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"Matthew G. Springer is the director of the National Center on Performance Incentives and an assistant professor of public policy at Vanderbilt University's Peabody College. He is a coauthor of Modern Education Finance and Policy (2007) and a coeditor of Charter School Outcomes (2007) and Handbook of Research on School Choice (2009)."

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PERFORMANCE INCENTIVES

BROOKINGS INSTITUTION PRESS

Contents

Acknowledgments.................................................................................................................................................vii1 Rethinking Teacher Compensation Policies: Why Now, Why Again? Matthew G. Springer............................................................................1PART ONE Perspectives on Teacher Compensation Reform...........................................................................................................232 The Politics of Teacher Pay Reform Dan Goldhaber.............................................................................................................253 A Legal Perspective on Teacher Compensation Reform James E. Ryan.............................................................................................434 A Market-Based Perspective on Teacher Compensation Reform Michael Podgursky..................................................................................675 The Influence of Scholarship and Experience in Other Fields on Teacher Compensation Reform Richard Rothstein.................................................87PART TWO Incentive System Design and Measurement...............................................................................................................1116 Turning Student Test Scores into Teacher Compensation Systems Daniel F. McCaffrey, Bing Han, and J. R. Lockwood..............................................1137 Designing Incentive Systems for Schools Derek Neal...........................................................................................................1498 The Performance of Highly Effective Teachers in Different School Environments William L. Sanders, S. Paul Wright, and Warren E. Langevin.....................1719 Teacher-Designed Performance-Pay Plans in Texas Lori L. Taylor, Matthew G. Springer, and Mark Ehlert.........................................................191PART THREE Informing Teacher Incentive Policies................................................................................................................22510 Teacher Salary Bonuses in North Carolina Jacob L. Vigdor....................................................................................................22711 Teacher Effectiveness, Mobility, and Attrition in Florida Martin R. West and Matthew M. Chingos.............................................................25112 Student Outcomes and Teacher Productivity and Perceptions in Arkansas Marcus A. Winters, Gary W. Ritter, Jay P. Greene, and Ryan Marsh.....................27313 Teacher Incentives in the Developing World Paul Glewwe, Alaka Holla, and Michael Kremer.....................................................................295Contributors....................................................................................................................................................327Index...........................................................................................................................................................329

Chapter One

Matthew G. Springer

In recent years, teacher compensation reform has resurfaced as a strategy to enhance academic outcomes in the U.S. public elementary and secondary school system. A number of school districts, state education agencies, and national and federal initiatives presently fund the development and implementation of programs that remunerate teachers based on their performance or differentiate teacher pay in response to market conditions. These programs are predicated on the argument that prevailing compensation practices provide weak incentives for teachers to act in the best interest of their students and that inefficiencies arise from rigidities in current compensation policies.

Financial incentives also have been advocated as a viable tool for motivating teachers to higher levels of performance, enticing more effective teachers to join or remain in the teaching profession, and aligning teacher behaviors and interests with institutional goals. Nonetheless, a sturdy and influential base of individuals and organizations remains fundamentally opposed to modifying the single salary schedule. Opponents cite little evidence that pay-for-performance programs make schools better and further note that these programs render schools less effective by crowding out intrinsic rewards; they also say that the education system lacks appropriate measures for evaluating teacher performance.

Efforts to reconceptualize teacher compensation practices have garnered steady, if not increased, attention since the early- to mid-1980s, as illustrated in figure 1-1. The notable spike in 1983 coincides with release of the influential A Nation at Risk report and then-president Ronald Reagan's proclamation that "teachers should be paid and promoted on the basis of their merit and competence. Hard-earned tax dollars should encourage the best. They have no business rewarding incompetence and mediocrity." Also in 1983 a twenty-one-member congressional task force on merit pay established by Rep. Carl Perkins (D-Ky.) publicly supported and encouraged experimentation with performance-related pay reform. In fact, the U.S. Department of Education responded by allocating more than $2.5 million to fund seventy-one compensation reform efforts in thirty-seven states that year.

Perhaps surprisingly, research on pay-for-performance programs in the United States has tended to focus on short-run motivational effects, and this research is highly diverse in terms of methodology, target populations, and evaluated programs. In contrast to the applied natural and human sciences' practice of drawing causal inferences before policy decisionmaking, the education sector has tended not to rigorously evaluate policy innovations, particularly with respect to teacher pay. As such, the sector would benefit from deliberative assessment of past and present reform efforts as a means to differentiate fact from fiction. Now is a salient time to take stock of the teacher compensation reform movement.

The chapters in this volume focus primarily on two of the more prominent (and controversial) types of teacher compensation reform: awards based on predetermined tasks or outcomes related to teacher and student behaviors (that is, pay for performance), or both; and recruitment and retention incentives or incentives for teaching in a hard-to-staff school or subject (that is, market-based compensation reforms). This introductory chapter presents a brief history of teacher compensation policy reforms and then discusses theoretical and empirical arguments for and against these reforms. The following section summarizes relevant evaluations of pay-for-performance and market-based compensation reforms, paying particular attention to evidence from experimental and quasi-experimental study designs. This chapter concludes with a short summary of the chapters in this volume.

