CRS Report for Congress
Performance-Based Pay for Teachers
Updated January 11, 2001
James B. Stedman and Gail McCallion
Specialists in Social Legislation and Labor Economics
Domestic Social Policy Division

Congressional Research Service The Library of Congress

Performance-Based Pay for Teachers
Policymakers at all levels are considering and implementing policies that link
elementary and secondary school teachers’ salaries or financial awards to their
performance or to the performance of their students. These performance-based pay
plans include a broad array of different kinds of efforts, ranging from merit-pay plans
for individual teachers to school-based performance award plans that may reward
teachers for the overall performance of their schools. These plans are being
implemented in an effort to improve the quality of elementary and secondary school
Among the key findings regarding performance-based pay plans for teachers are
the following:
!Interest in performance-based pay for teachers arises, in part, from a basic
dissatisfaction with the traditional salary schedule.
!There is no single model of performance-based pay plans. These plans can
vary markedly.
!Successful implementation of performance-based pay plans depends on a host
of factors, many of which may be complex and difficult to achieve. Many of
these plans have been short-lived.
!There is little unequivocal evidence of enhanced teacher performance as a
result of merit-pay plans, the most studied of performance-based pay plans for
!Performance-based pay for teachers is evolving. Policymakers are considering
various alternative approaches that may address shortcomings of previous
efforts. Increasing attention is being directed to school-based performance
awards that reward groups of teachers for the increased academic performance
of their students.
Initiatives to reform teacher compensation are emerging in federal legislation.
For example, the Teacher Quality Enhancement Grants program, added to the Higher
Education Act in 1998, authorizes participating states to provide financial awards to
teachers and principals when their students make significant academic improvement;
such awards may be part of “performance-based compensation systems.” Efforts by
federal policymakers to fashion legislative action to support performance-based pay
plans for teachers may be complicated by the wide variety of such plans being
considered and implemented at the state and local level, and by the evolution of these

Introduction ................................................... 1
Federal Interest.................................................2
Performance-Based Pay in General..................................3
What Is Pay-for-Performance?..................................3
Individual Incentive Pay Plans..............................3
Group Incentive Pay Plans.................................6
Performance-Based Pay Plans for Teachers............................7
Traditional Pay Schedule......................................8
Types of Performance-Based Pay for Teachers......................9
Teacher-Based Merit-Pay..................................9
School-Based Performance Awards..........................9
Implementation Issues for Performance-Based Pay in Education........9
Measuring Output or Performance..........................10
Generating Desired Teacher Behavior.......................10
Evidence of Success.........................................11
Examples of Performance-Based Pay Plans.......................12
Seiling School District...................................12
Douglas County School District............................13
Los Angeles Unified School District.........................14
Georgia Pay-for-Performance Program.......................14
Implications for Federal Policymaking...............................15

Performance-Based Pay for Teachers
Policymakers at the federal, state, and local levels are considering and often
implementing policies that link elementary and secondary school teachers’ salaries or
financial awards to their performance or to the performance of their students. These
performance-based pay plans include a broad array of different kinds of efforts,
ranging from merit-pay plans for individual teachers to school-based performance
award plans that may reward teachers for the overall performance of their schools.1
This report is intended to provide background on performance-based pay that
may be useful as legislative efforts in this area are considered by the Congress. It
defines pay-for-performance plans and summarizes criteria that are important to the
success of such plans. Implementation hurdles that may arise in merit-pay plans, one
of the most widely-studied types of individual performance-based pay plans, are
summarized. The relative strengths and weaknesses of individual pay-for-
performance plans versus group incentive pay plans are also discussed. Throughout,
the report emphasizes the experience of performance-based pay plans for teachers, by
examining both the potential, and the limitations, of such plans in an educational
setting. This is a background report and will not track legislative action in this area.
Based on a review of the research on performance-based pay in general and for
teachers in particular, several key issues emerge:
!Interest in performance-based pay for teachers arises, in part, from a basic
dissatisfaction with the traditional salary schedule. Many policymakers
believe that the traditional salary schedule provides no incentive for teachers
to demonstrate subject matter competence, improve teaching, or increase
academic performance by students.
!There is no single model of performance-based pay plans. These plans can
vary markedly in terms of such features as their measures of performance, the
size of the financial awards provided, and the portion of the teaching force the
plans might benefit.
!Successful implementation of performance-based pay plans depends on a host
of factors, many of which may be complex and difficult to achieve. Among
the most important of these factors is development of a process for evaluating
performance that is considered fair and reliable, and that has desirable effects
on the teaching force. Other important factors include ensuring that the

1In practice, terminology in this area is used loosely. Terms, such as merit-pay, are often
used to describe a wide range of pay options with different characteristics. In this report, the
term performance-based pay encompasses any pay that is linked to measures of performance.

