Ooops, in my long, chatty posting earlier today (you can tell from my yapping on the List that, with few smal exceptions of brief duration, I rarely have operated in fear-driven organizations, LOL), I forgot to provide a link to the Oestreich/Ryan book.  See
http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&isbn=0787939684&itm=1
or
http://shrinkster.com/gh5 .  If you look on the right side of the page, you'll find a link to the table of contents which gives a good idea of the issues covered.
 
I hightly recommend the book.  Managers who can drive fear out of their organizations can raise morale as people won't dread coming in to the office.  The added benefit is that when a work unit does things together in an effort to further raise morale (a summer picnic, a holiday party, etc.), members really will enjoy each others' company rather than going through the motions of socializing.  (There's nothing more grim than a workplace social event or team building exercise that no one really wants to go through.) 
 
Also, if a manager supervises a group that works well together, he or she can assign special projects that draw on the strengths of various staff members and boost their morale without inducing negative reactions by others.  I'm thinking about envy, jealousy, zero sum games, hard feelings, etc.  Take my word for it, it is a lot of fun to work in a unit where people like and support each other!  I've seen so many colleagues quietly "add value" to each other's work, without being ordered to and even without getting public recognition and rewards for it.  When you like and respect the people with and for whom you work, you want to go the extra mile to help 'em!  So improving morale is well worth the thought and effort a manager can put into it, not just in the situation you describe, but also when you do have the money to promote people and pay nice bonuses, etc.
 
Maarja
 
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