Teacher pay reform is much in the news of late, as states, localities, and the federal government start not only considering but actually implementing various pay reform programs.¹ Florida, Minnesota, and Texas, for example, have all embarked on high-profile compensation reform efforts that include performance pay, arguably the most controversial type of pay reform, as a central component. These states are joined by urban school systems in Denver, Houston, and New York City, among others, that have launched reform initiatives. The federal government is providing additional encouragement with its Teacher Incentive Fund, which provides grants to states or localities for...

Although the single salary schedule remains a ubiquitous feature in teacher compensation, differential pay has become more popular over the past decade. Differential pay takes a number of forms, but two general types are most prominent: performance-based pay, sometimes called merit pay, which rewards teachers based on the performance improvements of their students; and recruitment and retention incentives, given to teachers who teach in difficult-to-staff subjects or in hard-to-staff schools. Although they remain the exception, school districts across the country are already using one or both forms of differential pay.

Hundreds of school districts are experimenting with some type of...

During the 2004–05 school year, the most current year for which national data are available, U.S. public schools spent $179 billion on salaries and $50 billion on benefits for instructional personnel. These compensation payments account for 55 percent of K–12 current expenditures and 90 percent of current instructional expenditures. As large as these expenditures are, they do not fully capture the resources committed to K–12 compensation, since they do not include billions of dollars of unfunded liabilities in the form of pension funds and retiree health insurance for teachers and administrators.¹ If productivity doubled for an input...

In 1935 a nineteen-year-old political science major at the University of Chicago interviewed Milwaukee administrators for a term paper. He was puzzled that when money became available to invest in parks, there was no agreement between school board and public works officials on whether to spend it by hiring more playground supervisors or improving physical maintenance of the city’s open spaces. The student concluded that rational decisionmaking in this case was impossible because “improving parks” included multiple goals: school board members thought mostly of recreational opportunities, while public works administrators thought mostly of green space to reduce density.

The next...

Akey component to the new wave of performance-based pay initiatives that is sweeping across the country is the use of student achievement data to evaluate teacher performance. The requirements of the No Child Left Behind Act have resulted in the testing of greater numbers of students than ever before. Annual testing in grades 3 to 8 and in one high school grade has yielded longitudinal data on students. While greater amounts of data are being collected, researchers have been developing and applying innovative statistical and econometric models to the longitudinal data to develop measures of individual teachers’ contributions to their...

Much debate concerning the design of performance incentives in education centers on specific psychometric challenges. Advocates of the use of performance incentives in education often argue that student test scores provide objective measures of school output, but their opponents raise concerns about the breadth and reliability of assessments, the alignment of assessments with curriculum, and the potential for schools to manipulate assessment results through various forms of coaching or even outright cheating. In sum, many doubt that school systems can or will construct student assessments that truly form a basis for measuring and rewarding educational performance.¹ Although these psychometric concerns...

Teacher quality is a major concern of policy leaders and practitioners interested in the condition of American public schooling. A considerable amount of policy debate and media coverage related to issues of teacher quality has focused on schools with large concentrations of economically disadvantaged and minority students. Over the course of their public school education, students in these schools are, on average, not likely to receive instruction of the same quality as students in other schools.¹ This general pattern in the distribution of teacher effectiveness and student outcomes is also being reported with greater frequency in academic journals. If public...

Many localities and states are experimenting with teacher pay for performance. In 2006 the U.S. Congress appropriated $99 million a year for five years to provide Teacher Incentive Fund grants to schools, districts, and states to develop and evaluate administrator and teacher pay-for-performance plans. Pay for performance is part of teacher compensation packages in the Dallas, Denver, Houston, and New York City public school systems. Educators deemed to be high performing across the states of Florida, Minnesota, and Texas claim their shares of more than $550 million in incentives each year.¹

Despite all the activity, however, there is still relatively...

What would happen if teacher salary schedules rewarded performance, as measured by standardized test-score outcomes, rather than the acquisition of credentials? Would student test scores improve? Would these improvements be distributed in an equitable way, or would the program encourage teachers to abandon difficult-to-educate students, either by changing jobs or changing the way they teach? Are there any companion policies that could offset potentially regressive impacts?

Starting in the 1996–97 school year, the state of North Carolina implemented a system of performance incentives for all teachers in all public schools. While the specific details of the bonus program have...

Although the impacts of per pupil spending, class size, and other school inputs on student achievement continue to be debated, there is a strong consensus that teacher quality is hugely important and varies widely, even within schools.¹ Hiring and retaining more-effective teachers thus has enormous potential for raising overall levels of student achievement and reducing achievement gaps along lines of race and class. Indeed, it is no stretch to conclude, as Robert Gordon and colleagues put it, that “without the right people standing in front of the classroom, school reform is a futile exercise.”² It is hardly surprising, then, that...

In the United States, most public school teachers receive compensation according to a salary schedule that is almost entirely determined by number of years of service and highest degree attained. The wisdom of this system, however, has increasingly been questioned by policymakers and researchers in recent years. Several school systems have considered adding a component to the wage structure that directly compensates teachers based on the academic gains made by the students in a teacher’s care, at least partly measured by student scores on standardized tests. Several public school systems, including those in Florida, New York City, and Texas, have...

In many developing countries even children who attend school seem to learn remarkably little, as evidenced by their low scores on internationally comparable tests.¹ One, though certainly not the only, explanation for this may be that teacher incentives are extremely weak in many developing countries, with frequent teacher absences, despite salaries that are often far above market levels. Efforts to improve the quality of schooling in developing countries by changing teacher incentives have included policies that improve working conditions, so that teachers are more motivated to come to work; policies that provide direct payments to teachers, based on either their...