Concerns are sometimes raised that transactional leadership harms public organisations’ performance, because demands thwart employees’ self-efficacy. However, the opposite may be argued – conditional rewards strengthen feelings of competence because they provide positive feedback on performance. We study ninety-two high school principals’ reported use of contingent rewards and sanctions and self-efficacy among their 1,932 teachers. The results indicate that contingent rewards strengthen self-efficacy, and that sanctions are not negatively related with self-efficacy or performance. Furthermore, the teachers’ self-efficacy can be linked positively to organisational performance. This suggests that rewards can be an important tool for managers in the public sector.