Commentary | Education

The perils of performance-based pay for teachers

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The growing interest in performance-based pay systems for public school teachers has typically been supported by a simple and seemingly logical argument: If it works for the private sector, it will work for schools.
In fact, performance-based pay in the private sector is far less common than is often assumed, and those compensation systems that do include worker incentives tend to be a lot more complex than the formulaic systems proposed for school teachers, linking pay increases to some easy-to-measure benchmark such as students’ standardized test scores.
EPI recently published the book, Teachers, Performance Pay, and Accountability: What Education Should Learn From Other Sectors, to examine the problems with this sort of compensation system. On May 28, EPI hosted a panel exploring the ways schools might be able to reward excellence in teaching without imposing arbitrary standards that discouraged collaboration.
“Teachers cannot be judged accurately by student performance,” said Richard Rothstein, a research associate at EPI and co-author of the Teachers, Performance Pay, and Accountability book. Rothstein’s research into the perils of quantitative performance accountability was based heavily on his study of the economic system of the former Soviet Union, along with other instances where performance-based pay backfired.
When the Soviet Union imposed quotas on shoemakers, he said, shoemakers responded by using their limited leather supplies to make larger numbers of smaller-sized shoes, resulting in a surplus of shoes for children and a shortage of shoes for adults. When magazines such as U.S. News and World Report started ranking colleges in part based on how selective their admissions were, many colleges gamed the system by inviting large numbers of clearly unqualified high school seniors to apply. More tragic, the United States actually used body counts (ours vs. theirs) during the Vietnam War as a tangible, but highly unreliable and destructive way, to measure its success.
While Rothstein acknowledged that some companies in the private sector had devised systems to link pay to performance, he said they usually involved extensive feedback from supervisors, subordinates, and peers who could collectively offer valuable insight into the worker’s contribution. “The private sector is not a model for using narrow, quantitative measures,” he said.
Scott Adams and John Heywood, both economists at the University of Wisconsin and co-authors of the EPI book, elaborated on this fallacy that performance pay was the backbone of the U.S. private sector. Adams calculates that only one in 15 private-sector workers have pay tied to performance, or about one in 10 when bonuses are factored in. But he stressed that bonuses were often end-of-year or some other sort of reward that had little connection to performance. Most private-sector employers, said Heywood, had learned the same lesson as the Soviet leadership: “Workers can engage in a lot of strategic behavior” to meet their goals, but this behavior does not necessarily benefit overall performance or production.
One major way private-sector compensation does differ from the education sector is that workers tend to have less job security. Janet Hansen of the Committee for Economic Development noted during the EPI forum that the typical private-sector business reserved the right to terminate employees “at will,” while public school teachers usually earned lifetime tenure after a few years. Although job security is desirable, she said, the knowledge that employment could be terminated at any time could help motivate workers.
Hansen said she agreed that formulaic performance-based systems were not useful, but argued that schools still needed to find a way “to make teacher performance matter.”
“Teachers want higher salaries, and in some cases we need to be paying teachers more,” she said. “But the public is not likely to support across-the-board increases unless performance matters to some degree in determining salaries.”
The nuance she identified that exists between ineffective performance-based pay and some alternative system that would take more into consideration than just academic credentials and years on the job, underscores the need for more research, said EPI President Lawrence Mishel.
“There are a lot of people who talk very simply about merit pay,” Mishel said. “Let’s move beyond a discussion of merit pay, the formulaic type of performance pay, and have a full-bodied discussion of other, more promising ways of changing teacher compensation systems.”

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