Smith machine shrugs are exactly like barbell shrugs only with the added benefit of stabilization offered by the Smith machine.  Before performing the exercise, adjust the Smith machine safety support to knee level.  As you shrug, keep your back straight and your chest out.  Keep your legs straight without locking out your knees.  The up and down movement should only be limited to your shoulders. Pace yourself, and be deliberate in the motion.  Raise your shoulders to your ears as far up as you can.

The trapezius muscle goes from behind your neck down the middle of your back.  To stimulate it, your shoulders should come directly up and not to the front (while on the topic, this exercise only targets the upper portion of the traps).  Trying to pull the shoulders far back in an effort to engage the lower trapezius may result in injury. Furthermore, the additional effort is not rewarded.  Gravity forces the weight downward and the resistance is highest against your upper trapezius.  There are better exercises for targeting the lower trapezius (e.g. rowing exercises and lateral extensions).

Don't flex your biceps as you lift the weight.  Bending your hands at the elbow, using your biceps shifts the burden of the exercise to them.  You can avoid the natural tendency to flex your biceps by contracting your triceps as you do the Smith machine shrugs.  Don't lock out your elbow when you keep your arms straight.  Don't push yourself up from your legs.  Keep your head facing forward; don't move your head around.  Traps are especially prone to injury.  If you move your head around and jerk the weight, you could find yourself in a position where you are stretching and flexing the muscle at the same time.  Incorrect form often leads to overstressing and muscle tears - not deadly, but definitely painful.