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Why Merit Pay Will Improve Teaching

One of the most contentious issues in today’s school-reform discussion is merit pay, which involves compensating teachers not for their seniority and amount of ed-school credits, as public schools have done since the early 1920s, but for what they really accomplish in the classroom. Education reformers think that merit pay would promote effective teachers while discouraging poor ones, therefore improving underperforming public schools. However, most teacher unions are vehemently opposed to the notion. The unions argue that since we don’t have reliable ways to quantify a teacher’s classroom performance, reward programs would surely result in supervisor prejudice and favoritism: “Just too many cliques in the system,” one teacher routinely says in a recent poll.

Nowhere is the incentive discussion hotter than in New York City, where teacher contract talks have been stuck for months. Mayor Rudolph Giuliani has asked that any agreement include merit pay for individual teachers; the teachers’ union answer (thus far) has been: fuhgeddaboudit.

However, lessons from the private sector, where smart, efficient performance-based remuneration has been de rigueur since the 1980s—part and parcel, analysts argue, of corporate America’s massively successful reorganization, are missing from the argument. Experiments with complete merit-pay programs are also being pursued in a few creative school districts around the country—districts that face much less political opposition than Gotham.

Consider the advantages that merit pay has brought to American business over the past two decades to get a sense of what it may achieve for public schools. Prior to the 1980s, merit pay in the United States was quite straightforward: the boss handed you a big bonus if you (or your unit) fulfilled sales or production targets. However, when foreign economic rivalry battered them in the early 1980s, American firms, anxious to reclaim their competitiveness, started to experiment with assessing individual worker performance. They are introducing financial incentives to increase performance in previously difficult-to-measure output categories and traditionally intangible areas like as customer service or product quality. Of course, the bottom line remained the bottom line, but firms now reasoned that these intangibles contributed to the firm’s long-term economic health, even if they didn’t show up immediately in the quarterly figures.

The new performance criteria—and the multifaceted reward systems based around them—were stunningly novel at the time. Retailers employed “mystery” shoppers to observe how personnel behaved customers and based pay in part on what they discovered. Businesses included “integrity” terms in sales contracts that measured not just how many widgets an employee sold, but also how long customers stayed with him. Banks rewarded loan officers not just for the loans they originated, but also for the long-term quality of their loan portfolios. Some car dealerships based a portion of salespeople’s income on how consumers assessed them in follow-up questionnaires. Companies mixed personalized incentives with rewards for everyone if the whole company performed successfully. Airlines, for example, offered incentives to the whole crew if the fleet’s on-time record increased.

Workers reacted predictably when American companies first introduced these innovations, particularly in heavily unionized industries like auto manufacturing, where any change threatened comfortable labor arrangements. “They said you couldn’t measure some things, that pay systems were too subjective, that supervisors were too subjective—in short, everything that teachers today are saying,” Alan Johnson, a compensation consultant in New York, observes. Many projects failed at initially, and firms were forced to abandon or revamp them. It became evident that developing successful programs would not be a quick remedy. “Even with what we know today, it takes three years to launch a good incentive-pay program,” warns Martha Glantz, a compensation specialist with Buck Consultants in Manhattan. “You may spend the first year just determining the company’s objectives and missions and gathering data.”

But, forced to evolve or die, American businesses surged forward, attracting people who enjoyed the challenge of incentive pay and building effective compensation schemes via trial and error. By the mid-1990s, similar incentives were being implemented by 50% of all big American firms. “It is no longer plausible to claim that you cannot measure anything or that the only thing you can measure is a basic output,” Johnson argues. Most observers think that merit pay played a critical part in achieving the skyrocketing productivity increases and higher product quality that American enterprises started recording in the late 1980s and that have been crucial to the country’s economic growth ever since.

The public education monopoly has long rejected merit pay with the same zeal that private-sector employees did at initially. Opponents have often cited unsuccessful earlier efforts, despite the fact that their only examples are two trials from more than a century ago and one from the 1960s, before current conceptions of performance pay evolved. Educators have long assumed that any effort to define precisely what constitutes successful teaching, much alone assess and appropriately reward it, would fail. “There was a broad idea that you were either great as a teacher or you weren’t, and that excellent teaching couldn’t be defined,” says Charlotte Danielson, a teaching specialist with the Educational Testing Service in New Jersey. As a last-ditch defense, some educators argued that factors outside of school, particularly a student’s socioeconomic and family situation, had a much greater impact on student performance than teachers did, and that using merit pay based on student performance to promote good teaching, even if it could be defined, was therefore unjust. The unasked question was why teachers should ever be paid more if what they do is meaningless.

