If they're flabbergasted, you haven't given them enough feedback on their performance. Which means you likely aren't giving your team enough feedback. Which means your team is likely performing sub-optimally.
In the old days I would say to an employee after his or her first day on the job, "I've decided to renew your option. You can come back tomorrow." Today I cringe at the thought of how I would feel if my new boss of one day said that to me.
There's surprisingly little rigorous evidence demonstrating that companies really can make money by doing more good. To this end, my collaborators and I have spent time over the last several years carefully document the positive impact of kinder, gentler corporate initiatives.
Where is the innovation in America's workforce? The answer is in the question. American history is replete with examples of people with great potential who have been overlooked or under-challenged by their managers.