Can Pay-for-Performance Work in the Classroom?

By Randall Pozdena, Ph.D.

We all want to find ways to stimulate better academic performance among our K-12 students. Yet, many educators are reluctant to be subject to the performance accountability processes that are common elsewhere in the economy. However, there is a growing appreciation of the fact that public education is fundamentally a service business. It faces the same challenges of meeting the expectations of its customers, organizing itself to be effective, motivating its labor force to be productive, and doing all this while keeping a sharp eye on costs.

Economists understand that the accountability process almost certainly must include industry structure prescriptions, such as allowing for school-level competition. Using consumer choice””and the prospect that underperforming schools, administrators and faculty may fail””can ensure strong incentives to excel.

These structural reforms, although common in other countries, have met with strong resistance in America. Consequently, reformers are turning their attention to the motivational opportunities that might be implemented within the existing local public school setting. To this end, the idea of paying for performance is becoming the focus of various experiments and comparative studies.

Conceptually, pay for performance incentives could be applied at a number of levels within a given school system. Performance based incentives could be applied to administrators, students, parents and/or teachers. In a recent study performed for Cascade Policy Institute and The Broad Foundation, I examined the issue of performance incentives from an economist’s perspective. Then I compared the implications of organizational theory with evidence from published experiments and studies.

I reached the conclusion that there is potential for applying incentives at most levels within the typical K-12 school setting. The greatest potential appears to be at the classroom teaching level, since that is where the accountability process departs most markedly from what we think of as efficient organizational paradigms. In other words, we should apply financial incentives where the system is most in need of improvement — the classroom.

Although there is no perfect way to measure academic performance, student tests are a practical method that correlates well with subsequent career success. Test instruments need to be comprehensive, with variable content, to avoid “teaching to the test.” It is also important for teacher performance to be measured relative to other teachers, and the performance measure itself should be based on the change in test scores””not the achievement of a certain threshold. To do otherwise would treat unfairly teachers who inherit ill-prepared students.

The bottom line is that financial motivations work the same way in schools as they do in other service settings. The challenge is one of implementation. Educators long have been relatively insulated from the discipline of true accountability sanctions or incentives. Implementing performance measurement and incentives is considered by some to be an intrusion into the presumptively “special” setting of schools. But in the absence of structural reforms, my research suggests such intrusions may be not only warranted, but necessary to improve student achievement.

Randall Pozdena, Ph.D. is a Portland consultant in economics and finance and an expert in industry structure and performance. A former professor and research vice president for the Federal Reserve, he has served on the Governor’s Quality Education Commission. His recent report, “Paying for Performance to Improve K-12 Student Achievement,” is available from Cascade Policy Institute. The views expressed here are his own.