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Approaches to Alternative Teachers Compensation: Promises and Pitfalls

January 2008

About 95% of public school districts use a uniform salary schedule. But merit pay and performance-based pay programs are attracting the attention of policymakers and educators across the nation(1). Critics of traditional compensation systems and newer alternatives point out the strengths of the system they support, but the limitations of individual systems are frequently misunderstood or unrecognized. To improve the viability of a new plan, WCER Fellow Debbi Harris suggests that policymakers and stakeholders conduct extensive analyses before implementation. In a recent Policy Brief(2) Harris examines ways that different compensation systems are likely to affect teacher behavior and student learning.

Three kinds of teacher compensation systems are prevalent: the uniform salary schedule used in most districts, performance-based systems, and outcome-based systems. Systems similar to the uniform salary schedule are typical in unionized professions, where hours worked and years of service primarily influence compensation rates. Performance-based systems (also known as behavior-based systems) tie some portion of salary to observable teacher behavior, such as demonstration of a specific pedagogical technique. Outcome-based systems (also known as pay for performance) link compensation to student performance, such as test scores and attendance.

The Uniform Salary Schedule
Under the uniform salary schedule, teachers can take pedagogical risks without facing corresponding financial risks. Teachers generally believe that the uniform salary schedule is objective. The uniform salary schedule requires minimal monitoring. It is easy to determine a teacher’s years of experience, particularly when a teacher remains in the same school for many years. When teachers apply for salary credit based on coursework they can be required to submit a certified transcript. Districts can predict anticipated teacher salary outlays with a high degree of accuracy (unless union negotiations force an unexpected change in the salary schedule).

But the uniform salary schedule provides no financial incentive for teachers to work hard. Salary depends on experience and education; performance is not a factor. High-quality teachers may feel unappreciated and unrewarded because they know that low performers in their district receive the same compensation.

The uniform schedule does not necessarily attract the best candidates into teaching. Many bright and talented young students choose careers in business and other professions that pay a premium. The commonly rewarded characteristics—experience and attainment of advanced degrees—are not necessarily the characteristics of high-quality teachers.

Merit Pay Systems
The two most common forms of merit pay systems each have unique advantages and disadvantages. Performance-based systems reward teachers for what they do, and outcome-based systems reward teachers for student performance. Both performance-based and outcome-based systems provide financial incentives to improve skills that affect student learning, rather than to the acquisition of advanced degrees. Performance- and outcome-based systems also may encourage desirable candidates to enter and remain in teaching: Highly talented candidates and teachers want to teach in systems that provide additional pay for their superior performance. Compensation systems that tie pay to performance may also enjoy political support: Taxpayers and legislators may be more willing to approve school funding increases if they know that the money will be used to reward high-performing teachers.

While innovative compensation systems may offer advantages, they also require sustained political and financial support from policymakers. Unfortunately, policymakers have rarely demonstrated such commitment, and political support is frequently not sustained. And for merit pay to improve the quality of teaching, either poor teachers must leave the profession and be replaced by higher quality teachers, or existing teachers must improve. Well-designed merit pay systems are often complex. Since the parameters vary from plan to plan, even teachers who have worked under merit pay may have difficulty understanding a new program. And although compensation policy assumes that money strongly motivates employee performance, money may play a smaller role in motivating teacher behavior than in other professions.

Performance (Behavior)-Based Systems
Whatever the means of assessment, the focus of performance-based compensation is always on the teacher, not the students. This assumes that, as teacher performance changes, student learning will increase. Performance-based compensation provides a financial incentive for teachers to improve their teaching skills. Such a system may be particularly motivating for teachers whose evaluations are close to the thresholds for additional pay. Another advantage is that differential teacher performance is rewarded without regard to such confounding influences as student background, which complicate systems based on student performance.

However, it can be difficult to connect measurable behaviors to quality teaching. By one estimate, only about 3% of a teacher’s contribution to student achievement can be explained by skills that are easy to measure. The remaining 97% is attributable to qualities such as enthusiasm, which are not measurable, and for which good proxies are not available. No single teaching style or skill set is clearly superior: Some constructivist teachers do a marvelous job and so do some traditional teachers. One way out of this dilemma would be to reward performance based on some criteria other than specific classroom practices.