portion of the teaching force that can receive the financial incentives, and the
size of the financial incentives provided, are sufficient to provide appropriate
incentives for teacher improvement. Many past plans appear to have been
!There is little unequivocal evidence of enhanced teacher performance as a
result of merit-pay plans, the most studied of performance-based pay plans
for teachers.2
!Performance-based pay for teachers is evolving. Policymakers are
considering various alternative approaches that may address shortcomings of
previous efforts. In particular, districts and states are looking to performance-
based pay plans that reward teachers for the overall performance of their
Federal Interest
Interest by the Congress in changes to teacher compensation policies arises
because of concern about the academic performance of this country’s elementary and
secondary school students, and a growing recognition that the quality of the teaching
force is critical to the success of any educational reforms undertaken. This interest
focuses on utilizing the salary schedule to improve teacher quality by leveraging
changes in teachers’ behavior, knowledge, and skills, and by making teaching more
attractive financially to successful teachers and to highly able individuals outside of
Traditionally, federal involvement in precollege teaching has not addressed the
nature of the compensation. Instead, it has focused on improving professional
development or inservice training (training for current teachers), preservice training
(training for prospective teachers), and teacher recruitment. Nevertheless, significant
amounts of funding from several federal programs support the salaries of specific
kinds of teachers, including teachers and paraprofessionals serving educationally
disadvantaged students under the compensatory education program (Title I of the
Elementary and Secondary Education Act), and newly hired teachers under the Class
Size Reduction program (FY1999 omnibus appropriations legislation).
Reform of teacher compensation is emerging in federal legislation. The recently
enacted (1998) Teacher Quality Enhancement Grants program (Title II of the Higher
Education Act) authorizes participating states to provide financial awards to teachers
and principals when their students make significant academic improvement; suchth
awards may be part of “performance-based compensation systems.” The 106
Congress actively considered legislation that would have supported merit-pay for
teachers, but, as of the date of this report, had not enacted such legislation. Further,
in 1999, the U.S. Secretary of Education Richard Riley called on school districts to

2Merit-pay provides compensation to individual teachers based on certain activities they
undertake or on demonstrated results of teaching performance.

“take a serious look at a new and developing concept called knowledge and skills-
based pay.”3
Performance-Based Pay in General
This section first considers performance-based pay as it is applied to employees
in general, not just those in the teaching ranks. This helps set the context for the
remainder of the report which address performance-based pay for teachers
What Is Pay-for-Performance?
Pay-for-performance plans attempt to correlate employee pay directly with
employee output. Pay-for-performance plans may take the form of individual
incentive plans or group incentive plans. Performance-based pay is consistent with
widely held beliefs that employees should be rewarded based on effort and with
theories of human motivation which contend that effective motivation is predicated
on a close relationship between performance and rewards.
Individual Incentive Pay Plans. Most employers rely principally on time-based
pay (paying employees on an hourly or salaried basis) but incorporate some form of
performance-based pay on an adjunct basis. Implementation of performance-based
pay requires supervisory time and consequently entails costs for employee monitoring
(especially for merit-pay which also requires regular performance evaluations).
However, it is presumed that because of the additional incentives to individual
performance, less supervision will be required than under strictly time-based pay.
Merit-pay is an individual incentive plan that rewards productive workers with
larger annual wage increases.4 The term merit-pay is also frequently used to describe
incentive bonuses which are awarded to individuals on the basis of performance but
are not added to base pay. Because merit-pay may be used in workplaces where
output is not readily measurable (unlike individual incentive plans such as piece-work
pay and commission pay which are generally only used when output is readily
measurable), and because it can entail more supervisory time for performance
evaluation than other individual incentive pay plans, it may be the most complex of
the individual incentive pay plans to administer. Merit-pay (or some variation thereof,
such as merit bonuses) is widely used throughout the private and public sector. For
these reasons this section focuses on merit-pay to illustrate the potential conceptual

3Riley, Richard W. New Challenges, A New Resolve: Moving American Education in the

21st Century. The Sixth Annual State of American Education Speech. February 16, 1999.

Remarks as prepared for delivery. Online: [www.edgov/speeches]. For this report,
knowledge and skills-based pay is considered to be a kind of performance-based pay. It is
provided to teachers when they have successfully acquired specific knowledge and skills, often
aligned with district educational standards or objectives.
4Other types of individual incentive plans include: (1) piece rate pay — the employee
receives a fixed amount for each item produced; (2) commission pay — the employee receives
a percentage of the value of the output sold.

