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.



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



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


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



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

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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.



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

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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,



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

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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.



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

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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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Retrieved July 5, 2008, from Keeton Strayhorn, C. (2004, December). The cost of underpaying Texas teachers. Retrieved June 14, 2008, from http://www.window.state.tx.s/specialrpt/teachersalary/04 Lavy, V. (2002). Evaluating the effect of teachers’group performance incentives on pupil achievement. The Journal of Political Economy, 110, 1286-1317. Lavy, V. (2007). Using performance-based pay to improve the quality of teachers. The Future of Children, 17, 87-109. Mahony, P., Menter, I., & Hextall, I. (2004). The emotional impact of performance-related pay on teachers in England. British Educational Research Journal, 30, 435-456. Mohrman, M., Mohrman, S., & Odden, A. (1996). Aligning teacher compensation with systemic school reform: Skill-based pay and group-based performance rewards. Educational Evaluation and Policy Analysis, 18, 51-71. Murnane, R., & Cohen, D. (1985). Merit pay and the evaluation problem: Understanding why most merit pay plans fail and a few survive. (ERIC Document Reproduction Service No. ED270842). Odden, A., & Kelley, C. (1977). Paying teachers for what they know and do: New and smarter compensation strategies to improve schools. Thousand Oaks: Corwin Press. Olson, L. (2007, October 3). Teacher-pay experiments mounting amid debate. Education Week, 27, 1-14. Pfeiffer, J. (1968). A new look at education. New York: The Odyssey Press. Plecki, M. (2000, July 17). Economic perspectives on investments in teacher quality: Lessons learned from research on productivity and human resource development. Education Policy Analysis Archives, 8. Retrieved July 10, 2008, from



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