A Brief History of Teacher Compensation Policies and Reforms

As the U.S. economy shifted from an agricultural to industrial foundation in the late nineteenth and early twentieth centuries, so too did the role of elementary and secondary public education. The public education system was recast as a way to produce effective citizens, unite society, and prevent crime and poverty. This new purpose and focus, combined with increased professionalism within teaching, enabled reconceptualization of teacher compensation practices, first through the grade-based compensation model and then through the single salary schedule.

The grade-based compensation model paid teachers according to the level of schooling taught, and many of these models rewarded teachers based on annual performance reviews completed by school administration. This "merit pay" approach, however, typically violated procedural and distributive fairness as white males were more frequently awarded merit bonuses than nonwhite male teachers, and female teachers were paid considerably less than white male teachers. The grade-based compensation model also paid secondary school teachers more than predominantly female elementary teachers. About one-half of school districts in 1918 included similar merit pay provisions in their grade-based compensation programs.

With the women's rights movement push for "equal pay for equal work," school systems began developing and adopting more egalitarian teacher compensation practices. In 1921 Denver and Des Moines introduced the single salary schedule, which since has underpinned teacher pay practices. The single salary schedule determined pay according to two criteria thought to be most central to teacher productivity—years of service and degree held. It leveled the playing field relative to the grade-based compensation model by paying teachers on the same metric regardless of race, gender, or grade level taught and eliminating merit pay. Highly predictable, the single salary schedule also eased annual salary negotiations between school boards and teachers unions, a particularly attractive outcome considering the strained labor-management relations of this period.

There were individuals who opposed any compensation scheme that did not reward the performance of individual teachers or groups of teachers. Influenced largely by Frederick Taylor's principles of scientific management, these individuals advocated for teacher pay systems that provided "as scientifically as possible for the best returns to society for the increasing public investment" by approaching salaries from their "economic and social aspects and not in terms of sentimentality." As noted decades earlier by an Adams County, Pennsylvania, superintendent, Aaron Sheeley, opponents insisted that treating teachers as equals and not accounting for differences in teacher performance offered "a premium to mediocrity, if not to positive ignorance and incompetency." Nonetheless, by 1950 the single salary schedule was adopted by 97 percent of all U.S. public elementary and secondary school districts and since has remained the dominant method for remunerating public school teachers.

Efforts to reform teacher compensation policies have emerged in virtually every decade since the 1950s. Types of reforms can be classified into a handful of categories, including pay for performance, knowledge- and skills-based pay, career ladder programs, and market-based pay (for example, hard-to-staff subjects or schools or recruitment and retention stipends). While not an exhaustive summary, table 1-1 offers definitions and activities of the more prominent reforms proposed in the education sector.

What might not be entirely evident is the fact that pay-for-performance programs can vary markedly. There are a large number of complexities inherent in the design of compensation systems, including: Whose performance should determine bonus award eligibility? What performance indicators will monitor and appraise employee performance? Will the program reward school personnel on a relative or absolute standard? Who is part of the pay-for-performance system? How will bonus awards be distributed to school personnel? Consequently, building a solid research base is necessary for making firm judgments about programs generally as well as for deciding whether specific types of design features have more or less promise.

During the 1980s and 1990s, the focus of compensation reforms typically took the form of either career ladder programs or knowledge- and skills-based pay plans. Career ladder programs provided teachers new roles with additional pay and responsibilities, career advancement opportunities believed to encourage retention, and variation in responsibilities and activities designed to "counteract stagnation." Knowledge- and skills-based pay programs rewarded teachers for successfully completing activities that represent higher levels of expertise and demonstrated understanding of exemplary teaching practices. Among these activities are portfolio completion, dual certification, earning a graduate degree in subjects taught, or high marks on standards-based teacher evaluations.

A large number of states and school districts are exploring recruitment and retention incentives, including rewarding teachers who work in hard-to-staff schools or subjects. Market-based reforms are designed to address the inequitable distribution of highly effective teachers among schools as well as teacher shortages in such subjects as mathematics, science, and special education. Even though the vast majority of states have funded incentive plans around teacher recruitment and retention, as observed by Susanna Loeb and Luke Miller, most of these programs are not well aligned with teacher labor market realities, nor is the receipt of an incentive award usually contingent on teacher effectiveness. Hard-to-staff school and subject bonuses remain at the top of the policy agenda.

The present wave of compensation reform is best characterized by an increased focus on rewarding educational outputs, which is a departure from reform models proposed during the 1980s and 1990s that focused heavily on educational inputs and processes. Pay-for-performance programs may use multiple measures to evaluate teacher performance and incorporate elements found in career ladder or knowledge- and skills-based pay plans; however, student outcomes on standardized assessments remain the most heavily weighted factor in determining bonus award eligibility.

