Rewarding regulation involves pursuing the complex goal of bringing labor protection and firms’ economic performance together. A central element in achieving such goals refers to how regulatory bureaucracies operate. This paper examines the organizational structures, processes, and internal dynamics that allow regulatory bureaucracies to innovate and meet such developmental challenges. It reviews well-established interpretations about state bureaucracies that have emphasized either hierarchical structures and control processes or discretion and disperse individual behaviors. In addition, it suggests alternative analytical paths for combining (...) flexibility and control by examining the relational processes and dynamics within bureaucracies. The analysis of the Brazilian Labor Inspectorate, based on qualitative data and extensive fieldwork, and of other empirical examples from the literature, indicates that internal tensions and conflicts instigate a process of technical vigilance between members of the same bureaucracy, inducing innovation and responsible uses of discretion. (shrink)