What is it?
Performance pay schemes aim to create a direct link between teacher pay or bonuses, and the performance of their class in order to incentivise better teaching and so improve 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 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.
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. Some approaches appear to show more promise, such as bonuses or enhanced pay to attract teachers to challenging schools, or loss aversion, where the award has to be paid back if student results fall below a certain level.
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 student learning outcomes.
There are some concerns that performance pay schemes can create unintended consequences. For example, that they may encourage teaching to the test or focusing only on tested outcomes and a narrowing of the curriculum.
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 not conclusive. Although there has been extensive research into performance pay, much of this is either from correlational studies linking 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 causal claims about the efficacy of performance pay on the basis of the existing evidence.
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?
High quality teaching is essential for improving outcomes.
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.
High quality continuing professional development (CPD) may be a more cost effective way to improving teacher quality. Schools should look for CPD products that have been shown by independent studies to improve student outcomes.
Performance pay may lead to a narrower focus on the measures used to assess teacher performance. How will you ensure this does not adversely affect other aspects of learning?