I think this is the key point, one that gets neglected in these discussions. It's easy to say we should reward people for doing a good job, and punish people for doing a bad job, but that determination will be made by people, and those people can have an agenda. Quis custodiet ipsos custodes?
Wouldn't the best punishment be "just no longer give them any public money, until they show in the private sector that they improved their quality of work"?
That is way less brutal than Hammurabi or Stalin, and still gets the point home.