There are ways to motivate your "problem employee" without resorting to punitive measures, says Harvard Business Review.

"There's one on every team - someone who just doesn't live up to his potential. Here is a process to inspire this problem employee to
change:

1. Better understand the problem. Start by looking at the issue from the employee's point of view. Is he unmotivated by the work? Does he not like his co-workers? Could you be part of the problem?

2. Define alternatives. Generate several possible solutions. Don't assume there is a right answer.

3. Meet to discuss the problem. Sit down with the employee, describing the problem and pointing out that it cannot continue. Ask questions to find out whether your assumptions are correct. Present several of the possible solutions and work with him to come up with a resolution that works for both of you."

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http://www.reuters.com/article/2012/08/07/us-management-tip-idUSBRE8750P620120807
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