I definitely agree with the last thing you said. Even if Groce had 5 years remaining, I'd want him gone based on poor performance for 4 years.
If the decision is you want to punt the year, go right ahead and give Groce a 2 year extension with no buyout. Everyone in the fanbase, media, and coaching community will know its a joke.
I'm saying you have to make a legit decision this year, not a punt. If you really want to give Groce another year, you should want to give him multiple years and actually set him up for success with a strong contract so he has job security and is able to recruit. If you don't think Groce is the guy, find a coach that can be that guy.
Also, your idea of a cheap extention is very similar to the Cubit situation. Cubit was basically given a contract that was very easy to get out of, with little buyout, in order to easily fire him and replace him at a later date.