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Will (Probably) Teach for Performance Pay

Not all pay-for-performance schemes are created equal.

While performance pay for teachers has gained quite a bit of attention lately, the reality is that fewer than four percent of schools have implemented incentive schemes. Tales of success are tempered by stories of failure (and teacher cheating), which has made policymakers and school administrators hesitant to embrace pay for performance.

Much research has been done to determine which performance pay schemes are successful. But systematic reviews of the structure of performance pay, and its its effective and ineffective components, are infrequent.

Derek Neal addresses this gap in research on performance pay in the 2011 NBER working paper “The Design of Performance Pay in Education.” Neal reviews dozens of studies of performance pay schemes from schools around the world. He identifies several systematic problems with these  schemes and uses economic theory to formulate solutions.

Neal finds that school districts have difficulty setting optimal performance standards. Teachers aren’t motivated to pursue standards that they perceive to be unattainable. On the other hand, teachers can achieve low standards without increasing effort, potentially leading to a salary increase despite stagnant student performance.

Absolute performance standards are also a problem because teachers have an incentive to pressure regulators to lower standards or testing agencies to change the testing scale. Neal believes that relative performance standards, which evaluate teachers against one another, would alleviate both problems. Relative performance schemes’ reliance on competition precludes standard manipulation. A well-designed relative “performance contest” should naturally reveal the performance standard that elicits efficient teacher effort.

Still, studies show that while incentive schemes increase student performance on high-stakes tests they do not produce equal gains on comparable low-stakes tests. This suggests that teachers are coaching students to excel on specific high-stakes tests and decreasing time devoted to broader learning that might promote long-term student success. Consequently, high-stakes test results considerably overestimate actual student and teacher performance gains.

To circumvent this problem, Neal proposes using assessments with unpredictable and varied questions and a separate low-stakes test with year-to-year overlap in questions.

Finally, Neal argues that student achievement measures should take into account students’ backgrounds and baseline achievement to disrupt teachers’ incentive to avoid low-performing students and schools.

Anthony Austin
About Anthony Austin (4 Articles)
Anthony is a 2013 MPP graduate of the Harris School of Public Policy. He is interested in education policy.

3 Comments on Will (Probably) Teach for Performance Pay

  1. Melissa Fowlkes // March 6, 2012 at 12:35 pm // Reply

    Can’t help but call for a little reality check here. Most public school districts that I am aware of have a very severe budget deficit and are reducing staff let alone having funds available for creative recruitment programs that entice with “incentive pay.” Instead, teacher furlough days and drastically reduced or completely eliminated progams such as computer labs, library time, music, art, and class field trips are the order of the day. Perhaps Austin’s article is more intended for private schools?

    • It is true that most school districts currently don’t have an excess of money sitting around that can be used to implement every beneficial but costly policy. However, that is not an excuse to rule out the possibility of adopting new policies that require funds.

      Policy makers should not hold all else equal when considering whether to adopt a given policy. Instead, existing policies should be viewed as subject to change if more effective, less costly policies are found. In other words, policy makers need to weigh the costs and benefits of the given policy against the costs and benefits of all other possible policies. Policy makers should push to adopt the set of policies that deliver the highest benefit given the fixed school budget.

      For example, a hypothetical school might decide to start allocating a part of the budget to performance pay for teachers, while raising the average number of students per teacher from 16 to 17, such that the increased cost associated with performance pay is offset by the decrease in costs associated with larger class sizes. This would be a budget neutral policy improvement if the benefit of performance pay is greater than the benefit of slightly smaller class sizes.

      Naturally, whether performance pay would be an improvement for a given school is an empirical question.

  2. Interesting piece, but I still think you’re missing the most important component of incentive/performance pay: the impact on new hires. High performs in every sector want to see that their contributions are being acknowledged so they work in sectors that do. There are lots of non-monetary ways to do this but pay is important.

    The theory that paying for performance will lead teachers to work harder seems weak when you consider how hard teachers already work (without this kind of compensation).

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