We study the impact of team-based performance pay in a major UK government agency, the
public employment service. The scheme covered quantity and quality targets, measured with
varying degrees of precision. We use unique data from the agency’s performance
management system and personnel records, linked to local labour market data. We show that
on average the scheme had no significant effect but had a substantial positive effect in small
teams, fitting an explanation combining free riding and peer monitoring. We also show that
the impact was greater on better-measured quantity outcomes than quality outcomes. The
scheme was very cost effective in small offices.