: http://www.ribbonfarm.com/2009/11/11/the-gervais-principle-i...
Sipmle logic states that Steve Jobs actually cared about maintaining the scheme he had with Google and couldn't care less about one particular Google employee.
Why would he? If he really were some kind of perverted power-luster he had plenty of his own employees to torture, but he just wasn't like that. He was always pursuing HIS GOALS ruthlessly, he wasn't out to get his rocks off by hurting people or exercising power.
(None of this is from direct experience, but it's evident from public information.)