The City Academy in Bristol paid more than �37,000 in rewards in 2005 for pupils meeting their target grades - the average payout was �180.

The inspectorate's report graded the academy's learning and quality of teaching as "good".

The report did criticise the skill level of students in Year 7, saying literacy levels were too low.

But it adds that the academy, which opened in 2003, provides "good value for money", and Ray Priest, the principal, was also praised for his "outstanding" leadership.

The report goes on to say: "The quality of care, support and guidance for students is quite remarkable and their personal development is excellent.

"The students are really proud of the academy. They know that their views are sought, valued and used."

Mr Priest said: "I am proud of the students and staff who have worked together with magnificent support from governors, parents and the community to ensure this school is helping to transform the quality of education in our city."