Research: teacher pay-for-performance program in North Carolina has contributed to improvements

From the American Enterprise for Public Policy Research

Making Teacher Incentives Work: Lessons from North Carolina’s Teacher Bonus Program By Thomas Ahn and Jacob L. Vigdor

Thomas Ahn is an assistant professor of economics at the University of Kentucky. Jacob L. Vigdor is a professor of public policy and economics at Duke University.


North Carolina has operated one of the country’s largest pay-for-performance teacher-bonus programs since the late 1990s. New research shows that a North Carolina–style incentive-pay program has the potential to improve student learning by encouraging teachers to exert more effort on the job. The North Carolina model avoids three pitfalls associated with implementing individual-level pay-for-performance plans: the problem of grades and subjects without standardized tests, the problem of teachers fighting for the best students, and statistical noise in test scores. The program also enjoys broad political support, including from the state teachers union. Education reformers worldwide should understand how performance pay can improve student learning.

Key points:

-North Carolina teachers receive pay supplements of up to $1,500 when the standardized test performance of all students in their school improves by more than a predetermined amount.
-The bonus program leads teachers to exert more effort on the job: the average teacher took 0.6 fewer sick days, and standardized test scores rose by about 1.3 percent of a standard deviation in reading and 0.9 percent in math.
-Results indicate that individual-level incentives would actually have a weaker effect than school-level ones. Many teachers would qualify for individual-level bonuses without trying, and others would not qualify no matter how hard they tried.
-Teacher incentives are cost-effective. Compared with other popular education reforms, such as reduced class sizes, incentives provide more than four times the amount of student improvement per dollar spent.

The economic rationale for offering teachers incentives is strong, but efforts to implement pay-for-performance plans have often foundered on the details. Pay-for-performance is hard to apply to teachers in untested grades or subjects. Individual-level schemes threaten to introduce wasteful competition among teachers for the best students. And concerns about the statistical reliability of test scores implies that education authorities might have to wait years before rewarding deserving teachers, dismissing ineffective ones, or devoting attention to those who could excel with a little bit of help.

The headlong rush to individual-level incentive schemes has occurred under the presumption that free-rider effects would hobble school-level incentives. Since the average test score at the school is largely out of the control of individual teachers, the argument goes, the bonus does not serve as a strong incentive. In fact, the cost effectiveness of a well-designed, group-level incentive can be significantly better than an equivalently constructed individual-level one. Moving to individual incentives increases each teacher’s distance from the bar, introducing a tortoise-and-hare effect more severe than the free-rider effect.

This analysis also verifies a point that should fall within the realm of common sense, but bears repeating here: incentives do not accomplish anything if they are impossible to obtain, or if they are impossible not to obtain. The power of incentives arises in scenarios when individuals realize that something of value is at stake. There will always be pressure to water down incentive schemes to the point where they serve as nothing more than a guaranteed pay raise. Those who wish to implement pay-for-performance must be prepared to resist this pressure.

North Carolina’s experience verifies that teacher incentives can improve student performance, even in the presence of the dreaded free-rider effect. If the policy argument comes down to a choice between a consensus on school-level incentives and a protracted fight over individual-level incentives, proponents of pay-for-performance should save their ammunition for other battles.

To see the entire report, click below.

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