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This scenario can occur if the supervisor comes from a different work culture than the team or the supervisor has a different set of values and ethics guiding him.Either way the path forward is to disentangle the personal from the work aspect.The supervisor needs to avoid small talk,stop responding to non-work related topics that may come up during conversations .He needs to ensure the team is meeting the goals of project at hand.The supervisor should share negative feedback about workers to his superiors and if they agree should penalize such workers for non performance.Rewards and punishments are a powerful tool in the hands of supervisor to get the team under control.Whatever decisions are taken it should be after building consensus from the upper level.
But if the management itself is in support of workers or doesn't support you,then finding another job is a better option.Basically it comes down to politics.
if any one member of team is not happy it may be his personal cause, but if, every member is not happy its mean company is not following the motivation techniques, along with monetary compensation you should motivate them by realizing that they are very much important to achieve the desired objectives of the company and company recognize their efforts. you may realize them this by different techniques, i.e self respect, buck up, sharing their problem e.t.c
