NATIONAL FORUM OF EDUCATIONAL ADMINISTRATION AND SUPERVISION JOURNAL

VOLUME 26, NUMBER 3, 2009-2010

PERFORMANCE PAY FOR TEACHERS

Pamela Wells
Rebecca A. Robles-Piña
Sam Houston State University
ABSTRACT

Performance or variable pay is common in the business world. However, in the business
of education, the opposite is true. As has been the case for about a hundred years, most
public school teachers are paid a fixed salary based on years of experience and degrees
held. There is significant pressure from politicians, business leaders and reformers
within education to implement performance pay for teachers, as evidenced by a number
of programs currently being implemented across the country. However, there are few
empirical studies to support this movement. This paper explores the available research
on performance pay for teachers with the goal of evaluating the impact that
performance pay has on teacher recruitment, retention and, ultimately, on student
achievement. In addition, recommendations are made for future quantitative research.

Introduction

I n the business world, increased compensation is often the result of

successful performance. Most professional employees have the
opportunity to receive merit or performance pay, where financial
remuneration is based at least in part on the employees’ level of
success. In their most recent annual research, Hewitt Associates found
90% of the 1,007 large companies surveyed provided what they called
a variable pay plan (Kanter & Lucas, 2007). Although economists
may espouse the benefits of performance pay to increase productivity
in the free market system, widespread use of performance pay for
teachers is relatively rare. According to the National Center for
Education Statistics, during 2003-2004 only 7.9 % of the public school
districts in the country provided performance pay incentives to reward
“excellence in teaching”. Ninety-two percent of public school teachers
were paid based on experience, credentials and/or degree held (U.S.
Department of Education, 2003-04). The current predominant single
salary schedule method was begun in the early 1900’s and has

11
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continued relatively unchanged to present (Odden & Kelley, 1997). A

salient question arises - if performance pay is so well established in the
world of commerce, why is it not more widespread in the business of
education?

Throughout the United States and in many other countries,

reformers in politics, business and in education promote performance
pay for teachers. A Joint Platform for Education Reform issued by the
United States Chamber of Commerce and the Center for American
Progress (February, 2007, Better Teaching section, ¶2) called for states
and districts to:

“Reform pay and performance structures to improve starting

salaries; reward teachers whose performance contributes to
substantial growth in student achievement [italics added];
attract and retain effective instructors in subjects experiencing
teacher shortages, notably math and science; draw effective
educators to high-need schools/ and fairly and efficiently
remove ineffective educators.”

In addition to pressure from business leaders, the issue of performance

pay has even arisen during the current presidential election.
Republican candidate John McCain supports merit pay based on
student test performance. His opponent, Barack Obama, also supports
individual teacher merit pay but not based on student test results
(Carter, 2008).

Performance pay systems are an international phenomena as

well, having been implemented to varying degrees of success in
England (Mahony, Menter, & Hextall, 2004), India (Podgursky &
Springer, 2007b), Israel and Kenya (Lavy, 2002). The research on
performance pay, although neither extensive nor conclusive, suggests
that it can result in increased teacher and student effectiveness (Lavy,
2007). However, this literature review will indicate there is continuing
debate over the efficacy of performance pay for teachers.
 Pamela Wells & Rebecca A. Robles-Piña 13

With growing pressure to reform public education, there is also

pressure to implement performance pay systems. Therefore, the need
to research the effects of performance pay becomes more important.
As limited resources for public education are directed toward
performance pay for teachers, an important question must be asked.
Will performance pay for teachers help our educational system
improve? The purpose of this study is to review the available literature
related to performance pay for teachers and to evaluate its impact on
teacher recruitment, retention and student achievement.

Definitions

Performance pay is sometimes called variable, merit or

incentive pay. Contrary to pay for teachers in critical fields or
compensation for additional responsibilities such as serving as a
teacher leader or tutor, performance or merit pay is usually focused on
teacher or student success. This success will be defined and measured
differently depending upon the context. Some performance pay
systems are based on multi-factor teacher evaluation by principals.
However, increasingly the criteria are based on an analysis of
objective student performance such as results of high stakes tests.
These performance pay programs are varied and can be structured to
reward individual teachers, teacher teams, or entire schools (Lavy,
2007).