Critiques of Teacher Pay-for-Performance Programs

Critics of pay-for-performance programs in education note that there is a great deal of collaboration among teachers. Introducing individual performance rewards, they argue, might reduce incentives for teachers to cooperate and collaborate with one another, thereby reducing rather than increasing school performance. The team dynamic also may be disrupted between teachers as well as between teachers and administrators if a teachers' peers are put in a position of evaluating and rewarding their performance. The same may also hold true if the compensation system is designed as a rank-ordered tournament whereby teachers or teams of teachers are competing for a fixed amount of bonus money.

Critics argue further that pay-for-performance plans are destined for failure because teacher performance is more difficult to monitor than performance in other professions. Unlike, for instance, sales or the billable hours of a doctor or lawyer, a teacher's output is not measured readily in a reliable, valid, and fair manner. Teachers also may disagree about the optimal set of performance goals, or the evaluation system could lack transparency and teachers have no real idea how they are being evaluated. Given these problems, it is argued, the services provided by an individual teacher or group of teachers should not be linked to schooling outcomes, particularly if measures of teacher performance cannot account for the many factors beyond the teacher's control that influence student achievement.

A third criticism concerns the issue of multitasking. The multitasking problem arises when the performance of a worker comprises multiple dimensions, only some of which are measured and incentivized. If there is a disconnect between an organization's mission and the activity to which incentives are attached, employees may shift work toward the metered, rewarded activity, and away from other important activities. As documented in several studies on minimum competency accountability programs, poorly designed incentive schemes create greater opportunity in the long run for cheating or related opportunistic behavior.

In a similar vein, poorly designed reward systems may create perverse incentives whereby teachers may move away from low-performing schools in order to maximize their chances of earning additional pay. For example, North Carolina's school accountability system was found to make the recruitment and retention of high-quality teachers even harder on low-performing schools. Potential unintended consequences related to the teacher labor market are critically important for policymakers and others to consider because proponents of pay-for-performance programs contend a positive compositional effect on the teacher workforce.

Another frequently cited argument against teacher pay for performance concerns individuals potentially losing interest in an activity as they are rewarded increasingly for that activity. Many individuals claim that sufficient incentives already reside in teaching and that the "primary attraction of teaching ... continues to be the prospect of achieving success with children." Introducing external rewards, this literature posits, will discourage risk taking, damage the cooperative nature of teaching, and negatively affect teachers' perception of their own ability. Consequently, even if a pay-for-performance program elicits a positive behavioral response in the short run, the crowding out of intrinsic motivation over time may reduce effort, self-esteem, and originality to the point of negatively affecting teacher and school productivity.

Finally, recent compensation reforms have been faulted for focusing excessively on standardized assessments to determine if a teacher earns a bonus award. In addition to test scores being noisy and volatile performance measures, commentators argue that placing an inordinate amount of weight on student test scores is problematic because approximately two-thirds of teachers do not instruct in a single tested grade or subject. The typical student also engages in a large number of activities and classes beyond those subjects tested by a state's NCLB accountability program. Thus a pay-for-performance program focused solely on monitoring and rewarding student test scores captures only part of a school's overall mission.

A Conceptualization of Problems with the Single Salary Schedule

Edward Lazear, a major contributor to the "new personnel economics" literature, provides a useful conceptualization of inefficiencies arising from the single salary schedule, and assesses the economics of alternative teacher compensation regimes, which he terms "payment for input" and "payment for output." He argues that payment for output always trumps payment for input in terms of raising overall productivity for two primary reasons: hiring practices and labor market selection.

In terms of hiring practices, principals and building administrators must use noisy signals of "true" teacher effectiveness, such as years of experience, highest degree held, or past-employer recommendations. The hiring process's informational deficiencies are ameliorated in most professions by employee performance assessments and the close coupling of pay increases to actual productivity. However, the single salary schedule, along with teacher tenure, impedes principals' efforts to align pay and performance after hiring. For example, Brian Jacob reports that approximately 1 percent of all teachers working in urban school districts either are dismissed or do not have their contract renewed each year. Once teachers earn tenure, contract nonrenewal can be triggered only by severe malfeasance on the part of the employee and, even then, termination is an arduous, controversial, and costly process.

Lazear and others have also discerned a more subtle factor regarding the benefits of a pay-for-performance system. A pay-for-performance program will tend to attract and retain individuals who are particularly good at the activity to which incentives are attached and repel those who are not. That is, while incentives can raise the productivity of the typical worker employed, an incentive system also can raise the overall quality of the workforce simply through differential recruitment and retention of more effective workers. A case study of Safelite Glass Corporation, for example, reported that transitioning the company's compensation system from hourly wages to piece rates was associated with a 44 percent increase in worker productivity, half of which resulted from workers' gravitating to areas where they were most productive.

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