American public education has followed a varied path of compensating teachers. The prevailing practice of the 1800s was to have local communities pay teachers primarily through room and board. As the American economy became more complex and industrialized in the late 1800s, the demand for more specialized education led to a position-based salary system, which distinguished teacher pay by grade and assignment. The differentiation, however, eventually produced charges of bias detrimental to women and minorities. By the mid-1900s, a single salary schedule, with predictable and objective increments regardless of grade, race, or gender, had gained dominance. This monolithic system of set steps and levels has remained the norm for school districts across the country.
Starting in the 1980s, various efforts moved to break free of the single salary schedule and replace it with variable, performance-based systems. Usually referred to as “merit pay,” these pioneering systems sought to improve teacher quality and enhance the allure of the teaching profession. Yet change proved difficult and highly limited. Inadequate funding, the emergence of divisive and competitive teacher work environments, and overly subjective assessments of merit conspired against an overhaul of the compensation system.ii
As of 2004, according to the U.S. Department of Education, 93% of all public school districts continued to employ the single salary schedule. By contrast, a study by Hewitt Associates found that 80% of U.S. businesses have adopted at least one variable pay plan. Private and charter schools are also far less tied to a conventional salary schedule than are public schools.iii
It is logical to conclude that the popularity of variable systems will penetrate public schools more and more. Increased parental choice and subsequently greater competition from private and charter schools, as well as the drive toward more accountability and regular assessment, should encourage the adoption of variable pay models.
To promote the quality teaching that leads to enhanced student achievement, variable compensation can be a more effective approach than the conventional schedule. Replacing a system with little connection between teacher compensation and teacher quality and few rewards for teacher excellence, variable pay can increase the flexibility to recruit talent, drive out underperforming teachers, and incentivize standards-based reform.iv
Some research has suggested that linking teacher pay to individual and school metrics can have a positive impact on student learning. As a management tool that has taken root in public schools only in the past few years, variable pay has not yet been the subject of extensive empirical research. Nonetheless, a number of highly regarded academic studies have already documented a direct relationship with student performance. For example, a study of a performance-based pay program in Tennessee during the 1980s and 1990s found that K-3 students with incentivized teachers scored nearly three points higher in math and two points higher in reading than did the control group. The improved outcomes held for students with both beginner and veteran incentivized teachers.v
The last few years have witnessed a resurgence of interest in incentive pay programs. 11 states have launched initiatives to explore variable compensation schemes. Education Week estimates that as many as one-third of the nation’s public school districts are “poised to participate” in performance pay programs.
The big federal initiatives in education have explicitly encouraged variable pay. The No Child Left Behind Act’s “highly qualified teacher” provisions authorized the use of federal funds to help districts develop “merit-based performance systems” and “differential and bonus pay” for teachers in “high-need academic subjects” and “high-poverty schools.”
Another impetus for variable compensation came in the form of the American Recovery and Reinvestment Act (ARRA), the federal stimulus. One of the key areas of reform that states must agree to advance in exchange for accepting stimulus dollars is “teacher effectiveness and equitable distribution of effective teachers.” To make progress in this area, the ARRA allotted $200 million for the Teacher Incentive Fund, which“encourages school districts and States to develop and implement innovative performance-based compensation systems” that reward teachers and principals for gains in student performance and the fulfillment of high-need areas. The Department of Education’s 2010 Budget Request seeks another $517 million, an increase of $420 million over the regular 2009 level, for the Teacher Incentive Fund.
It is clear that promoting incentive compensation for teachers will be a priority of the Obama administration. In June 2009, U.S. Secretary of Education Arne Duncan challenged members of the National Education Association to overcome their resistance to performance pay. Describing his own work initiating a performance pay plan as Superintendent in Chicago, Duncan stated, “To remove student achievement entirely from evaluation is illogical and indefensible.”
Previous attempts at performance pay plans failed in part because stakeholders did not start with a common base of definitions and expectations. To design and sustain a successful variable compensation scheme, it is necessary first to clarify the range of options.
As variable compensation plans have gained popularity in public schools in the past decade, they generally have fallen into one of three broad forms:
Performance-based plans provide awards, either salary increases or annual bonuses, to individual teachers or to school-wide faculty for improved student achievement or other valued outcomes. Teachers can be evaluated on their value-added contribution, their performance in the classroom, or the absolute performance of students. Schools as a whole can be assessed by absolute academic performance, value-added gains, or some other measure, such as attendance or graduation rates.
