Abusive supervision negatively affects its direct victims. However, recent studies have begun to explore how abusive supervision affects third parties (peer abusive supervision). We use the emotion-based process model of schadenfreude as a basis to suggest that third parties will experience schadenfreude and increase their work engagement as a response to peer abusive supervision (PAS). Furthermore, we suggest that the context of competitive goal interdependence facilitates the indirect relationship between PAS and third parties’ work engagement on schadenfreude. We use a mixed-method approach to test our hypotheses. Data from an experimental study conducted by facial expression analysis technology (Study 1, a 2 × 2 design, N = 104) and a multi‐wave field study (Study 2, N = 229) generally support our hypotheses. Overall, our study extends PAS literature and meaningfully informs practitioners who aim to promote ethical workplace environments.