Over the past decade, these ideas have completely disintegrated, undercutting the logical basis for merit pay, which was already weak. William Sanders, a statistician at the University of Tennessee, was a pivotal role in determining how to assess a teacher’s impact on student achievement. Sanders employed advanced statistical techniques to monitor students’ development against themselves over the course of a school year and quantify how much “value” various instructors provided, rather than attempting to filter out the numerous sociocultural impacts on children, a practically impossible process. Sanders’ technique, now known as the Tennessee Value-Added Assessment System, confirmed what every parent already knew: teachers mattered, and some were much superior than others. Other education specialists, like as Danielson, author of numerous successful books on pedagogy, devised generally recognized criteria for judging excellent teaching, putting an end to the ridiculous concept that it was too difficult to describe.

However, although the 1990s helped re-establish the importance of teaching in the education discussion, that success did not dispel teachers’ unions’ political hostility to merit pay. Nonetheless, under great pressure from parents, legislators, and administrators to improve student performance, a small number of school districts around the nation have resorted to merit pay to encourage better teaching. They’ve also managed to get the teachers’ unions on board after some back-and-forth.

Cincinnati’s public school system, the first to experiment with performance incentives, got its teachers’ union to do a merit pay trial run in 1997. A ten-school pilot program created by administrators and teachers was launched two years later. The pilot’s intended use of peers to assess instructors was critical to union approval. “Peer assessors, who have no interest in how teachers are rated, are vital to the sense of the system’s fairness,” says Kathleen Ware, assistant superintendent of schools in Cincinnati. Using Danielson’s criteria for successful teaching, which include class preparation and presentation clarity, the administrators and peer assessors spent 20 to 30 hours examining every instructor in the 10 schools selected. Instructors were placed in one of five compensation groups based on their performance, with “novice” teachers earning the least and “accomplished” teachers earning the most.

The pilot was a success. The majority of teachers involved thought it was fair and that the standards used were appropriate for the entire school district. The city’s board of education approved it in the spring of 2000, and union members voted in favor of it in a subsequent election. Teachers will be evaluated every five years, although those who want to advance fast may seek an assessment after just two years. This year, new teachers and one-fifth of all experienced teachers will be evaluated, but no one will be paid under the new system until 2002.

Unfortunately, the new program in Cincinnati does not directly use student test scores in its evaluations. According to school superintendent Steven Adamowski, bringing in scores would have resulted in too much union hostility for the plan to be accepted. And, in all likelihood, tying pay solely to test scores is a bad idea; no one would consider a teacher meritorious if he raised test scores but left his students psychological wrecks as a result of his bullying. However, excluding tests entirely makes no sense. After all, what better way to determine how well students are doing—the primary reason for concern about teaching quality in the first place—than test scores? The University of Cincinnati’s program recognizes this implicitly. The district will keep track of the test results of students whose teachers have received the highest ratings. If those students do not improve significantly, school officials will raise the program’s standards. Furthermore, the district will use student tests to award bonuses to all teachers in a school where students make significant progress.

One major advantage of meritocracies is that they allow schools to pay higher salaries to teachers, particularly young and ambitious teachers. That is the overarching rationale behind Iowa’s new incentives program, which was enacted by the state legislature to keep top teachers from fleeing to higher-paying neighboring states. The state has set aside $40 million for salary increases, but in a program similar to Cincinnati’s, Iowa will now thoroughly evaluate teachers to ensure that the extra cash goes only to the best classroom performers, not the losers. “We believe that by re-professionalizing teaching, we will be able to retain the best people,” says John Forsyth, CEO of Des Moines-based Wellmark Blue Cross and Blue Shield. Forsyth assisted the state in developing the new system, drawing inspiration from the market. “We know that good teachers make a difference,” he continues, “and we’re going to pay those who do.” How much more reasonable this is than the New York teachers’ union’s claim that, because a few city teachers leave for higher-paying suburban schools each year, all teachers—good and bad alike—need equal raises to keep them.

