Public management literature has often debated the usefulness of transactional leadership. Some scholars are concerned that transactional leadership strategies will harm public employees' perceived competence (i.e. their self-efficacy), but, in fact, there are also arguments for the opposite result - that feelings of competence are strengthened by conditional rewards, because they provide feedback about performance. Based on research conducted in Denmark, this study paper explores how 91 high school principals' reported use of rewards and sanctions affected the perceived professional competence among their 1,921 teachers. The results show that the use of rewards strengthens self-efficacy, and that the use of sanctions does not seem to have negative effects. Furthermore, the teachers' self-efficacy can be linked positively to organizational performance. This suggests that rewards can be an important tool for managers in the public sector. (Series: The Rockwool Foundation Research Unit - Study Paper - No. 72) Subject: Organizational Management, Education]