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The impact of formal incentives on team productivity is not fully understood. A handful of field experiments have documented either a small or a null impact of formal incentives on teams, but do not unpack the mechanisms at play. Consistent with previous literature, we find that formal incentives improve productivity by 20% on individuals but has a null effect on teams. We calibrate a theoretical model to show that the null effect on teams is not because formal incentives lose their effectiveness in teams—in fact, they boost productivity via effort complementarity. The null effect emerges because teams with weak formal incentives display larger social incentives than teams with strong formal incentives. Social incentives seem to be triggered when teams face more productive rivals.