In this paper, I study how wages earned by local politicians affect local government quality. I construct a novel data set on Peruvian municipalities which includes individual level data on the characteristics of local authorities, candidates and top bureaucrats, as well as detailed information on local government performance, bureaucratic structures and local politics. To identify the effects, I use caps imposed by the Peruvian central government on the wages earned by local mayors as an excluded instrument. The results indicate that mayoral wages do not improve local government quality. I find evidence of a robust, negative impact on public investment performance. Moreover, I find no evidence of a positive effect on politician and bureaucrat selection and on political effort. I consider multiple explanations for the performance result and conclude that this can be attributed, in part, to greater political opposition and fragmentation. Wages strongly affect the local political landscape, leading to more political opposition and fragmentation. These latter factors are shown to be detrimental for local government performance.