Methods of Research

There is a growing literature on performance pay; however, the

review did not reveal many quantitative research studies focusing on
the effects of performance pay. Much of the literature points to a need
for further empirical studies. The research sources included on-line
databases such as Academic Search Complete and Google Scholar
which yielded academic journals, professional periodicals and policy
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briefs. Further, textbooks were obtained from the university library. In

addition, the federal online educational database, the National Center
for Education Statistics, proved beneficial.

History of Performance/Merit Pay

Performance or merit pay is not a new phenomenon, but its

past history frequently has been fraught with controversy. Performance
pay distributed to schools, based on students’ grades in basic skills,
was introduced in the mid-1800s in Great Britain by Robert Lowe,
vice-president of Britain’s Committee of the Privy Council for
Education. This program, “payment by results,” created a great deal
of debate, ultimately resulting in Lowe’s resignation (Pfeiffer, 1968).
In the United States, the use of merit pay by school districts was more
frequent in our earlier history. Thirty-three percent of the school
districts sampled by the National Education Association in 1923 had
merit pay (as cited in Murnane & Cohen, 1985).

Following the publication of A Nation at Risk in 1983, school

districts began experiments with merit pay hoping to improve student
achievement (Podgursky & Springer, 2007b). However, there were
prominent educators who saw significant problems with performance
pay. One of these educators, Fenwick English, described then
President Reagan’s campaign for merit pay as “. . . a deceptive
blossom which looks sweet and pretty to the general public” (English,
1983/1984, p.72).

Many of the performance pay experiments were short-lived.

One such example was the Texas Career Ladder incentive pay
program implemented statewide in Texas in 1984. The program
consisted of four successive performance levels. Beginning with level
two, teachers were rewarded monetarily for a combination of scores
on classroom observation instruments, years of service, and the
accumulation of hours of professional development. To reach level
 Pamela Wells & Rebecca A. Robles-Piña 15

four, teachers were required to serve as teacher-leaders in some

capacity. However, the program ended a decade later in 1993 prior to
any teachers reaching level four (Keeton Strayhorn, 2004).
Implementation of the Texas Career Ladder program led to many
conflicts between teachers and administrators relating to the fairness
and consistency of evaluation and placement on the career ladder
(Jesness, 2001). Even with attempts to establish performance or merit
pay across the country, there were only 12% of the districts with such
systems in 1993 according to Ballou’s 2001 study (as cited in Figlio &
Kenny, 2007).

Political Pressure for Performance Pay

Although still proportionally small, grant programs and

statewide mandates implemented by national and state legislators are
on the increase. In a review of the literature, Podgursky and Springer
(2007a) identified several programs currently being implemented
across the country, including the national Teacher Incentive Fund
competitive grants (United States Congress), Governor’s Educator
Excellence Awards (Texas), Florida E-Comp, and the Minnesota
QComp. In addition to these national and state-wide programs, some
individual school districts like Denver in Colorado and Dallas and
Houston in Texas have also created teacher incentive programs.
Politicians and business leaders often support teacher performance pay
as a way to improve teacher effectiveness (A Joint Platform for
Education Reform, 2007; Lavy, 2007). The significant political
pressure on the federal department of education, state agencies and
school districts to implement this performance pay reform makes
research on its efficacy more urgent.
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Rationale for Performance Pay

Those who call for performance pay systems have cited several
reasons for implementation. According to Lavy (2007), one rationale
was that teacher merit pay would lead to increased student
performance because teachers would exert more effort to improve
their own performance if a monetary incentive is available. Secondly,
supporters of performance pay also believed it would improve teacher
recruitment. A third underlying principle was that performance pay
would increase teacher retention. In the literature, all three of these
concepts were related to increased student achievement. Lavy
described another possible benefit of performance pay implementation
- generating increased support from politicians and others who
believed this is a reform that would improve education.

Teacher Effort and Teacher Recruitment

Supporters of performance pay may assume that when

monetary incentives are available, teachers will work harder to gain
the reward, thus increasing their own and their students’ achievement.
The review of the literature was unable to find specific support for this
assumption. However, Podgursky and Springer (2007a) identified a
potentially different theory to predict that teachers at schools with
performance pay would be more effective – selection effects. The
authors speculated that existing teachers do not necessarily become
better. Instead, because rewards are available in a performance pay
system, those with better performance may actually be drawn to the
rewards. The theory of selection effects and the possible impact on
teacher recruitment merits further examination.

