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.

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  • John Fairplay

    Teachers Union resistance to merit pay has always surprised me a bit. It is part, I suppose, of the Schizophrenia of the OEA – they want teachers to be viewed as “professionals” but insist on employment policies more appropriate for hourly or piece-work employees – including, of course, the very existence of the Union which no true profession would ever have.

    There are no professions (outside of government and unions) where an employee is not evaluated based on his or her performance. Can you imagine a law firm where a lawyer who lost every case due to incompetence or malpractice would continue to be employed? A doctor whose employment was maintained if he couldn’t heal the sick?

    I’d personally like to see teachers treated as, employed as, and paid as professionals. There’s no reason good lawyers are more monetarily valuable to our society then good teachers. But as long as teachers have a union and employment practices that are more like those enjoyed by an assembly-line worker then a lawyer, it won’t happen.

    • Alan

      What if teachers had teh choice of being independent contractors?

    • David from Eugene


      Lawyers and Doctors can and are rated on their own performance. The problem is that the most of the currently proposed teacher rating systems do not intend to rate teachers on their performance, but rather to rate them on their students performance. As the largest single factor in student performance is the student and not the ability of the teacher providing instruction to the student or any number of additional factors, rating teachers based on student performance is not a true indicator of their ability as a teacher.

  • Jerry

    Of course it can work. It works everywhere in the private sector. It is how most people are paid in this country unless they have a powerful union getting in the way. There is no perfect way to measure performance for any other job, either, but it is done each and every day all over this country.

    Unions will always block pay for performance because they KNOW they have members who should not even be working in the schools, much less getting full pay.

    This argument is so ridiculous it is laughable. None of this is rocket science. It is not magic. It is not hard to do.

    Remember the three reasons most people go into teaching:

    • Anonymous

      Don’t forget Christmas – oops, winter – and spring breaks!

  • Crawdude

    This Initiative is DOA on election day, it defintely wasn’t worth printing in the Catalyst.

    • Steve Buckstein

      Dr. Pozdena’s analysis is about the policy of pay for performance in schools, not about the specific initiative (Measure 60) on the ballot.

      • Crawdude

        Ya got me on that one? Wow, I guess it was worth printing, yawn…..

    • eagle eye

      Yawn is right. I suggest Dr. Pozdena talk to his friendly legislator, or to school superintendent Susan Castillo. Or take it up with his friendly OEA head or Bill Sizemore. All of them could actually have a chance of doing something along these lines. Hah, fat chance!

      As for “a growing appreciation of the fact that public education is fundamentally a service business” — I don’t know where this growing appreciation lies except in the libertarian precincts like Cascade Policy Institute. Whatever education is, it’s not a business, and most people recognize this. Maybe I’m wrong and you can sell this to the likely Democratic administration in Washington or in Salem. I’m not holding my breath.

      • Steve Buckstein

        “Whatever education is, it’s not a business…”

        If that statement is true, I wonder why. Is it because education is somehow too important to be provided in a market setting where buyers and sellers interact? But that can’t be the case, or else we would never allow an even more important product, food, to be sold in the marketplace. And yet, food, which is arguably more necessary to sustain life, is bought and sold every day in the marketplace.

        Perhaps those who argue that education cannot be supplied like other vital services in our economy either don’t want education providers to be subject to market discipline, or they believe that parents are not smart enough to make the right decisions about their children’s education.

        • eagle eye

          It’s because, unlike ivory tower libertarian think tank types, most people realize that not everything in life happens in a business, that running everything like a business is not the end-all and be-all of life.

          Other examples: the military is not a business (even though the military competes in a market of sorts for personnel, even though the branches of the military compete with each other in a “market”).

          Psychiatry is not a business, medicine is not really a business.

          Education is different from a business in several key respects. Hint: in most businesses they don’t grade the customers. Even where they sort of do, as in the mortgage business, people don’t get turned away or flunked if they can pay the freight.

          • Steve Buckstein

            Just because “most businesses don’t grade the customers” doesn’t mean some can’t. Just because most businesses don’t “turn away or flunk” customers doesn’t mean some can’t.

            If pay for performance won’t work in the current public school system, then the question is why not, and are there systemic changes that might enable the system to use incentives that do work in other industries. Claiming that somehow education is “different” or “special” shouldn’t exempt it from finding ways to improve student achievement that go beyond “I’m the professional, just butt out and let me teach.”

