Carrot & Stick. Reward & Punishment. Management mantra. The interesting point in all organizations is the absence of both for the untrained eye. Of course, there are rewards and punishment when you grade the employees annually. But this is too infrequent that the whole yearly process gets the tongues waggling about favoritism.
Reward is the easiest because it leaves a good feeling in both the person involved. But this is not always the case. Most of the managers who has the power to reward are given so few resources to do it. Usually, there is either no money or a very little money to spend on a gift or an outing to a restaurant. Then they are left with the only economical tools - words and certificate of recognition. But they are people who are unaffected by these gestures too. "Only this? No raise?", asks the straight shooters!
Punishment is harder to impart for it leaves a bad taste in both the parties. In some cases, punishment is disproportionate compared with the reward. This results in either lack of accountability or lack of interest in the proceedings which ultimately affects the morale of everyone. In such cases, there is neither creativity nor experimentation.
For building an efficient team, there should be a proper system of reward and punishment. They should be proportionate. If you are putting up a new team, the rewards should be easily achievable and punishment almost non-existent. Once the team find their foothold, increase the stakes. Raise the carrot for better productivity and get a bigger stick for reducing errors.