It seems that carrot and stick methods do not work.
With software development, how do we encourage suitable roles, goals and deliverables?
I think this is a matter of finding the right personnel, and/or giving the right incentives. You give very few details here, but in order to get above average performance, you either need an above average individual (who may cost more, but be worth it), or a proper incentive to an average individual.
Either find out how to incentvize the people you have (cut them in for a piece of the action, assuming specific goals are met?) .. or find new people. (Or at least a new team leader.)
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