Association for Public Policy Analysis & Management

Prior research establishes that teacher quality is the strongest school-related predictor of student achievement (Rivkin, Hanushek & Kain, 2005; Clotfleter, Ladd & Vigdor, 2007) and suggests that financial incentives may yield changes in the composition of the workforce that lead to an overall improvement in teacher effectiveness (Fulbeck, 2014; Glazerman & Seifullah, 2012; Lazear, 2003). In addition, there is evidence that performance-based financial incentives may cause teachers to increase their effectiveness, as demonstrated in the recent study of teacher evaluation and compensation practices in Washington D.C.’s IMPACT system (Dee & Wyckoff, 2013). Finally, if highly effective teachers working in the toughest circumstances are differentially rewarded, this may serve to offset some of the less desirable working conditions and improve retention in the schools most in need of high-quality teachers (Ballou & Podgursky, 1997; Stinebrickner, 1998).

This evidence influenced the ground-breaking and controversial Newark Public Schools (NPS) teacher contract, ratified in 2012 with the aim to attract, build and reward effective teachers. Fundamental to this contract is a link between annual teaching evaluations and teacher compensation. Specifically, only teachers rated effective or highly effective advance to a new step on the salary scale, while those rated ineffective are put on probation and can be asked to leave NPS. In addition, teachers can receive bonuses for earning a highly effective rating ($5,000). Highly effective teachers who work in one of the district’s lowest-performing schools are eligible for an additional bonus ($5,000), as are those who teach in a hard-to-staff subject area ($2,500). In total, a highly effective teacher has the potential to earn an additional $12,500 in annual performance bonuses, on top of their base salary.

This paper examines the impact of performance pay on teacher retention and the overall quality of the NPS teacher workforce. First, the paper provides descriptive evidence on the change in teacher retention associated with NPS performance pay, by estimating linear probability models of the change in the proportion of teachers who leave the district (and who switch schools but remain in the district) after implementation (Boyd et al., 2008). Second, the paper uses a regression discontinuity estimator to compare average change in teacher effectiveness among teachers whose 2013-14 evaluation rating placed them near the rating cutoff, which provides a discontinuous change in monetary incentives (Dee and Wycoff, 2013). Differences in student, school, and teacher characteristics are included in all models.

 Results from this study will inform the expansion of similar policies and the debate around the impact of these policies on individual teacher effectiveness and the composition of the teacher workforce. As of September 2013, 27 states plus the District of Columbia (DCPS) use teacher effectiveness results as grounds for performance-related dismissal, while 40 states and DCPS had passed legislation requiring that objective measures of student achievement and growth be incorporated into teacher evaluation (RAND, 2014). Almost all states and districts are looking for guidance about how to use measures of teaching effectiveness to manage their teaching workforce.