and implementation problems that may arise with individual performance-based pay
Much of the literature on merit-pay has focused on whether it serves as an
effective inducement to greater employee productivity, and whether one can
accurately measure employee performance, a central component of all merit-pay
plans. In a survey of the empirical evidence on merit-pay plans, Robert Heneman
found that merit-pay can increase employee motivation and performance. However,
Heneman contends that in order for a merit-pay plan to be successful, all of the
following criteria must be met:
employees value merit-pay, performance can be measured accurately, employees
trust management, and the merit-pay budget is adequate. ... even if these conditions
are present, a merit-pay plan may fail when it is not properly administered.
Careful attention must be given to the introduction of the program, the total
compensation package, the performance-appraisal system, the formulas used to
determine merit, the method by which merit-pay decisions are communicated to5
employees, and the monitoring of the outcomes associated with merit-pay.
Accurately assessing employee performance in jobs where individual output is
not readily measurable is quite difficult in practice. This is because a large number of
variables affect the relationship between pay and performance.6 The issue of
appropriately evaluating individual performance is also complicated by the fact that
so much performance is affected by factors outside a worker’s control, for example,
whether or not necessary equipment is in good working order. An employer may
decide to award merit-pay based on relative performance among employees who face
similar external constraints. However, this may discourage group cooperation and
might even lead to undercutting others or politicking instead of producing, in order
to improve one’s apparent relative performance, to the detriment of the employer. In
addition, accurate measurement of individual performance is frequently limited by the
practical difficulty of apportioning the “output” among the workers who contributed
to it. Thus, from the employer’s perspective, finding good measures of individual
output and setting rates are difficult.
One solution is compensating workers for output that can be measured
objectively. However, this de-emphasizes aspects of the job that cannot be measured,
or less easily lend themselves to measurement. For example, some argue that
measuring teacher performance on the basis of pupil test scores encourages teachers7

to exclusively focus on ‘teaching the test’ to the detriment of students in other areas.
5Heneman, Robert. Pay for Performance: Exploring the Merit System. 1984. p. 21.
6Heneman, Robert. Merit Pay: Linking Pay Increases to Performance Ratings. 1992.
Examples of these variables include: the overall environment in which the employer operates,
such as whether or not there is a union (unions typically oppose merit-pay measures, instead
arguing for objective measure for pay increases like seniority); the characteristics and culture
of the firm; as well as of the characteristics and background of the evaluator and the
7Output is more easily measured in some occupations such as manufacturing or sales, but

Addressing these issues, and ensuring fairness in the performance evaluation
process itself, are critical to the employer’s success in convincing employees that a
merit-pay plan is fair. In order for a merit-pay plan to be effective, an employer must
be able to provide answers to the following two questions that arise among
(1) Why does worker X get merit-pay and I don’t?8
(2) What can I do to get merit-pay?
Murnane and Cohen conclude that most plans that are truly merit-pay plans fail
to provide good answers to these questions. Other authors argue that these questions
can be answered satisfactorily by a well-designed plan. Cohn, for example, uses the
illustration of a specific merit-based bonus plan for teachers to argue that a merit-pay
plan that: (1) provides explicit criteria that a teacher must meet in order to receive
merit-pay (including attendance, performance evaluation, self-improvement and
student achievement); and, (2) that is administered by a committee composed mainly
by teachers, can adequately address Murnane and Cohen’s two questions.
The answer to question (1) is: Worker X got the award because she met the
criteria and you didn’t. And the answer to question (2) is: if you, too, will work
to meet the criteria, e.g., attendance or self-improvement, then you, too, will
receive an award.9
Furthermore, Cohn argues that a merit-pay plan need not influence all employees to
be effective, so long as it influences the behavior of many employees.10
Some authors have suggested adaptations to traditional merit-pay plans that
would counter some of their shortcomings. Traditional merit-pay plans are based on
an annual pay increase that is incorporated into an employee’s base pay. Because the
increase is then a permanent part of base pay, and because employee pay is rarely
reduced for subsequent low performance, merit-pay raises effectively create: “an
annuity that can be an expensive fixed cost to an organization during economic

workers paid on a piece rate or on a commission basis have an incentive to emphasize quantity
over quality, and to put their own interests ahead of other workers in the firm (to the potential
detriment of the firm).
8Murnane, Richard, and David Cohen. Merit Pay and the Evaluation Problem: Why Most
Merit Pay Plans Fail and a Few Survive. Harvard Education Review, v. 56, no. 1, February,


9Cohn, Elchanan. Methods of Teacher Remuneration: Merit Pay and Career Ladders.
Assessing Education Practices: The Contribution of Economics. Edited by William Becker
and William Baumol. 1996.
10Ibid., p. 221.
11Fisher, Cynthia, Lyle Schoenfeldt, and James Shaw. Human Resource Management.


