Student Achievement

Does Performance-Based Teacher Pay Work? Here’s What the Research Says

By Matthew Stone & Caitlynn Peetz — June 12, 2023 10 min read
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The new state-appointed superintendent for Houston schools is eyeing a new approach to teacher pay that’s intended to help get the district in Texas’ largest city back on track.

In March, Texas education officials announced plans to replace the board and superintendent of the 200,000-student Houston district, giving the state control over one of the country’s largest school systems.

Mike Miles, the former superintendent in Dallas, was appointed to the Houston district’s top spot, and has already begun detailing plans for more than two dozen of what he has called the district’s “underperforming” schools. Among the reforms he intends for the entire district is an overhauled compensation system for educators.

The proposal is similar to what Miles implemented while leading Dallas schools from 2012 to 2015, and before that in a Colorado Springs district: Rather than a salary structure tied to teachers’ education level and years of experience, pay is based, in part, on students’ academic performance.

Miles—and some academic researchers—believes the system more accurately measures teachers’ effectiveness and rewards those who best serve students, while also monitoring those who may need more coaching and professional development.

The idea of basing teachers’ pay in part on student achievement has been controversial for years, and interest in the method has been on the wane more recently. But the push for a performance-pay overhaul in one of the country’s 10 largest districts offers a test for lessons learned from decades of different experiments with the model.

While research on earlier performance-pay programs found little effect on student achievement, more recent research has told a different story as the incentive programs have evolved. Researchers have found that programs that incorporate professional development and focus on more than just standardized test scores have shown a greater impact.

“I’d say there’s not much evidence that performance pay makes individual teachers more effective, meaning teachers don’t seem to work harder or work better when given performance pay or additional pay,” said Heather Peske, president of the National Council on Teacher Quality. “But studies have shown that, overall, performance pay increases the overall quality of the teacher workforce by recruiting and retaining the most effective teachers.”

Incentive-pay programs can work as an effective tool in recruitment and retention—but only when the pay amounts are large enough, she said.

“We need to pay all teachers like professionals, and we need to pay teachers more for working where we need them the most, particularly when we want to attract the most effective teachers to the students who need them the most,” Peske said. “So, performance pay or differentiated pay is one mechanism to be able to do that.”

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How has performance pay worked in Dallas?

Miles has not thoroughly detailed his plan for teachers’ pay, but has said it is similar to the structure in Dallas. Under that city’s program, the traditional salary scale was replaced with one that rates educators based on student achievement, supervisor observations, and student or family feedback. The aggregate scores are used to place educators into rating categories, which determine their salary. School performance averages are taken into account, and district-level assessments assess outcomes in subjects and grades without a state standardized test.

The teacher’s salary is based on the average evaluation points in the past two years, and teachers aren’t dropped to a lower salary unless they’ve had lower ratings for three consecutive years.

“We can’t fix one school—we have to fix the system,” Miles said in a statement on June 1.

Houston has been implementing another performance pay initiative, called the Teacher Incentive Allotment, that awards bonuses to highly rated teachers. The Houston Federation of Teachers has opposed that plan, and Miles said he would put it on hold, according to the Houston Chronicle.

“Performance pay demeans students and undermines teachers, so if the focus is on pay for performance, you’re incentivizing the test-and-punishment model,” Jackie Anderson, the federation’s president, told the Chronicle.

Research analyzing the Dallas program found it was effective in improving student achievement in math and reading. And it’s likely the magnitude of the changes that made the program successful, the researchers concluded. In past attempts to introduce incentive pay across the country, the efforts were smaller-scale and had less significant effects, they said.

In Dallas, a low rating did not trigger a teacher’s dismissal, but the researchers found that a lower salary associated with a lower rating increased the probability of a teacher leaving the district on their own.

Why was there a performance-pay surge in the 2000s?

The federal government has awarded more than $2.5 billion to dozens of school districts since 2006 to design and implement performance pay tied to students’ academic performance, largely through a voluntary program, the Teacher Incentive Fund.

Democratic President Barack Obama’s administration supercharged the push by boosting funding for the Teacher Incentive Fund and tying competitive awards from the $4.35 billion Race to the Top fund to states and school districts’ adoption of policies that paved the way for merit pay. The administration also granted states waivers from many of the requirements of the federal No Child Left Behind Act if they, in part, agreed to design teacher evaluations based in part on student performance.

But while a handful of Republican leaders this year have championed performance pay initiatives—in Arkansas, for example, a $10 million-per-year Merit Teacher Incentive Fund was a small part of Gov. Sarah Huckabee Sanders’ major education package—the push for such policies has largely died down.

That slow-down has largely happened since the Every Student Succeeds Act passed in 2015—replacing NCLB as the primary federal education law—without any requirement that states overhaul their teacher evaluation systems.

Why did earlier research show little effect from merit pay?

