I use a multi-tiered award system.
I teach mostly students from 3 to 9 years of age. They need to know when they have done well - either practicing prooperly, finishing a piece, making definite progress, learning an important new skill or theory concept. I always use praise - I believe a balance of praise and criticism are necessary to learn with motivation.
I give stars of various colours when students have achieved a reasonable level on their piece - these stars give clues about if the tempo is consistent, if the dynamics are observed, if the fingering works, etc. I use gold when the student has played the piece at an acceptable level for what I know they are currently capable of.
I use merit cards (little print sheets) to keep a record of specific positive comments and achievements. These cards make tangible, rather than replace, the personal satisfaction and the praise comments. Nearly all my students love these cards, read them and put them in safe keeping - like a scrap book. Some have a pile of over 100 - and these give them a record of what they have achieved since beginning their lessons with me.
I also have a prize system for those who want to earn 10 merits and mark this achievement with a small toy. (I don't ever give lollies - too many complicaitons with diet and hygiene.) I know there is an argument about detracting from the satisfaction and focus of music making - but I am talking about little children here. Do we really suppose many of them value and enjoy most of the hard work they put into learning lesson pieces? And, if we work for personal satisfaction, isn't this a feeling - a motive apart from music itself? I would then argue that it is as valid to motivate work through satisfaction and pleasure as to reward for effort. This reward does not come without the work. It is easier to mark the achievemnt with little children if they can see something resulting from thier work.
I am content because most of my students practice and try very hard in lessons. Even if this is partly driven by an awards system, they are learning and trying. They are developing skills that will enable them to enjoy music for itself, they are learning what they need to work on to achieve and they can see their progress over time because it is recorded. Parents are really happy and impressed by the system. It is working, do will keep using it.