            I do have sympathy for teachers who say that they have little control over the classroom environment and therefore a pay for performance system won’t work because they aren’t free to make the changes they believe are necessary to make it work. If that’s the case, then teachers should fight to gain more control over how they provide their important services.

            Everything I see in the current public school system seems designed to deny teachers the control they need to do a better job. So I don’t mind teachers opposing pay for performance in the current system, but I don’t buy the argument that it wouldn’t work in a truly professional environment where teachers who did a better job of raising student performance got rewarded for their efforts.

          • David from Eugene


            Would you find it acceptable to have your pay based on the results of a test administered to a group of randomly selected readers of your reports, some of whom might be illiterate, need glasses, or disagree with your politics? I certainly would not. But that is the basis of most if not all systems currently proposed to objectively evaluate teacher performance; base teacher pay on the ability of a third party to pass a test. It is also the fundamental flaw in the concept of pay for performance.

            As I said earlier, the single largest factor in student performance is the student himself not the teacher.

          • Harry

            “Would you find it acceptable to have your pay based on the results of a test administered to a group of randomly selected readers of your reports, some of whom might be illiterate, need glasses, or disagree with your politics?”

            Steve should be judged on the product of his efforts. Judge Steve on the quality of his output, not on “randomly selected readers”.

            And so it should be with teachers. Grade teachers on the quality of their output. How well do they teach?

            “I certainly would not. But that is the basis of most if not all systems currently proposed to objectively evaluate teacher performance; base teacher pay on the ability of a third party to pass a test. It is also the fundamental flaw in the concept of pay for performance.”

            Wrong. Teachers should be measured on how well they can teach various subjects to young students. Some teachers can teach students well, other teachers suck so bad they can teach a fish to swim. There are various ways to measure teacher performance.

            The fact is that teachers (as a whole; mainly because of pressure from unions) don’t want to be measured, because many teachers don’t measure up, and unions want to cater to the least common denominator, the loser teacher. Sound like David is one of those types of teachers.

            Most good teachers welcome performance based compensation, since they would benefit from that system, and they know that the whole system would improve as well.

          • David from Eugene

            No I am not a teacher and never have been. While in the Army I did receive extensive training on conducting training, drafting and evaluating training and lesson plans, and training and evaluating instructors and I racked up a lot of hours as an instructor and much more hours training and evaluating instructors, and drafting and/or evaluating lesson and training plans.

            I am not saying that teachers should not be rated on performance. What I am saying is that the performance measures used to evaluate teachers should not be based on student performance. The methodologies being proposed for teacher evaluation are not based on the quality of their output but rather their students’ response to that out put.

            If you have an objective method of evaluating teacher performance that is not based on student performance I would like to hear it.

          • Harry

            “Education is different from a business in several key respects. Hint: in most businesses they don’t grade the customers.”

            Eagle Eye is too clueless to be a real educator.

            Students are not customers.

            Can you just see a 1st grader as a customer? “Yes, three boxes of candy. Put it on my account, bill me at the end of the month. And next time, use more sugar!!”

            Students and how well they are being educated are the end product. Are they the world’s best “products”, or are they some inferior “products” that are third rate compared to other country’s “products”?

            Customers are the tax paying parents and society. They pay for the service, and they have the right to judge that service.

            The ones being reviewed are the teachers, and their efforts: Are they successful or not? Just like the producers of the old Ford Pinto. How successful were the designers and builders of the Pinto, versus say the Toyota, back in the 1970s?

            How successful are our USA union teachers today?

            Do you want to buy more of what they are selling, or do you want your money back?

          • Anonymous

            Most businesses do grade customers. There is a whole industry devoted to CRM (customer relationship management).

            Of course, if you’d ever worked a day in your life you might know this.

          • eagle eye

            I’ll ignore the stupid crack about having worked.

            It’s not the same type of grading. Companies don’t get rid of profitable customers, almost by definition.