Most organizations employ merit-pay raises in an overall compensation context
that includes pay ranges for specific jobs. As a consequence, it can be difficult for
merit-pay to achieve both goals of rewarding and retaining high performing
employees. New employees are usually hired near the bottom of their pay range.
Even with merit-pay increases that are in the high range, new hires who are excellent
performers may feel underpaid and seek other employment. Senior employees, who
are excellent performers, on the other hand, may receive virtually no merit-pay
increases because they have bumped up against the ceiling of their pay range. In both
instances, merit-pay increases will not have the intended effect: “The result is a lose-
lose situation — an expensive annuity for the organization and a top-performing
employee who does not feel rewarded.”12
Furthermore, it is significant changes in pay (in the context of adequate overall
compensation), rather than total compensation, that have been found to motivate
current employee performance. Consequently, one method employers have adopted,
in lieu of traditional merit-pay plans is to reward excellent performers with lump-sum
bonuses rather than with a permanent salary increase. Because employees respond
to changes in pay, a 5% one time bonus of $1,000 to an employee earning $20,000
a year, may be more motivating than the same 5% increase incorporated into salary
at $19.25 a week. Bonuses also give employers more flexibility to be generous in
good years, because they are not incurring a permanent annuity. However, if
employers choose to adopt merit bonuses rather than merit-based salary increases,
they must first assure that current base salaries are equitable based on employee13
Group Incentive Pay Plans. Group incentive plans reward organization-wide
effort. Because group incentive plans ideally foster cooperation and teamwork rather
than competition among coworkers, they overcome one of the potential limitations
of individual incentive plans. Group incentive plans, in contrast, are sometimes
criticized for not sufficiently recognizing individual effort. In practice, many
employers rely on both group and individual incentives to try and enhance individual
performance and teamwork.
Gainsharing plans, which tie part of pay to some measure of group effort,
combine some components of individual performance plans in addition to potentially
enhancing group effort.14 Gainsharing rewards are tied to improvements in
organizational performance attributable to factors controllable by employees. Thus,
gainsharing plans affect performance by influencing employee motivation and
organizational culture. Gainsharing plans do not, however, eliminate the difficulty of
appropriately measuring performance. For example, gainsharing rewards may be tied

12 Ibid .
13Dessler, Gary. Human Resource Management. 1997. p. 481.
14In addition to gainsharing, other group incentive pay plans are profit-sharing and ESOPS.
The most often employed group incentive plan is profit-sharing, used in a least one-third of
U.S. organizations, see: Lawler, Edward. Strategic Pay. 1990. For more on ESOPS see:
CRS Report RL30038, Employee Stock Ownership Plans (ESOPS): A Description and
Economic Analysis, by Gerald Mayer.

to easily measurable costs, like labor costs, but if labor costs are not the only
significant factor in organizational performance, then the success of the gainsharing
plan will be thwarted. Employees may speed up their work (pushing labor costs
down) by being more careless with supplies and machinery (pushing supply costs up).
Gainsharing is more difficult to successfully implement in situations where adequately
measuring performance is complicated.
Performance-Based Pay Plans for Teachers
Performance-based pay for teachers has a long history, particularly in the form
of merit-pay which has fallen into and out of favor in public schools repeatedly
throughout the 20th century.15 This ebb and flow is reflected in the fact that merit-pay16
programs in school districts typically have a life span of less than 5 years. Relatively
few teachers currently report receiving any form of performance-based pay. A 1996
survey found that only slightly more than 5% of all public school teachers received
some form of performance-based pay.17 The average amount of such compensation
for those who did receive it was $1,335. The extent to which teachers currently have
the opportunity to participate in such plans is not known. Over the long term, interest
in performance-based pay plans has been sparked by dissatisfaction with the
traditional pay schedule for teachers.
This section begins with consideration of the traditional pay schedule. Following
that are a description of different kinds of performance-based pay plans, a delineation
of several implementation issues that arise with these plans, and a review of several
specific examples of these plans implemented by different states and districts.
Traditional Pay Schedule
Teacher salary schedules are primarily determined at the level of the individual18
school district. They are often the subject of negotiation between local school
boards and teacher unions where applicable. For much of the 20th century, most

15Murnane, Richard J., and David K. Cohen. Merit Pay and the Evaluation Problem:
Understanding Why Most Merit Pay Plans Fail and a Few Survive. Institute for Research
on Educational Finance and Governance. Stanford University. November 1985. (Hereafter
cited as Murnane and Cohn, Merit Pay and the Evaluation Problem.)
16There is a significant amount of literature on the history of merit-pay programs among
teachers and the difficulties many of these plans have encountered. The discussion below
highlights a number of problems that have arisen with merit-pay.
17National Education Association. Status of the American Public School Teacher 1995-
1996. 1997. p. 70. These data are derived from a sample survey. Respondents were asked
to identify “sources of additional income.” “Performance-based or incentive pay” was one of
the choices offered.
18Nearly half (23) of all states have a statewide salary schedule that generally sets minimum
salary levels. Usually, local districts can exceed these minimum levels when fashioning salary
schedules for their teachers. (Education Commission of the States. Teacher Salary
Schedules. ECS Information Clearinghouse. September 1997.)

