Credentials Versus Performance: Review of the Teacher Performance Pay Research

In this article we examine the economic case for merit or performance-based pay for K?12 teachers. We review several areas of germane research. The direct evaluation literature on these incentive plans is slender; highly diverse in terms of methodology, targeted populations, and programs evaluated; and primarily focused on short-run motivational effects. It is nonetheless fairly consistent in finding positive program effects. The general personnel literature highlights potentially significant selection effects of employee compensation systems. This is particularly relevant for teaching, because a growing body of production function research points to large, persistent, but idiosyncratic differences in teacher productivity. Thus, along with motivation effects, there is potential for substantial positive long run selection effects from teacher performance pay systems. The evaluation literature is not sufficiently robust to prescribe how systems should be designed (e.g., optimal size of bonuses, mix of individual vs. group incentives). However, it is sufficiently positive to support much more extensive field trials, pilot programs, and policy experiments, combined with careful follow-up evaluation.