Punishment ... how do you prefer to do it? There are many ways to punish employees; some are rather effective, while others simply don't work. This is not an exact science. Actually, I would say it's an art. You must be creative, innovative, and very open-minded. You never know which method of punishment will work with whom. Some people respond to one method, while others may completely ignore it. The overarching goal, of course, is to make employees scared of you, their boss, so they will obey enthusiastically. Here is a list of the most effective methods.
Disclaimer: I'm using the pronoun "he" merely for simplicity of speech. The same exact rules apply to both males and females.
Use Your Voice. This, of course, is your best instrument of punishment. Make sure he is scared of you. He must know who he works for—you, his boss. The rule of thumb is that the one with the strongest voice is the boss. Thus, you must be heard, you must rule with your voice, and he must physically feel your presence in the room. Even if it's just a Skype call, your voice must sound stronger than all others. Moreover, don't let him speak if he is trying to argue back. You're the boss! The alpha!
Play Hard to Get. Is he feeling guilty for an error? Simply ignore him. Or, even better, schedule meetings and don't show up. Or reschedule many times. That will demonstrate that you're not interested in him anymore. His frustration will grow. You'll still be in the office, having meetings with other employees, eating lunch, laughing, walking, and talking. You exist, but not for him. He is dead to you, because of his mistake. He is nothing and is getting the silent treatment. Then, suddenly, you attend a meeting! Oh, how happy he will be. He will literally kiss your hands, and you will love that feeling!
Make Fun of Him. We inherit this technique from good, old-school bullying. We all know how it works. Select the person who messed up and make him the target of your jokes. In the office, this method works even better than in school, because you're the boss and he basically can't do anything to you. He will first try to laugh alongside everybody else, but this won't last for the long term. In the end, everybody will laugh at him, and he will do whatever it takes just to stop it. He will obey any order you give!
Mistakes Must be Visible. Is he wrong? Did he miss a deadline? Did he deploy a broken version to production? Did he forget something? Don't resolve this face to face. Always make such things public, simply to let others punish him. This approach is known as peer pressure, a very useful technique. His coworkers must keep up the momentum and punish him using social rejection. That's why, by all means, you as a leader must encourage back-stabbing. You will rise to power much faster if your employees are not only afraid of you but also of each other. Use their fear wisely!
Late-Night Phone Calls. Having a personal life outside the office is not for everybody. It is a luxury, and you are not just going to give it away. He must earn it, and if he is guilty of not completing a task on time, his private life will be ruined by your late-night phone calls. He must remember that. It doesn't really matter what exactly the calls are about. Just make them somewhere around 11 p.m. Your key message is this: "I'm worrying about the project while you're enjoying your family time!" Guilt is what you're planting with this. He won't be able to ask you not to call him after work; he is not that brave. He will instead try to please you somehow so that you stop calling him.
Don't Check Results. This technique is close to playing hard to get, but here you don't ignore him. You communicate with the guilty employee, but you don't talk about his results. You discuss his uncle's wedding, his snowboarding weekend, his new bicycle, etc. But you don't ask about the migration to PostgreSQL he has been working on for the last three weeks. You are not interested. This is a perfect method for demonstrating that you don't see him as a valuable team member anymore. The team doesn't need his results. The team can live without them. You will see how soon he realizes who the boss is and what it means when the boss is not happy!
A Bad Office Spot Is a Great De-Motivator. This is a classic instrument of punishment: The worst desks go to those who forget who the boss is around here. Obviously, the best desk is the one at which nobody can see your monitor. Give those to good people who obey your orders and don't argue with you. They are your core team. They support you as a leader, and they help you rise to power. Others must sit closer to the door, and their monitors must be seen by everybody. As with all other techniques, conceal your intentions—you locate people in the office due to their job descriptions in order to help them communicate effectively. Everybody will understand what's really going on, but you must look like a laissez-faire leader.
Easy Tasks Are Rewards. You decide who does what, and you distribute tasks and projects—that's your instrument of power. Easy-to-do tasks are how you reward those who are loyal and supportive. They complete such tasks, hardly expending any effort. Complex and risky projects, on the other hand, are assigned to the under-performing employee. He will most likely fail, and there won't be anyone to blame—it's just a project, like all others. Boring, ambiguous, unfocused, unnecessary, under-funded, and routine tasks all go to the employee who deserves punishment. Of course, you must look unbiased—be very polite and supportive, acting as if you're a good friend!
Spread Rumors. Simply show your annoyance of his poor results, but not to his face. Talk about his performance with his coworkers. They must know that you're not happy. Furthermore, they must suspect that you're thinking about terminating his contract. Don't say it straight away, but don't deny it if they ask. I doubt they will ask, though. Very soon, these rumors will reach his ear, and he will do whatever it takes just to hear that you're not thinking about termination anymore. He will likely be scared to ask you directly, but even if he does ask, deny it. He will be afraid of you anyway. That will make him much more manageable!
Overtime. Leaving the office at 5 p.m. is a privilege. Only the best employees can afford it. Ideally, everybody must ask you before they leave. The one who feels guilty won't be comfortable asking you whether he can leave at 5 p.m. He will stay longer just because he is afraid to ask. That's exactly what you need! Just to earn the ability to ask whether it's possible to leave the office, he will work harder. The question is how to make employees ask for your permission to go home in the first place. I recommend you stay late and schedule interesting meetings at 6 p.m. Of course, you will come to work at 1 p.m., while everybody else must be there at 9 a.m. sharp. The point is that you must be in the office when they leave, and you must do something important. They will be afraid to disappoint you by showing ignorance, so they will ask for permission. That's what you need!
This list is definitely not exhaustive. I'm sure there are many more interesting methods and technologies. Don't hesitate to share them below in the comments. As I said above, I believe this is an art, not a science.
PS. If you like this article, you will certainly enjoy this Management Stripped Bare: What They Don't Teach You at Business School book by Jo Owen. I actually borrowed some ideas from that book.