elementary and secondary school teachers have worked under the so-called single
salary schedule.19 This schedule bases a teacher’s salary on two factors — the number
of years of teaching experience the individual has and the number of educational
credits and degrees the individual has earned. Increases in both teaching experience
and credits/degrees lead to increases in salary, up to absolute limits imposed by the
applicable pay schedule. The single salary schedule emerged as a response to equity
concerns about previous pay systems that often based salary on such factors as a
teacher’s gender, race, level (elementary or secondary), or marital and family
Although starting salaries for teachers have become more competitive with
salaries for other college graduates, the dispersion of teachers’ salaries are not
commensurate with those available to other college graduates.20 The relatively low
maximum potential salary for teachers, in combination with the single salary schedule
which is currently used in the vast majority of districts, is argued by some to fail to:
draw the highest caliber of potential teachers into the field; reward teachers who are
exceptionally productive; or allocate the supply of teachers to fields where they are
most needed (like math and science). Criticism of the single salary schedule has
undergirded efforts to implement performance-based pay plans in elementary and
secondary education.
Disenchantment with the single salary schedule focuses on the two central
factors it uses to allocate wages — more years of experience and higher levels of
education. Critics view it as largely rewarding longevity and the accumulation of
college credits, not classroom effectiveness. Some researchers have found that these
two factors — experience and level of education — have relatively little beneficial
impact on classroom effectiveness as measured by the achievement of a teacher’s
students. Eric A. Hanushek has concluded: “The results [of a review of the available
research] are startlingly consistent in finding no strong evidence that teacher-student
ratios, teacher education, or teacher experience have an expected positive effect on
student achievement.”21 Nevertheless, these conclusions about the relationship of
experience and levels of education are debated. For example, based on their analysis
of the literature, Rob Greenwald, et al, concluded: “[R]esource variables that attempt
to describe the quality of teachers (teacher ability, teacher education, and teacher
experience) show very strong relations with student achievement.”22

19Protsik, Jean. History of Teacher Pay and Incentive Reforms. Journal of School
Leadership. May 1996. (Hereafter cited as Protsik, History of Teacher Pay); English,
Fenwick, History and Critical Issues of Educational Compensation Systems. Teacher
Compensation and Motivation. Edited by Larry E. Frase. 1992.
20Cohn, Methods of Teacher Remuneration.
21Hanushek, Eric A. The Economics of Schooling. Journal of Economic Literature.
September 1986. p. 1162. See, also: Hanushek, Eric. A. Assessing the Effects of School
Resources on Student Performance: An Update. Educational Evaluation and Policy
Analysis. Summer 1997.
22Greenwald, Rob, et al. The Effect of School Resources on Student Achievement. Review
of Educational Research. Fall 1996. p. 384. See also: Ferguson, Ronald F. Paying for

Types of Performance-Based Pay for Teachers
Performance-based pay plans for teachers may have features that fall into at least
two broad categories — teacher-based merit-pay and school-based performance
awards. These correspond to the individual and group incentive pay plans described
earlier in this report. As illustrated below, individual plans may draw from both of
these categories.
Teacher-Based Merit-Pay. This kind of pay is based on an individual teacher’s
performance inside and/or outside of the classroom. That performance can be defined
and measured in myriad ways. Teachers may be rewarded for their perceived impact
on various outcomes of their particular students, such as achievement levels. They
may also be rewarded on the basis of such factors as evaluators’ assessments of their
performance in the classroom, completion of targeted activities that increase their
subject matter knowledge or specific skills,23 the range of duties assumed, or the
extent and quality of their interaction with other teachers.
School-Based Performance Awards. These awards are based on the aggregate
performance of schools that may include a wide range of possible measures. Student-
related measures may include achievement levels, attendance rates, dropout rates (for
secondary schools), participation rates in advanced placement courses (for secondary
schools), college going rates (for secondary schools), etc. Measures of school
performance need not be student-based. For example, they may include the extent of
parental and community involvement in school activities, or whether the schools have
developed and implemented new curricula. The awards are made to individual
schools for use at the school level. Some, but not all, of the initiatives being
implemented that include school-based performance awards call for distribution of
these awards to individual teachers as additional compensation or permit such use of
the awards.
Implementation Issues for Performance-Based Pay in Education
The difficulties encountered in implementing performance-based pay plans in
general, discussed above, can also arise in attempts to implement performance-based
pay for teachers. These difficulties primarily involve:
!measures of teacher output or performance,
!impact on desired behavior by teachers.

Public Education: New Evidence on How and Why Money Matters. Harvard Journal on
Legislation. 1991; and National Commission on Teaching and America’s Future. Doing
What Matters Most: Investing in Quality Teaching. November, 1997.
23Knowledge- and skills-based pay plans specifically identify skills and knowledge that are
considered necessary for achievement of education reform objectives. Financial awards are
provided to teachers who demonstrate that they have achieved such skills and knowledge. See:
Odden, Allan, and Carolyn Kelley. Paying Teachers for What They Know and Do: New and
Smarter Compensation Strategies to Improve Schools. 1997. (Hereafter cited as Odden and
Kelly, Paying Teachers for What They Know and Do.)

