Fundamentals of Human Resource Management 5th Edition by Raymond Noe, John Hollenbeck, Barry Gerhart, Patrick Wright

Exercise 16

Where Merit Pay Has a Failing Grade
In recent years, communities looking to improve the quality of education in public schools have sought to motivate better teaching with performance-related pay. To supplement the past practice of giving teachers raises linked mainly to work experience and education levels, some districts have introduced various forms of merit pay.
Some of those efforts, however, have been a disappointment. New York City conducted an experiment in which participating teachers at "high-needs schools" were eligible to earn up to $3,000 for meeting a set of performance targets. However, at the end of three years, students' test scores, the schools' annual yearly progress, and the teachers' attitudes and instructional practices were no better at the schools selected to be eligible for bonuses than at schools not eligible. Similarly, a university-sponsored program in Nashville offered middle-school math teachers bonuses up to $15,000 if their students made exceptional progress on standardized math tests. There, too, students of the teachers who were eligible for the bonuses did not perform better than students of the teachers without the incentive. Worse, in Atlanta, bonuses paid for high test scores were blamed as an incentive for teachers and administers to cheat.
Why didn't the performance-based pay spur higher performance? One possibility is that teachers don't know how to teach more effectively or lack resources they need to use more effective teaching methods. They might need mentoring more than a pay incentive. Another possibility is that teachers are already under a lot of pressure to demonstrate adequate yearly progress on test scores, so a pay incentive is not going to further motivate them. Or perhaps people who choose a teaching career are motivated less by money and more by something else. Teachers also may not believe that their behavior is what will improve student performance the most. In the Nashville experiment with merit pay, the teachers rated themselves as effective, and they reported making no changes in their teaching methods to earn the bonus.
Recently, Chicago announced it would try merit pay to improve teaching. The Chicago school system hopes to improve on earlier efforts by directing the payments to principals and by providing them with training aimed at helping them meet the performance standards.
What changes would you suggest for incentive pay for teachers and/or principals?