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Properly designed, merit pay for teachers will pay off for students

Appeared in Business in Vancouver
Authors:
Release Date: January 31, 2011
It’s a safe bet to assume that all British Columbians want children to acquire the skills and knowledge needed to build a happy and productive life. In order to ensure that opportunity for all, our public schools should seriously consider any innovation that holds out the promise of improved education for our kids.

When it comes to teacher pay, one might expect a compensation package that pays a premium for effective teaching, and encourages less successful teachers to improve their skills, would be one tool in the improvement toolbox.

Unfortunately, that is not currently the case in British Columbia’s public schools. Teacher compensation in our public schools is governed by a collective agreement with teacher unions that does not recognize effectiveness in its pay schedule.

Generally, British Columbian teachers can earn a pay increase in only two ways: experience and additional education credentials. They all get an annual increase upon completing each of their first ten years of service. The only other way to get a boost is to get a post-graduate degree.

Add to this the fact that under the same collective agreement, it is near impossible to penalize a failing teacher and you have a compensation system that contributes little to the improvement our children’s future.

As such, some system of merit pay is certainly worth considering.

Broadly speaking, the concept of merit pay includes any compensation system that rewards the employee for the achievement of specific results. Such systems are common in both the public and the private sectors. Sales commissions, bonuses for established levels of superior performance, piece work, team incentives, and pay raises based on past success are all common systems of merit pay.

But do merit pay systems actually work in education?  Fortunately, there is solid evidence that properly designed merit pay systems can have positive effects. One recent study by University of Chicago economic professor Derek Neal entitled The Design of Performance Pay in Education reviews the scholarly literature on performance pay systems and their effects and finds “strong suggestive evidence that total teacher effort [rises] following the introduction of performance pay.” There are of course exceptions, most notably bonus systems in England and Portugal that “relied on subjective assessments made by either education officials or peer teachers.”

Another recent study by Economics Professor Victor Lacy published in the prestigious American Economic Review presents evidence on the effect of monetary incentives for English and math teachers in Israel.

Professor Lacy found that “The incentives led to significant improvements in test taking rates, conditional pass rates, and mean test scores. Improvements were mediated through changes in teaching methods, enhanced after-school teaching, and increased responsiveness to students' needs.”

Of course, not all merit pay systems are designed equal. In an earlier study, Professor Lacy offers guidelines for designing effective merit pay systems. He highlights among many other criteria that the system must align performance with outcomes and must be monitored closely to discourage gaming by teachers. Professor Lacy concludes that “many of the practical challenges faced by performance-related pay can be addressed through careful design of the system.”

The BC Teachers Union will almost certainly trot out predictable objections to any merit pay proposals. But identifying possible objections to merit pay is helpful; it informs better design, implementation, and operation of a merit pay system. It certainly doesn’t mean that a potentially valuable innovation should be shelved out of hand.

Indeed, we owe it to our kids to ensure that every aspect of our education system is aligned with the over-riding goal of increased learning. Since current compensation does not contribute to achieving of this goal, we ought to look for ways to fix it. Merit pay deserves a long hard look.


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