Measuring Output or Performance. Measuring teacher output is quite
difficult. Many highly valued activities by teachers are qualitative, and as a
consequence, hard to measure:
One key problem in predicting teacher quality is that managers using the
criteria demand quantitative measurements, while the factors that actually
relate to classroom performance are typically qualitative and vague. Even
if the factors important in producing a good teacher were known,
specifying true quality and implementation standards would still be24
exceedingly difficult.
Merit-pay plans founder frequently on the evaluation portion of the plans which
often have required assessment of teacher performance by principals, teachers, or
others. In many instances, teachers have considered the process to be ill-defined,
overly subjective, or basically biased.
Students’ test scores are often suggested and sometimes used as a measure of
teacher effectiveness. To many advocates, performance-based pay provides an
opportunity to interject into teacher pay a measure of accountability for a highly
desired outcome — changes in student achievement scores. Test scores may be
viewed as a more quantitative and less subjective way of gauging teacher performance
than traditional evaluation procedures. Debate over this use of student test scores
focuses on the attribution of changes in student test scores to the effectiveness of an
individual teacher, given the multitude of other factors, including family background
and the quality of previous teachers, that are known to influence achievement. In
addition, issues arise concerning the validity and reliability of the testing instruments,
and whether such assessment instruments measure the full range of student outcomes25
that policymakers and others desire teachers to achieve with their students.
Generating Desired Teacher Behavior. As noted, if evaluations are not to be
subjective in nature, quantitative measures of output are helpful. However, if
quantitative measures, like student test scores, are used to measure teacher
performance, then teachers will be encouraged to emphasize teaching that will
improve test scores, potentially at the expense of other teaching tasks, and at the
expense of cooperation with other teachers. For example, if teachers are rewarded
for a rise in student reading scores, in economic terms there is effectively a zero price
for student improvements in other areas. Teachers would have an incentive to neglect

24Hanushek, Eric. Making Schools Work. Washington. The Brookings Institution, 1994.
p. 79.
25Cohn, Methods of Teacher Remuneration; Glass, Gene V. Using Student Test Scores to
Evaluate Teachers. The New Handbook of Teacher Evaluation: Assessing Elementary and
Secondary School Teachers. Edited by Jason Millman and Linda Darling-Hammond. 1990;
Conely, Sharon C. and Samuel B. Bacharach. Performance Appraisal in Education: A
Strategic Consideration. Teacher Compensation and Motivation. Edited by Larry E. Frase.


other subjects, and to focus on students who are likeliest to bring up their reading
scores the most with the least amount of teacher attention.26
In addition to difficulties encountered in finding accurate measures of teacher
performance, merit-pay may encourage opportunistic behavior, like minimizing group
related activities. This would potentially be detrimental because much of the work of
schools involves significant cooperation and teamwork among teachers. For example,
some teachers monitor halls so others can teach; all teachers work together to
encourage good citizenship, and to discourage drugs and violence.
Evidence of Success
Compounding the implementation issues considered above is the absence of
evidence from previous research that financial incentives provided through
performance-based pay, in general, or merit-pay, in particular, change teacher
behavior in ways that lead to increased student achievement. In her history of teacher
compensation, Protsik concluded:
Many individual merit-pay plans were adopted as a means to increase teacher
accountability and improve classroom performance. For the most part, these plans
not only failed to improve student achievement, but also destroyed teachers’
collaboration with each other and teachers’ trust in the administrators in charge of27
evaluating their performance.
Morrow found in her analysis of several states and districts with performance-based
pay plans that, although all showed some degree of improvement in student
performance, “[t]here was no evidence in this study to support the position that it was
pay-for-performance which improved student achievement.”28
Given the complexity, diversity, and short-term nature of most of the
performance-based pay plans that have been implemented, such findings may be
expected. This research does not suggest that performance-based pay plans are never
associated with improved student performance and that more of them could not be
fashioned that would be successful in this way. Further, much of the available
research is dated, focused largely on merit-pay plans, and not necessarily applicable
to different approaches to performance-based pay plans that appear to be increasingly
popular, particularly school-based performance awards.

26Murnane and Cohn, Merit Pay and the Evaluation Problem.
27Protsik, History of Teacher Pay, p. 285-286.
28Morrow, Sharon Yvonne. A Study of Student Achievement Results Using Selected Teacher
Pay-For-Performance Models (Teacher Performance). Dissertation, Baylor University.

1992. p. 229. (Hereafter cited as Morrow, A Study of Student Achievement Results).

Examples of Performance-Based Pay Plans
Several examples of performance-based pay plans are described below. This is
not a representative sample of plans.29 Rather, it is intended to show that
performance-based pay plans for teachers can be structured in many different ways.
The factors that can trigger a financial reward for a teacher may range from30
certification by the National Board for Professional Teaching Standards, to
completion of a skill- or knowledge-building activity, to improved academic
performance of students. Individual teachers may receive financial compensation for
their individual performance, or they may share in a group award. Particular grades
or subjects may be targeted. Academic or non-academic activities of teachers may be
eligible for additional pay. These plans may be established by districts or states.
Despite these and other differences in the programs, the performance-based pay in
each case above was an extension or adjunct to the single salary schedule, not a
replacement for that schedule. Examples of wholly performance-based pay plans were
not located in the available literature. Where some information is available, the impact
of these plans is noted.
Seiling School District. A merit-pay program frequently cited in the research
was initiated in the Seiling (Oklahoma) school district in 1980 and continued through
1986, when it was terminated for budgetary reasons.31 This program included both
teacher-based merit-pay as well as school-based performance awards. During the
program’s existence, awards to teachers (in addition to salary) were based on student
achievement outcomes in reading at the elementary and secondary school level;
mathematics at the elementary school level; and various other subjects at the
secondary school level. Those teachers agreeing to participate entered into a separate
contract acknowledging that the merit award was not part of their salary and would
not carry forward into subsequent years. In other words, the payment had to be
earned each year and was not covered by any cost-of-living adjustment applied to
base salary. The district set objectives for gains in achievement tests in reading, math,
and other subjects. Participating elementary teachers received a $500 bonus if their