A wave of research on earlier performance-pay programs found the initiative had little effect on student performance.

For example, a program in Nashville, Tenn., called POINT awarded bonuses of up to $15,000 to middle school math teachers whose students showed significant improvement on standardized tests. But despite the awards being sizable and attainable, a 2010 Vanderbilt University study on the program found it had little effect.

Students’ standardized test performance improved overall during the study period, 2006-2009, but there was little difference in gains between students whose teachers were eligible for the bonuses and those with teachers who weren’t. Teachers eligible for the bonuses reported few differences from colleagues in their attitudes, practices, and professional development.

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Team-based pay programs begun around the same time showed a similar lack of results. Researchers from Vanderbilt and the RAND Corporation found virtually no effect from a program in the Round Rock Independent School District near Austin, Texas, that awarded bonuses of $3,800 to $5,500 to multidisciplinary teams of middle school teachers assigned to a common group of students.

Their study, conducted in 2008 and published in 2012, found no significant difference in standardized test scores between students whose teachers were eligible for the bonuses and those whose teachers weren’t eligible. As in Nashville, the teachers who were eligible for the bonuses reported no significant difference in their attitudes or practices.

Why were later merit-pay programs more effective?

In 2010, more than 130 districts across the county received Teacher Incentive Fund awards to design performance-pay programs in line with four required components, including instituting evaluations that took classroom observations into account along with student achievement gains, and providing related professional development.

Mathematica Policy Research, which evaluated the results in 10 districts after four years, found that schools where teachers were eligible for bonuses improved in both reading and math, though gains were greater in reading. The gains translated into three to four weeks of additional learning.

Bonuses averaged $2,000, but the maximum bonus in the fourth year of the program was more than $9,000. Seventy percent of participating teachers earned bonuses, Education Week reported in 2017, when Mathematica’s evaluation was released.

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But Mathematica also found that only half of the 10 districts implemented all four required components of the TIF program, and the initiative seemed unlikely to last in many places beyond the grant period. Fewer than half of the participating districts said they planned to continue the initiative after their federal grants ended.

The Teacher Incentive Fund was largely “viewed as a failure,” Peske said, mostly because it wasn’t implemented well. Teachers often didn’t understand what they were being evaluated on, or why they received extra pay at all, she said.

“Schools would roll this out, but not communicate it well, so teachers had no understanding of what specifically they were being measured on, or why they were receiving additional pay, or how it was even calculated to give them additional pay,” she said.

What are the characteristics of effective performance-pay programs?

A 2021 analysis of nearly 40 studies examining performance-pay programs found a significant overall effect of merit pay on student performance, measured in standardized test scores.

The authors—from Vanderbilt, the University of North Carolina at Chapel Hill, and Kansas State University—found the greatest effect from merit-pay programs that included professional development and had sizable incentives. They also found more significant effects at the elementary level as well as from programs that lasted only a year or two.

Their analysis, published in the American Educational Research Journal, also concluded that programs that based teachers’ pay bumps on multiple measures of teacher effectiveness produced larger effects and avoided an overemphasis on test scores.

Between 2007 and 2012, more than 90 South Carolina schools used Teacher Incentive Fund grants to implement the Teacher Advancement Program, a merit-pay model that incorporated those characteristics. In a working paper published earlier this year, three researchers found benefits for students in those schools that stretched beyond immediate increases in standardized test scores.

Students from Teacher Advancement Program schools were more likely than peers in similar schools without performance pay to complete high school, less likely to be arrested on a felony charge, and less likely to rely on welfare programs in early adulthood.

How does performance pay affect teacher turnover?

Merit-pay programs’ effects on teacher turnover have been less clear cut. The 2021 analysis found a number of studies that found improved teacher recruitment and retention once merit pay was implemented, and other studies that found no effects.

The research in Dallas earlier this year found that teacher turnover increased following implementation of the Teacher Excellence Initiative, but that lower-performing teachers were more likely to leave.

A 2021 district-commissioned study of the District of Columbia’s long-running performance-pay system found that teacher retention improved after the 2009 implementation of IMPACT.

Teachers rated less effective were more likely to leave (those with the lowest ratings face dismissal), and their replacements boosted student achievement, according to the study, which also found that white teachers on average received higher scores on their evaluations than Black and Hispanic colleagues.

Another large initiative aimed at overhauling teacher evaluations that began around the same time had different results.

In a handful of large districts and charter school networks that received more than $200 million from the Bill and Melinda Gates Foundation to overhaul their teacher-evaluation systems starting in 2009, the six years of changes—which included incorporating student achievement into teachers’ evaluations and implementing merit pay—did little to boost retention of high-performing teachers, according to a 2018 study of the initiative by the RAND Corporation and the American Institutes for Research. But they did increase the likelihood of lower-rated teachers leaving.

The evaluation initiative also had little effect on student achievement, according to the research.

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