  • Anonymous

    Of course merit pay can and does work just fine. It’s been adopted in other states so Oregon won’t be experimenting with a new approach. The teacher’s unions oppose this approach, but then they also oppose public charter schools, vouchers and any other weakening of their power over our public school system. At the same time the unions use their might and payroll deduction dues to support every liberal politician, program and tax increase.
    Long Reviled, Merit Pay Gains Among Teachers
    Pros and Cons of Merit Pay For Teachers

  • Clueless Emma

    Merit pay for teachers only works insofar as it rewards those who maintain certain professional criteria. For instance, when I taught in Arizona, if student improvement scores, or whatever they used as the threshold, reached a predetermined percentage across the district, all teachers who met the requirements for merit pay received a bonus. This bonus amounted to about $800 at Christmas and another $800 before summer break. A recipient was required to attend or volunteer at 6 extracurricular activities outside the normal day, maintain positive evaluations, etc.

    This type of reward makes sense.

    But studies clearly reveal that whenever teachers are forced to compete against each other, workplace morale takes a nosedive, sharing of lesson plans, helpful hints and ideas stops, and doors remain closed. The last thing we want to do is turn teachers against each other–we do not teach in a vacuum and we cannot control the variables. Teachers who win prestigious teaching awards born from competition often end up depressed and hurt, because their colleagues no longer want to share with them what is going on in their classrooms. We become guarded and protective of what works for us–why share with anyone when it might work against us?

    The biggest advantage for students, as the research shows, is a caring, educated teacher. Remove that relationship–to include open, sharing conversation and collaboration among their peers–and it ultimately hurts students.

    I cannot control what a student eats, studies, watches on TV,talks about with friends, or does at home. I have control for maybe 90 minutes every other day. I cannot make her get to sleep before a test, eat healthy meals, study, or necessarily find intrinsic motivation (though I try)–that is the parent’s job.

    Teachers I know are dedicated professionals, working WAY overtime most days and taking required graduate classes or working a 2nd job most summers.

    I have a Masters in Secondary Teaching. What do most professionals with an MA bring home, do you think?

    Compare their salary to what I make with the hours per week I work (with no overtime), the beauracracy, red tape, political undercurrents I fight daily, including no-nothings who never spent a day in front of 35 teenagers who think they can run a school like a business, the hundreds of out-of-my-pocket expenses I incur to teach fun things in fun ways because dammit, I care.

    I am not a fan of the teachers union and only belong to it because I am required to by law. But do not think you can sit in your comfy, temperature-controlled offices and decide what is best for teachers. until you’ve done the homework within the classroom.

    We are not producing socks or tables. We are producing living breathing beings who ought to be able to contribute to society in a fundamentally positive way. This cannot be measured by filling in bubbles.

    • Jerry

      You are not required to by law. That is a cop-out. You may apply for and be granted a religious objection at any time.


        So it is better for me to lie and say I have religious objections? No, dear, it isn’t religious–unless you want to include the leftist homosexual humanistic agenda. Other than that, it is purely political.

        I prefer to maintain my spiritual integrity. Lying is not acceptable. THAT is a cop-out.

    • John Fairplay

      Your post makes absolutely no sense, and I doubt you have ever been a public school teacher. Please cite links to your studies from credible researchers.

      Merit pay is not a “zero-sum” game where if one teacher gets merit pay, some other deserving teacher won’t. Furthermore, the idea that teachers will keep good ideas to themselves is pretty offensive and insulting to teachers. In addition, unless you assume that teachers will refuse to reveal their teaching methods to Administrators, their ideas are going to be passed along to other teachers – since Administrators do work on a merit system (nationally, actually) and are hardly going to agree to keep methods secret if it will improve their school’s performance.


        I see…well, let me talk reeallly slooowly for ya.

        Here is an article:
        The mid-1970s to the mid-1980s was the merit pay decade. It was during these years that a variety of plans developed in school districts across the nation. Merit pay was based on the assumption that rewarding teachers for excellent performance would provide incentives for improved student achievement scores. In Oregon, a number of school districts implemented merit pay programs. In the 1972-73 school year, 11 districts tried alternative pay plans. They were Amity, Bethel, Colton, Coos Bay, Forest Grove, Gresham Elementary, Josephine Co., Medford, Parkrose, Redmond, and Warrenton-Hammond. There were another 10 districts – Elkton, Gresham High, Hillsboro Elementary, Klamath Falls, Lake Oswego, Lincoln Co., North Clackamas, Oregon City, Reynolds, and Springfield – who planned alternative pay plans.