In a study of an Israeli teacher performance pay incentive

program, Lavy (2002) found that when comparing a tournament style
teacher incentive program with a plan that provided the incentive of
additional school-wide resources, the results were close in terms of
improving student outcomes, but the teacher incentive program was
much more cost effective. The tournament style program was defined
 Pamela Wells & Rebecca A. Robles-Piña 17

by Lavy as an incentive plan where teachers receive merit pay based

on rank order of results. The school-wide incentives included
additional resources for what Lavy called “teaching time and on-the
job school staff training.”

In what Figlio and Kenny (2007) described as the first research

in the U.S. to systematically support the connection between teacher
performance incentives and student achievement, they also expressed
caution because it is difficult to discount other variables’ impact on the
results. The authors indicated that randomized clinical trial studies
being conducted by the U.S. Department of Education in 2008 should
provide important research.

Teacher Retention

The issue of teacher retention is particularly salient because of

the impact it has on student achievement. Teacher retention is a
tremendous challenge for school districts. A thorough study of the
mobility of Texas teachers was conducted by Hanusheck, Kain and
Rivkin (2004). When reviewing data from the years 1993-1996, the
authors documented that on an annual basis, 6.9% of the Texas
teachers left Texas schools and another 11.3% either changed schools
within a district or changed districts. They also found evidence that
because of increased transition rates (teachers moving out of the
school, district, or profession), students with lower performance are
more likely to have new (i.e., less experienced) teachers. It is
important to note that the researchers found that student characteristics
(e.g. race, achievement, and income) were more important factors in
teacher mobility (from large urban to suburban districts) than were
across-the board salary increases. However, because the researchers
did not study the impact of performance pay on retention, this remains
an area for future research.

Why is teacher retention such an important issue? A study of

North Carolina teachers found that teacher experience, along with test
scores and licensure, correlates to higher student achievement,
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especially in math (Clotfelter, Ladd & Vigdor, 2007). When describing

their earlier 2001 research on student outcomes, Hanushek, et al.
(2004) found that on average, inexperienced teachers do not perform
as well as those with more experience. The research seems clear on the
importance of retaining teachers, especially in at-risk schools to
increase the probability that students will be successful. The question
for future research is whether teacher performance pay would
positively impact teacher retention.

Problems Associated with Performance Pay

Some educator groups, most significantly teacher unions, argue

against the merits of performance pay for teachers. The two largest
teacher organizations, the National Education Association and the
American Federation of Teachers have taken positions against
proposals to include performance pay experiments as part of the
reauthorization of the No Child Left Behind Act (NCLB).

Some argue that the focus on performance pay obscures the

real problem, that basic pay for teachers is not competitive. Another
criticism is that fairly evaluating and rewarding teachers who are not
teaching state-tested subjects is a major stumbling block. Finally, there
are those who argue that for performance pay to be successful,
adequate and stable funding for a merit pay system must be in place,
something that many union and non-union members would argue is
not currently a political reality (Olson, 2007).

An unfavorable view of performance pay also arises in much

of the research related to the program that was initiated in England
amid widespread criticism (Storey, 2000). The Threshold Assessment
performance pay program, described in 1998 in the United Kingdom’s
Department for Education and Employment’s Green Paper, was
implemented by the Labour government in order to raise standards.
One such study of the program involved a series of 76 interviews of
teachers who participated in the Threshold Assessment. In this
 Pamela Wells & Rebecca A. Robles-Piña 19

qualitative research study, the authors found inherent problems (the

creation of anger and frustration among teachers) associated with
merit pay (Mahony et al., 2004).

Many of the various attempts at merit pay have not been

successful in the long term. Research by Murnane and Cohen (1985),
consistent with the findings of the Threshold study, attributed the lack
of success of performance pay in the United States to internal
dissension caused by perceived inequities in distribution of rewards.
Group performance pay has been described as a potentially more
successful model to individual rewards (Mohrman, Mohrman &
Odden, 1996).