Outcome-Based Systems
Teacher compensation systems that focus on student outcomes emphasize results, rather than teacher behavior. A focus on student outcomes allows teachers to use their professional expertise to decide the best way to reach particular students. Another advantage is that outcome-based systems encourage teachers to seek assistance in weak areas: Teachers can openly discuss their shortcomings and work with colleagues and administrators on improving, since doing so will make receiving incentive pay more likely. Political benefits may also result, as holding teachers responsible for student learning makes sense to the public.

Past outcome-based pay plans have often assessed teachers based on students’ absolute test scores, rather than on amount of improvement. A teacher whose students have gained 20 points, but remain below some cutoff, could be rated and rewarded more highly than a teacher whose students have gained only five points but scored over the threshold. And although students in low-income communities desperately need top-notch teachers, who tend to be effective for high-achieving and low-achieving students, outcome-based compensation systems have encouraged some of the best teachers to transfer to affluent schools where they are more likely to receive achievement bonuses.

Some school districts have turned to value-added achievement measures, an increasingly popular strategy. Value-added measures attempt to isolate individual teachers’ contributions to student learning (for more, see WCER’s Value Added Research Center Web site).

Individual and Group Reward Systems
Individual reward systems encourage high performers to remain in teaching and they provide low performers with a strong incentive to leave. On the negative side, individual financial rewards for student performance do nothing to encourage teachers to help colleagues or to perform tasks like hall duty that help the school function smoothly yet provide few individual benefits.

Group-based rewards recognize the collaborative nature of any schools’ effectiveness and reward teachers for their collective effort. Group-based systems are generally less costly to administer than their individual-based counterparts. However, it’s difficult to screen out effects of the district, prior schools, parents, and the community.

Relative ranking systems, or tournament systems, offer rewards based on how one teacher compares to all the others in the system. Teachers are told what percentage of top performers will receive rewards prior to the beginning of the measurement period. Relative ranking allows the district to determine the amount of incentive pay to be rewarded. The district sets the cutoff in the rankings so that it matches available funds. The main problem with relative rankings is that they discourage cooperative behavior among coworkers.

Implications and Recommendations
When policymakers choose among compensation systems, Harris says, they should:

• Assess the district’s or state’s goals
• Consider whether (and how) new incentives might help advance those goals, and
• Design a compensation system aligned with intentions.

Many districts and states already assess their goals and needs regularly. This data can be used to identify strengths that can be exploited and limitations that can be addressed. For example, a state may have well designed standards, but a school may find that teachers rarely refer to these standards when designing the curriculum.

Once policymakers identify and rank their goals, they can determine which, if any, are amenable to the influences of financial incentives directed at teachers. For example, some district goals can be advanced by teachers’ efforts, while others, such as those requiring capital improvements, are beyond a teacher’s reach. If policymakers approve a merit pay system, they must clearly identify goals and needs that teachers can appreciably influence, and then link them to specific rewards in the compensation system. When deciding which factors to reward financially, policymakers should consider the importance of the particular goal, the feasibility of motivating teachers to pursue it, and whether factors in the compensation system align with existing programs.

Once a district or state has identified goals and considered the feasibility of using financial incentives to reach those goals, policymakers need to design a compensation system tailored to their context. If they are reasonably content with current conditions or have determined that targeted financial incentives are unlikely to produce substantive improvements, they may opt to continue using the uniform salary schedule. Or, they may move to a performance-based, outcome-based, or hybrid system.

Harris says that, as policymakers consider the best way to meet their needs and ensure long-term political and financial support, the compensation system is likely to become increasingly complex. Complexity is desirable when it reduces the limitations of a particular system while effectively promoting specific goals, Harris says. But, as discussed earlier, complexity can also make the policy difficult to understand. The importance of educating teachers and other stakeholders about a proposed new system cannot be overestimated.

(1)For example, Minnesota and Florida have statewide policies in place, with Florida’s policy (amended in April 2007) requiring every school in the state to distribute a portion of teacher compensation based on student test-score improvements.

(2)Read the Policy Brief, “The Promises and Pitfalls of Alternative Teacher Compensation Approaches”