Knowledge and skill-based plans compensate individual teachers, through salary increases, bonuses, or progressions on the salary schedule, for acquiring a range of skills and qualifications deemed important by the district.
Needs-based plans supplement standard pay for those individual teachers who work in under-performing schools or specialize in hard-to-fill areas. The teacher’s school assignment and area of expertise become the basis for salary increases, bonuses, or higher movements on the salary scale.
Each style has merits and drawbacks. Performance-based plans formally link compensation and student performance. But performance evaluated on an individual basis may reduce cooperation among teachers, while school-based awards risk a “free-rider” problem. Knowledge and skill-based programs improve the efficiency of the teacher force. They are, however, expensive and time-consuming, especially given their indirect link to student achievement. Needs-based compensation increases school and district efficiency, but lacks a connection to teaching quality or student achievement.
Regardless of the mechanisms they employ for differentiating pay, successful incentive compensation plans share a set of guiding principles.
First, to serve its overarching purpose, the incentive program must be linked to the district’s strategic objectives. To motivate employees to contribute to the organizational strategy, the incentives must be both large enough to have an impact and simple enough to be easily understood. Objective performance measures should help to guarantee an equitable treatment of all participants. The program must have firm and consistent support for sustainability, yet maintain flexibility to respond to new challenges that arise. Finally, regular communication with employees should shore up the other principles.
Translating these principles into practice involves several structural and procedural elements:
Compensation Structure-To prevent disruption and assure teacher buy-in, districts should avoid replacing the single salary schedule altogether and should instead supplement the traditional structure with meaningful variable pay incentives.
Teacher Evaluation-The evaluation that determines individual pay should be a standardized assessment that uses objective and measurable performance indicators.
Data-These performance indicators should come from a strong data system that disaggregates and analyzes actual and relative performance.
Professional Development-Teachers must be able to understand the data and use the feedback as the foundation for growth.
Finances-Finally, no variable compensation plan, regardless of how well-structured, will endure without consistent and adequate funding. A dedicated revenue source, such as a new tax or a bond issue, should fund the variable pay program and should be incorporated into the annual operating budget.
A structurally and procedurally coherent incentive compensation plan also requires strong organizational support from the outset of the undertaking. To marshal stakeholders in support of variable pay, districts should:
Assess District Readiness-Identify key district participants and ensure their commitment.
Encourage Collaboration-Include the key district participants in the development process through opportunities to shape and steer the program.
Employ Communications Strategy-Clearly and frequently communicate during the development process.
Adopt Phased, Flexible Approach-Introduce the plan in phases so that it can be evaluated and corrected mid-course.
Build Constituent Support-Publicize and promote the plan and continue to solicit feedback from stakeholders.
Though working with all stakeholders is important, actively involving teachers in the plan development is especially vital. Teachers’ buy-in is critical to the overall success of the endeavor, as teachers must value the structure, goals, and rewards of the program.
Admittedly, resistance among teachers to some forms of incentive compensation remains strong. Both national teacher unions, for example, opposed a reauthorization of the No Child Left Behind Act that would have factored student test scores into the granting of incentive pay.
Nonetheless, districts that include teachers in the design process and address their concerns have a good chance of receiving their backing for many types of variable compensation programs. According to a 2003 Public Agenda survey, a significant majority of teachers support, in descending order, giving financial incentives to teachers who “work in tough neighborhoods with low performing schools,” “consistently work harder, putting in more effort than their peers,” “teach difficult classes with hard-to-reach students,” “consistently receive outstanding evaluations from their principals,” and “receive accreditation from NBPTS [National Board for Professional Teaching Standards].” In setting up variable pay plans, districts can tap into this sizable support. American Federation of Teachers President Randi Weingarten, for example, has indicated support for differentiated pay plans that result from local collaboration and collective bargaining and that include a strong professional development element.
The renewed interest in performance pay raises many exciting opportunities.
First, the plans that have been put into practice so far have generally not included growth modeling to ascertain the value-added impact on a group of students over time. Such data will be a priority in coming years. Indeed, the Department of Education’s vastly expanded Teacher Incentive Fund hopes to “use data from emerging State and local longitudinal data systems to track outcomes and associate those outcomes with educator performance.”
More broadly, a move toward differentiated pay holds promise to correct the current mismatch between monetary and non-monetary incentives for teachers. As districts increasingly prioritize and reward effective teaching, the financial incentive of compensation should also reflect this trend.
End notes:
Motivation Through Incentive Compensation
