Compliments are beneficial not only to the receiver but the giver. Compliments build self-esteem, break the ice, motivate, diffuse stress, inspire, reward, comfort and validate. However, an improperly executed compliment can have negative effects.
First of all, BE SINCERE. The receiver will always know if you are genuine. If it is really a bad haircut, compliment her on her jewelry choices. This is why being specific is so important. Speak from your heart.
BE SPECIFIC. "What a pretty painting. I really like how you gave the detail here in the back. I never would have thought to do that." The more specific your are the more sincere the compliment seems.
BACK IT UP. "That blouse is beautiful. It really brings out the blue in your eyes."
UNCONDITIONAL. "This is a good meal. Except for the mushrooms." It totally turns from a compliment to a complaint.
Likewise, receiving a compliment correctly can greatly boost the givers self-esteem, or hurt it.
Simply, SAY THANK YOU. Don't try to repay a compliment with a compliment. It will seem fake.
DON'T DISQUALIFY IT. "Oh, it was nothing." "This old shirt?" These types of responses completely undo the compliment and leave the giver feeling discredited.