More on Incentive Pay Considered Harmful: "Here's," says my friend with an actual job, "[my] Effective Management Guide:"
make people happy and praise their work, try to work with them if it looks like they're lagging. If they still lag, but won't work with you to resolve problems, push them until they hate you, and maintain that level of pressure until they come to you for help or quit.
And of note - nowhere in my equation do you see 'weed out the whiners/complainers' or 'watch working hours and activities.' That's the one big mistake so many make - I did in the past too - trying to control/squash any kind of venting, setting up a big-brother feel.
Venting is how some people with good ideas communicate them. Joel points at not understanding that kind of "indirect work" as a failing point of evaluations.
In my one job-like contracting situation, I felt like I had the worst of both worlds: I was instructed to come in and use their stuff to write program X, but wasn't given very much structure in which to do it. I felt alone--the place being a very tiny company didn't help--without approval and praise, and I finally got to where I couldn't stand it and put in my notice, suddenly, without having complained. Of course, by then, it was too late (Don't explain, don't complain).
So my friend's advice sounds reasonable to me, though between my zero job and inadequate school experience, I'm in no position to make that judgment.