29There are numerous recent examples, not described in this report, that may also be of
interest. Among them are the pilot program underway in the Denver (Colorado) public school
district in which bonus payments are made to voluntarily participating teachers on the basis
of improvements in classroom test scores, and the new plan being implemented in the
Cincinnati (Ohio) public school system which replaces the traditional salary schedule with one
basing compensation increases and career mobility on teacher evaluations. It might also be
noted that Oregon voters rejected a 2000 ballot measure that would have tied each individual
public school teacher’s base salary and salary increases, other than cost of living increases,
to growth in the “appropriate knowledge” of his or her students.
30The Board, a non-profit organization, is creating and implementing an assessment process
to certify on a voluntary basis teachers across the country who meet high standards. Nearly

9,500 teachers have already achieved National Board Certification.

31See, for example: Hatry, Harry P., and John M. Greiner. Issues and Case Studies in
Teacher Incentive Plans. The Urban Institute, 1985. p. 181-186. (Hereafter cited as Hatry
and Greiner, Issues and Case Studies in Teacher Incentive Plans); Morrow, A Study of
Student Achievement Results, p. 158-164. There were approximately 44 teachers working
in this district of 550 students.

schools achieved the district’s reading objective and an additional $250 bonus if their
individual classes met the reading goal and another $250 if the classes met the math
objective. Secondary teachers received a $300 bonus if their school reached the
reading objective and $140 bonuses for each of their five classes that reached their
subjects’ objectives. The total that could be earned by an individual teacher was
Douglas County School District. In 1994, the Board of Education of the
Douglas County (Colorado) school district and the Douglas County Federation of
Teachers agreed to a performance-based pay plan.33 Under this plan, teachers in the
district have a pay schedule that determines base salary levels on length of service and
education level, but increases in salary are dependent upon teachers being evaluated
as “proficient.” Teachers also are eligible for bonus pay under six different
components of the district’s compensation framework:
!Outstanding teacher bonuses — four types of bonuses, worth $1,250 a year to
a teacher, are available: Type A bonuses go to individual teachers in
recognition of their classroom performance determined on basis of portfolios
documenting teaching practices with review and selection made by the
teachers’ principals (the criteria evaluated include instructional skills, content
knowledge, and collaboration with other teachers); Type B bonuses are tied
to teachers’ demonstration, through portfolios, that their instructional practice
is standards-based; Type C bonuses are for teachers pursuing National Board
certification; and Type D bonuses (being piloted for 2000-2001) are tied
directly to achievement increases in each teacher’s students.
!Group incentive bonuses — bonuses to teachers who are involved in an
approved schoolwide activity focused on student performance with measurable
outcomes; bonuses made on basis of the teachers having implemented the
proposed activity, not necessarily having improved student performance; the
size of the bonus to each teacher depends upon the number of schools and
teachers successfully implementing proposed activities.
!Site responsibility bonuses — school-based bonuses used to pay teachers for
activities beyond those normally arising from classroom instruction (e.g.,
chairing a school committee, doing special activities with students, etc.); a
fixed amount is distributed to each school in the district; a committee of
teachers at the building level determines how the school-level award is to be

32The plan was intended to improve teacher retention and increase student test scores. For
neither of these objectives did the district have substantive data that predated the
implementation of the plan. Available data appear inconclusive concerning the impact of the
plan on overall test scores in the district. See: Hatry and Greiner, Issues and Case Studies
in Teacher Incentive Plans; Morrow, A Study of Student Achievement Results.
33Odden and Kelley, Paying Teachers for What They Know and Do; Consortium for Policy
Research in Education. Skill-Based Pay and Performance-Based Pay in Douglas County,
Colorado. Online: []; and Hartman, Douglas B., and Rob
Weil. Developing a Performance Pay Plan for Teachers: A Process, Not an Event.
Submitted to American Federation of Teachers Research Department, January 30, 1997.
Online: []. (Hereafter cited as Hartman and Weil,
Developing a Performance Pay Plan for Teachers.)