        Actual experience with merit pay plans indicated they were generally unsuccessful, both in Oregon and across the nation. Most merit pay plans were based on individual teacher performance which created competition among teachers. Everyone wanted the best students and the limited number of dollars available for bonuses. This practice actually undermined – and almost destroyed – the staff teamwork needed in schools. Teacher unions also complained that evaluations were subjective and not based on objective data. Most plans provided bonuses in addition to the current compensation program, creating financial difficulties when budgets were cut. Because programs were poorly designed and implemented, teachers, administrators and board members were frustrated and were less willing to continue.

        By the mid-1980s, most Oregon districts had stopped using merit pay plans and in 1987, the United States House of Representatives Committee on Education and Labor concluded:

        “Those who view merit pay as some fast, inexpensive, painless method of solving the nation’s education problems are not realistic. Merit pay is. . .neither inexpensive. . .nor easy to achieve. In some school districts, performance-based pay will result in an improved educational product, and an ability to attract and keep high-quality teachers; in other districts, for a variety of reasons, it may not work. The question the nation must face is not simply how to implement performance-based pay for educators but how we can lift the standards of instruction in the nation.”

        Today, even though there are still remnants of bonuses given to a few teachers every year, no district in Oregon uses a merit pay plan.

        Despite the failure of merit pay systems, the public still expects a connection between educational funding and student achievement. “How much Oregon teachers are paid, and how they are paid, is of increasing public interest, as the pressure to improve student performance bumps against limited public resources for schools” (Oregonian, 9/2/96).

        There are many studies that say the same thing, but you can do your own homework.

        And just so you know, my folks are educators and I am an educator. I know the system and I know the way these ideas are cyclic, returning every 20 years or so–even when they’re bad ones.

        As I said, incentive tied into overall success for a district or a school, that’s great. But competition among teachers is not the way to go. And it should be awarded as a bonus, not a punishment.

        Here’s an idea–let’s give the teacher power to hold back the knuckleheads who can’t do the work at their grade level–that will solve a lot of our education ills. Test scores will soar.

  • eagle eye

    I might be more enthusiastic about pay for performance or merit pay for teachers, if there were more evidence that it has positive results without detrimental negative results (such as those mentioned by non-Clueless Emma).

    The actual evidence, however, seems pretty weak to me. (Take a look at the evidence in the report written by Pozdena; it seems hedged or inconclusive.) Just as the evidence that school choice makes a big positive difference seems lacking. I keep looking for such positive effects, but reports of them are hard to come by. At least, every credible positive report seems to be matched by a credible negative report. I just don’t believe that school choice, merit pay, and other such incentive-based changes are going to make more than a marginal difference.

    Without evidence of a large positive effect, and without a specific plan for determining teacher “merit”, I am not going to be enthusiastic. I don’t think the rest of the public is either, certainly not enough to overcome the inertia and resistance of the entrenched system.

  • John Fairplay

    “Without evidence of a large positive effect”

    Wow, so a change that only helped a few thousand students who would otherwise fail isn’t enough for you, eh? This is, unfortunately, the Union position—it doesn’t matter if kids are hurt, as long as the Union is not. Shame on you.

    • eagle eye

      As I said, the evidence looks pretty inconclusive to me, what I’ve seen. You have something to show otherwise?

      Sorry, I’m not about to try to turn the world upside down unless there’s a definite, significant benefit.

      It will take more than this to sell me.

  • Anonymous

    “Teachers I know are dedicated professionals, working WAY overtime most days”

    Yeah, that’s why schools look like a ghost town ten minutes after school lets out

    “taking required graduate classes”

    Required only in the sense that if you take them you get a fat pay raise. It’s not like no other industry has continuing education requirements or no one else benefits from continuing education.

    “working a 2nd job most summers.”

    Yeah, right. The main reason most people get into teaching is t have summers off.

    “I have a Masters in Secondary Teaching. What do most professionals with an MA bring home, do you think?”

    Most MA’s require actual work. There’s a reason education colleges have been known as “dumb chick central” on university campuses for as long as there have been universities. I remember a former girlfriend taking a graduate elementary education class on nursery rhymes. The cirriculum was basically to read nursery rhymes. Tough going there.