According to Lavy (2007), potential drawbacks or problems

associated with performance pay include: (a) measurement problems
(i.e. agreement on goals as well as fair and accurate evaluations), (b)
negative effects on collegiality, (c) unintended consequences (i.e.,
focus on only measurable dimensions or selected students and “game
play” [cheating]), (d) increased costs, (e) union opposition, and (f) past
failures of performance pay systems. However, the author also
identified some strategies for potentially overcoming these obstacles
including structuring group incentives. The author posits that by
structuring team-based incentives, the concerns about collegiality and
cooperation can be addressed.

Implications for Further Research

Given the movement toward performance pay for teachers,

there is a significant need to conduct additional research to determine
whether these rewards will lead to positive teacher and student
outcomes. The teacher retention rates at at-risk campuses, determined
by a review of state data in Texas, create a compelling argument for
the selection of one large school district to experiment with
performance pay for teachers as a way to recruit, reward and retain
teachers at campuses with large numbers of at-risk children.
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According to this publication by The Education Trust (2008),

the Cypress-Fairbanks Independent School District (CFISD) had a
27.4% teacher turnover rate at its highest minority schools compared
to 17.8% turnover at its lowest-minority schools. Comparing turnover
based on poverty levels, CFISD had a 26.9 % turnover rate at the
highest poverty schools and an 18.7% rate at its lowest poverty
schools. The turnover rate at its highest minority schools was 27.4%
compared to 17.8% at the lowest minority schools. CFISD has high
turnover rates in part because rapid growth results in new schools
opening annually which increase teacher transfers; yet, seemingly
there is a connection between the turnover rate data and the level of
teaching experience at a school. When evaluating the percentage of
teachers with fewer than three years of teaching experience, at the
district’s highest–poverty schools 24.5% of the teachers have less than
three years of experience compared to 12.2% in its lowest poverty
schools. When comparing the schools with the highest percentage of
minority students, 25.9 % of the teachers have less than three years of
experience versus 11.4% in the lowest minority schools. Given the
research results discussed earlier in this review related to teacher
experience and student achievement (Hanushek et al., 2004; Cloftelter
et. al., 2007), increasing teacher retention at at-risk schools should
promote increased student success.

In part to address these issues, CFISD will begin

implementation of a D.A.T.E. (District Awards for Teacher
Excellence) grant awarded from the Texas Education Agency during
the 2008-2009 school year. The majority of the funding for this
performance pay program will be paid to teams of elementary and
middle school teachers at economically disadvantaged schools who
teach Texas Assessment of Knowledge and Skills (TAKS) tested
subjects. A smaller amount of merit pay will be available for staff
development, teacher retention and to reward non-TAKS teachers who
contribute to the success of the campus as a whole (Jackson, 2008;
Cypress-Fairbanks ISD, 2008). I will conduct a future quantitative
study to evaluate this new performance pay program. Because there
 Pamela Wells & Rebecca A. Robles-Piña 21

are some district schools with similar student demographics that will
not be implementing the D.A.T.E. grant, a comparison group will be
available. The research will analyze whether teacher performance pay
will impact teacher retention at these at-risk campuses.

Plecki (2000) posits that with limited resources, it is important

that government leaders and policymakers evaluate what use of funds
will provide the most positive impact on student achievement. Lavy
(2002) says it another way, “Therefore, many authors emphasize that
before the introduction of school incentives becomes the next
revolution in schools, much more concrete evidence is needed about
the optimal incentive structure in schools and their effect and cost” (p.
1287). Most researchers support the premise that more research is
needed related to performance pay in order to evaluate the cost-benefit
ratio related to student performance.

Summary

The research on performance/merit pay for teachers shows

mixed results; however, the majority of the studies represented in the
research were somewhat positive. There is tremendous political
pressure to implement performance pay, in part to replicate the
overwhelming use of variable pay in the business world. Given the
seeming inevitability of increased demand for performance pay
systems and the relative paucity of quantitative studies, it is imperative
that additional research be conducted to determine which models will
have the most positive impact on student performance. Since teachers
are the key to student success, this research is critical to both the
policy-makers and the school district leaders who are working to
improve teaching and learning in our schools.
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