distributed; bonuses to selected teachers have ranged from $35 to $200 a year
per teacher.
!District responsibility bonuses — bonuses provided to teachers for
participating in districtwide professional activities that primarily involve serving
on districtwide committees or taskforces.
!Skill block bonuses — bonuses provided to teachers who take district-
provided training in particular skills and demonstrate mastery of those skills;
in the past, these bonuses have ranged from $250 to $500 per teacher
depending upon the skill block studied.
!Master teacher — the district and union are continuing to develop the master
teacher designation for teachers whose students demonstrate achievement
growth; master teachers must also be National Board certified or designated
as Outstanding Teachers for two years; awards will be for five years and worth
$2,500 a year.34
Los Angeles Unified School District. The Los Angeles Unified School District
has a traditional single salary schedule.35 Teachers move up the salary schedule
primarily on the basis of longevity and credits earned. Nevertheless, teachers who
hold certification from the National Board for Professional Teaching Standards
receive an additional 15% salary supplement. Half of that additional compensation
is provided solely on the basis of the receipt of the certification; the other half is to
compensate Board certified teachers for additional professional duties they perform.
Georgia Pay-for-Performance Program. The state of Georgia administers a
program that awards funds to schools that meet school-set performance objectives in
four categories.36 These categories include: student achievement (at least 40% of the
school’s overall score in the program is measured by a high level of performance on
standardized tests, higher than expected performance, or educationally significant
gains); parental and student involvement; educational programming (for example,
implementation of a new program); and resource development (evidence of an
increase in teachers’ knowledge and skills, school reorganization, or restructuring that
lead to achievement gains).
Schools submit initial applications for participation by the March prior to the
applicable school year. These applications are reviewed by a statewide panel of

34Evaluations of the Douglas County pay plan appear to have centered largely on how well
teachers understand the plan, how they have reacted to it, and what impact they believe it has
had. For example, teachers believed that the group incentive bonuses positively affected
student performance. Teachers and administrators report that the skill block bonuses are
contributing to changes in classroom practice. See: Douglas County School District.
Executive Summary: Third Year Implementation Assessment of the Performance Pay Plan
for Teachers. Presented to the Board of Education, May 5, 1998. Online:
[]; Hartman and Weil,
Developing a Performance Pay Plan for Teachers.
35Los Angeles Unified School District. Teachers’ Salary Table for 1999-2000. Online:
36Georgia Department of Education. Guidelines for the Pay for Performance Program.

1999. Online: [].

readers to ensure that the objectives meet the statutory requirements of the program.
Participating schools submit end-of-year performance reports which are used to
evaluate whether schools’ performance objectives have been met. The size of the
award per school depends upon the number of certified personnel at the recipient
schools and the amount of funding appropriated for the program. The uses of funds
at individual schools, which can include teacher bonuses or spending on instructionally
related activities, are determined by a consensus of certified personnel at those
schools. For 1999-2000, awards in the amount of $12.5 million were made to 110
of the 165 schools that submitted acceptable plans ($2,000 provided per certified staff
member in successful schools).37
Implications for Federal Policymaking
Several findings from the preceding analysis appear to be important for federal
policymakers as they consider legislative efforts to make some portion of the
compensation of elementary and secondary school teachers sensitive to performance,
either of the teacher or of the teacher’s students. The discussion below identifies
some of these findings and their importance for policymaking in this area.
In the development of, and debate over, federal initiatives to support
performance-based pay plans, it is important to recognize that there is no single model
for such pay plans. The illustrative examples demonstrate that the plans can differ
markedly. Among the characteristics upon which they differ are their measures of
performance, the size of the financial awards provided, and the portion of the teaching
force the plans might benefit.
As a consequence, federal legislation in this area may apply to plans with many
different features. At issue, then, are the characteristics of the plans that are intended
to be supported through federal initiatives. The terms used in legislation may be
ambiguous in application. For example, Title II of the HEA authorizes states to use
Teacher Quality Enhancement Grants to support performance-based compensation
systems (HEA II Section 202(d)(5)) without further definition. Are these plans to
be teacher-based or school-based? Whose performance is to be measured, the
teacher’s or that of the teacher’s students? How should that performance be
measured? Similar kinds of questions would be triggered by other terms that have
been considered in legislative action, such as merit-pay or performance pay.

37An evaluation provided by the Georgia Department of Education (The Pay for Performance
Program: Evidence of Program Impact. August 2000. Online: [])
concluded that math and reading test scores were higher in participating schools than in other
schools, including comparable schools in terms of students’ free lunch eligibility (135% of the
poverty threshold). Participating schools reported that the program helped to improve student
achievement, faculty collaboration, and attention to school goals, among other positive
outcomes. Nevertheless, the evaluation did not attempt to measure the impact, if any, that
participation might have had on participating schools’ test scores in comparison to these
schools’ pre-participation scores.

At the same time, a precise definition of performance-based pay plans in
legislation may inappropriately narrow the range of plans that could be supported
under a federal initiative. Available research suggests that successful implementation
of performance-based pay plans has been the exception rather than the rule,
particularly if a measure of success is longevity of the program or evidence of a
positive impact on student achievement. Nevertheless, researchers and policymakers
in districts and states are exploring and implementing performance-based pay plans
that are intended to address the shortcomings of previous efforts, such as basing
financial awards on school-based performance or on the acquisition of skills and
content knowledge closely aligned to academic standards and goals. Still others call
for direct links between teacher salaries and student test scores. However, as of yet,
there is no consensus on what works best and which direction to go. Many analysts
therefore support including diversity and experimentation in any future federal
initiatives in this area.