Good teachers in Iowa’s new system will be able to reach higher salary levels much earlier in their careers than before. “Private pay consultants who examined our old seniority system concluded that it had to have been designed specifically to keep teacher pay low and save school districts money,” says Ted Stilwill, director of Iowa’s Department of Education. “Under that system, the only way for teachers to get paid more was to stick it out for years.” Because of union opposition, Iowa will not rely on test scores to evaluate teachers—at least not directly. However, in addition to paying teachers based on performance evaluations, the state will provide modest yearly bonuses to all teachers in a school whose students perform well on standardized tests, with the largest bonuses going to the school’s best instructors, rather than all teachers receiving equal rewards.

Working on Iowa’s plan has been eye-opening for the state’s education chief. “I learned from private-sector compensation experts that businesses use pay to get everyone to follow common goals,” Stilwill says. “I never understood that because I spent most of my life in the public sector.”

While Cincinnati and Iowa have avoided the issue of using student test scores, Denver is facing it head on. The city has launched two pilot programs that directly link pay to performance. One pilot program relies on student performance on standardized tests of fundamental skills, while another relies on performance in specific subjects. Principals and teachers agree at the start of the school year on what kinds of test score improvements they’ll aim for, and then they’re evaluated at the end of the year to see if they’ve met their targets. Denver is also launching a third merit-pay pilot program, which will train teachers in the principles of good teaching before evaluating and rewarding them based on their performance. Denver will later assess how their students perform on tests to determine whether their criteria for good teaching produce results. Denver hopes to learn what motivates teachers and what works best for students through these experiments.

Surprisingly, Denver’s teachers’ union has made significant contributions to the development of the pilots; Brad Jupp, the project’s design team leader, is a union negotiator. He claims that the union is participating because there is such a strong desire to make schools more accountable that teachers would rather help create performance systems than have them imposed from on high. “If you believe your union members are doing a good job — and we do — you want a system that accurately measures that,” Jupp says.

Private-sector experience suggests that it will take several years for these innovative programs to work out all of their kinks. Meanwhile, the new programs will be dogged by controversy. Critics will point to every blunder as proof that paying teachers for performance is a bad idea. In order to deflect criticism without giving up too much, unions are likely to push for watered-down plans.

This is exactly what is going on in New York. The teachers’ union has proposed a compromise to the mayor: pay a bonus to every teacher in a school or district if test scores improve. A trial run of such a system is currently underway in two urban districts, with the support of Gotham’s business community; other states, including California and Georgia, already have school-based bonuses.

However, compensation experts believe that group bonuses will never be an adequate substitute for true performance pay because they do not differentiate between good and bad teachers. They are only likely to irritate excellent teachers working in schools with mediocre staffs. “If you have four workers doing well in a unit that is not otherwise performing, those four will eventually leave the company and go somewhere where they can be rewarded for their superior work,” consultant Glantz says. And, because schoolwide bonuses do not put any pay at risk—poor performance does not result in less money—they will not help schools get rid of bad teachers. Teachers who perform poorly in, say, Cincinnati, are now relegated to the lowest salary level, discouraging them from staying. Mayor Giuliani has correctly rejected the union’s offer.

Smaller cities, like Cincinnati, are, of course, far removed from the we-don’t-do-windows union obstructionism of New York or Los Angeles. For the past 15 years, Cincinnati’s teachers’ union has accepted some form of peer evaluation of teachers; it is easily one of the most flexible teachers’ unions in the country. In contrast, unions in New York and Los Angeles have fought almost every education reform tooth and nail. Last year, thousands of teachers in Los Angeles violently protested a proposed merit-pay plan, eventually killing it. Furthermore, there is nothing comparable to the outside economic pressure that forced American industry to develop merit programs in the current public school monopoly—yet another argument for school choice.

Without individualized merit pay, teacher evaluations will be at best ineffective. In New York City, principals fail less than 1% of all teachers in annual evaluations. New York hopes to encourage principals to crack down on poor teaching by financially rewarding them when their schools perform well. One of the main objections to teacher merit pay is that it leads to supervisor favoritism: even if a principal despises an effective teacher, he won’t want to lose someone who is helping him increase his own pay. However, until teachers are included in any performance-pay system, the impact of such innovations will be severely limited—and students will continue to be underserved, regardless of how much their teachers earn.


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