What is it?
Performance pay schemes aim to create a direct link between teacher pay and the performance of their class in order to incentivise better teaching and so improve student outcomes.
A distinction can be drawn between awards, where improved performance leads to a higher permanent salary, and payment by results, where teachers get a bonus for higher test scores.
Approaches also differ in how performance is measured and how closely those measures are linked to outcomes for learners. In some schemes, students’ test outcomes are the sole factor used to determine performance pay awards. In others, performance judgements can also include information from lesson observations or feedback from students, or be left to the discretion of the principal. Some performance schemes incentivise individuals, others incentivise groups of teachers.
How effective is it?
The results of rigorous evaluations, such as those with experimental trials or with well-controlled groups, suggest that the average impact of performance pay schemes has been just above zero months’ progress. Approaches making use of loss aversion – where awards have to be paid back if student results fall below a certain level – have shown greater impact.
There is some evidence that impact may also be greater in developing countries. Overall, evaluations of a number of performance pay schemes in the USA, where the approach is also known as ‘merit pay’, have been unable to find a clear link with improved student learning outcomes.
A related approach that has shown promise is using bonuses or enhanced pay to attract teachers to challenging schools.
There are some concerns that performance pay schemes can create unintended consequences. For example, that they may encourage teachers to focus only on tested outcomes, leading to a narrowing of the curriculum, or to focus on groups of students near a particular assessment threshold.
Overall, approaches which simply assume that incentives will make teachers work more effectively are not well supported by existing evidence.
In Australasia, studies are yet to examine the impact of teacher performance pay on student achievement. This is likely due to the absence of performance pay in the current industrial relations agreements of Australian and New Zealand education. However, one Australian study has examined how performance pay might be, and why it has not yet been, implemented for Australian schooling. The authors drew connections between performance incentives and the development of professional standards, but not in relation to potential changes in academic outcomes. Importantly, since the article was published, the Australian Professional Standards for Teachers have been developed and implemented nationally.
How secure is the evidence?
The evidence is limited. Although there has been extensive research into performance pay, much of this is either from correlational studies that link national pay levels with general national achievement, or from naturally occurring experiments. More recent randomized trials have had mixed results. Overall, it is hard to make definitive causal claims about the impact of performance pay on achievement, on the basis of the existing evidence.
The English threshold assessment was introduced in 2000 and was designed to reward high quality teaching. Evaluations of the threshold assessment offer a cautious endorsement of approaches which use financial incentives to encourage the most skilled and qualified teachers to work with disadvantaged students.
What are the costs?
In the US, in one study, transfer incentive payments were $20,000 and retention bonuses $10,000, both over two years (approximately $7,600 and $3,800 per year respectively). Similar sums of between $15,000 and $5,000 have been awarded in merit pay schemes. However, in England, pay increases are usually of the order of $2,500 per teacher or $100 per student across a class of 25. We have used these figures to estimate the cost to schools in England. Overall cost estimates are therefore low. Enterprise Bargaining Agreements may constrain the implementation of performance pay schemes. However, based on a conversion of bonuses used in performance pay schemes in the United Kingdom, costs are estimated to be low.
What should I consider?
Have you considered other, more cost effective, ways to improve teacher performance, such as high quality continuing professional development?
Given the lack of evidence that performance pay significantly improves the quality of teaching, resources may be better targeted at identifying and recruiting high quality teachers.
How will you make sure that performance pay does not lead to a narrower focus on the measures used to assess teacher performance, or to teachers focusing on the performance of particular groups of students?