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Lessons—Making a Case Against Performance Pay

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These pieces originally appeared as a weekly column entitled “Lessons” in The New York Times between 1999 and 2003.

[THIS ARTICLE FIRST APPEARED IN THE NEW YORK TIMES ON APRIL 26, 2000]

Making a Case Against Performance Pay

By Richard Rothstein

Mayor Rudolph W. Giuliani of New York wants merit raises to reward teachers for higher test scores of students. Many governors and business leaders, as well as school boards in cities like Denver and Los Angeles, also favor the “pay for performance” approach.

This, they say, is how the private sector works.

But it is hard to find private sector examples for such proposals. True, stockbrokers and sales clerks are paid on commission. But the high pressure tactics this system can engender should be intolerable where children are concerned.

When quality of work is important, corporations do not generally evaluate college-educated employees by quantifiable goals.

Brian Hall, an associate professor at the Harvard Business School, said that for most professional jobs, it is hard to isolate the contribution of any single employee. Quantitative criteria are rare, even for group goals.

Consider, Professor Hall said, management consulting. You might think the pay of consultants could be tied to growth in the equity value of companies they had assisted. But, he said, “if you were evaluating employees who advised Cisco Systems and tried to measure their effectiveness by Cisco’s stock price, every consultant in the last five years would look great, yet some may have given bad advice.”

So for professionals, Professor Hall said, decisions on merit pay are mostly subjective. Firms typically do a “360-degree evaluation — they go all around an individual, asking advice from supervisors above, co-workers to the left and right, and subordinates below.”

Bain & Company, a Boston consulting firm, tells clients that measured results (usually not defined numerically) should always focus on long-term, not short-term goals. David Bechhofer, a Bain director, said it was unfair to reward employees for results they could not fully control.

Data-based measures of output can often be manipulated, Mr. Bechhofer added.

“If, in evaluating engineers, you say the more requests for design changes you have, the more money you make, I guarantee you’ll have many change orders, but not necessarily a quality product.” he said. “I could take 1 change order and make it into 10, just by rewriting it.”

Management consulting and engineering could not be more different from retailing. But when it comes to merit pay, the practices of Wal-Mart Stores Inc. are similar to those of engineering companies and consulting firms. The company asks every employee to negotiate annual goals with a supervisor. That was what Elise Garner, a corporate recruiter at the company’s headquarters in Bentonville, Ark., did last year.

Ms. Garner is responsible for courting community groups to recruit applicants for jobs. At her annual performance review, Ms. Garner’s supervisor said her raise was based on management’s judgment of how she related to customers and co-workers, and whether she was “results driven,” focused on growth in the applicant pool. But it did not stem from how many applications came in, because even good outreach work could fail, because of factors beyond her control.

To avoid dissension, Wal-Mart keeps merit awards confidential. This would be difficult to do in public institutions like schools.

Pay for performance in private schools also does not resemble ideas being floated for public education. Certainly, elite academies do not use test data to calculate teacher pay. Nor, typically, do private schools for the less privileged.

At the Archdiocese of New York, Assistant Superintendent Nora Murphy said, “We would never propose merit pay. You don’t teach better because you are paid better.”

And in the Brooklyn-Queens Diocese, Superintendent Guy Puglisi said under no circumstances should teachers be paid according to student test scores.

“We have many schools where teachers might be working doubly hard, but scores are low because of the social conditions they face,” Mr. Puglisi said.

Among for-profit companies, John Chubb, the chief education officer of the Edison Schools Inc., also disagreed with linking pay to test scores.

Edison gives schoolwide bonuses because, Mr. Chubb said, “everyone in a school contributes to academic gains.” Bonus considerations include schoolwide test data in all subjects, customer (parent) satisfaction, and qualitative evaluations of programs in music, art, and other difficult-to-test outcomes.

For giving raises, Mr. Chubb also said he would never use test scores. Edison principals recommend small merit raises based on classroom observations, judgments about how well teachers work in teams, how they involve parents and the quality of student work portfolios. Such increases average only about 1 percent of pay.

Mr. Bechhofer said that, at Bain, managers devote about 100 hours a year to evaluating five employees. “When I try to imagine a school principal doing 30 reviews, I have trouble,” he said.

Pay for performance could, as Mr. Giuliani believes, help improve public schools. But if the private sector is the model, designing merit pay requires more care than yet seems evident.

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