    “Compare their salary to what I make with the hours per week I work”

    Name me one other field where an MA can earn $50k plus insane benefits (weekly equivalent to a $70k full time job) right out of the box. Most MA’s won’t earn a dime until they get a Phd and are busily practicing “Would you like fries with that.”


    “the hundreds of out-of-my-pocket expenses I incur”

    Unless you have a total loser service industry job like restaurant or retail you’re going to have career related expenses. Businesspeople have to buy suits, computer professionals have to pay for the software and computer equipment tey use at home to sharpen their work skills, Lawyers have to buy law books and the self employed have huge expenses.

    “do not think you can sit in your comfy, temperature-controlled offices and decide what is best for teachers”

    And there is the crux of the problem and the dead giveaway of where your sympathies lie. IT’S NOT ABOUT WHAT’S BEST FOR TEACHERS. IT’S ABOUT WHAT’S BEST FOR THE STUDENTS.

    The biggest problem with the teaching profession is that is filled with lazy whiners who are just punching a clock until they can take thier fat retirement.

    Now, before you giev me the “walk a mile in my shoes” canard, I am a teacher (although not currently teaching) from a very long line of teachers, so I now whereof I speak.

    • eagle eye

      Yes, you “now whereof you speak”. Obviously, if you were a teacher, which I don’t believe for a second, better that you dropped out.

      • Anonymous

        My students loved me and fellow staff branded me a “troublemaker.” I enjoyed teaching for twenty years and now I’m one of the happy well paid retirees!

        • eagle eye

          I don’t buy it. When you put out hogwash like this:

          ‘Name me one other field where an MA can earn $50k plus insane benefits (weekly equivalent to a $70k full time job) right out of the box. Most MA’s won’t earn a dime until they get a Phd and are busily practicing “Would you like fries with that.” ‘

          It’s obvious you don’t know what you’re talking about.

          If, somehow, you actually are a retired teacher, I’d say the schools are fortunate to have you gone. But I don’t believe a word of what you say.

    • UO loser

      “Anonymous” you are obviously filled with hatred and contempt for the teaching profession, just like our friend Jerry. Why should anyone in the teaching profession, or anyone in the 90 per cent of the public who appreciate teachers and schools?

      • Anonymous

        Hatred for administraton, contempt for most of the so-called teachers I worked with.


      How many schools do you walk through in the afternoon? Does it occur to you teachers are in meetings after school? No school allows teachers to leave 10 minutes after the kids leave. Most teachers stay much later than the hour we’re required to–not every day, but often. We also take a lot of work home and get to work early. To insinuate teachers don’t work reveals your lack of knowledge. It is your kids who refuse to do their work, disrupt class, bother others, and lie to both you and me–and you’re the type to allow them to get away with it, blaming the teacher for your shortcomings.

      Taking classes in addition to a MAT does not add much money to a paycheck, especially when paying out of pocket. But we are required to take so many credits over so much time, pay insane union and re-certification fees. Others may, yes, but teachers do NOT start out making 50k. That is laughable. Go ahead and compare salaries, hon. I’m waiting.

      I chose teaching for a few reasons, the most pressing one having been the schedule–I can be home for my kids when they’re out of school. I’m raising mine. They weren’t raised in daycare. I took a lower paying job knowing the benefits of being a mom are greater than making more money. I have friends easily making 100k without even a college degree. I am in debt to my eyeballs for a wage just above poverty. That’s fine, my choice. But do not tell me I don’t work or that I don’t earn my paycheck.

      If you bothered to read my entire entry, you’d know I refer to students being most important. But without strong teacher/student bonds and strong communication among teachers, students suffer.

      I think it’s obvious why those who think like you would be ostracized and hate teaching.

      • eagle eye

        Yes, if Anonymous was really a teacher — which I doubt — I’m glad for the sake of the students and the schools that he’s out.

        My sister started teaching recently (in a private school in another state). At first she was full of enthusiasm. But after a couple of months, she is working on Sundays, working at night, she has no time for her family, and is looking forward to not having Thanksgiving and Christmas dinners (because she has to work up to the nights before those holidays). I know that the Christmas part is unusual, but you get the picture.

        And she is ready to bail, when the year is finished, and will wait until then only because of the commitment she made.

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