Achievement effects of individual performance incentives in a teacher merit pay tournament

Abstract

This paper estimates the effect of the individual incentives teachers face in a teacher-based value-added merit pay tournament on student achievement. We first build an illustrative model in which teachers use proximity to an award threshold to update their information about their own ability, which informs their expected marginal return to effort. The model predicts that those who are closer to an award cutoff in a given year will increase effort and thus will have higher achievement gains in the subsequent year. However, if value-added scores are too noisy, teachers will not respond. Using administrative teacherstudent linked data, we test this prediction employing a method akin to the bunching estimator of Saez (2010). Specifically, we examine whether teachers who are proximal to a cutoff in one year exhibit excess gains in test score growth in the next year. Our results show consistent evidence that teachers do not respond to the incentives they face under this program. In line with our model, we argue that a likely reason for the lack of responsiveness is that the value-added measures used to determine awards were too noisy to provide informative feedback about one's ability. This highlights the importance of value-added precision in the design of incentive pay systems.

Teacher Incentives and Student Achievement: Evidence from an Advancement Program

“…Moreover, if there are complementarities among teachers and gains to cooperation, group-based incentives may be more effective than individual incentives (Jackson & Bruegmann, 2009). Brehm et al (2017) also point out challenges in individual incentive schemes using value-added scores. Specifically, the high degree of noise inherent in the individual value-added measures not only reduces teachers' ability to respond to incentives optimally but also limits meaningful feedback to teachers.…”

“…Brehm et al. () also point out challenges in individual incentive schemes using value‐added scores. Specifically, the high degree of noise inherent in the individual value‐added measures not only reduces teachers’ ability to respond to incentives optimally but also limits meaningful feedback to teachers.…”

“…11 Before continuing, several comments regarding the performance pay system in Louisiana TAP are warranted. First, there is still no clear consensus on how to design optimal teacher incentives when the objective is to improve student achievement (see, for example, Brehm et al, 2017;Fryer et al, 2012;Goodman & Turner, 2013;Muralidharan & Sundararaman, 2011). It is conceivable to argue that individual incentives dominate group-based incentives as the latter is diluted by the potential free riding (Holmstrom, 1982).…”

“…The existence of a feedback mechanism may allow teachers to update their beliefs and may help them alter and improve their teaching practices. Note that the lack of meaningful feedback due to the complex nature of value-added scores is viewed as one potential explanation of why many pay schemes fail to improve student achievement (Brehm et al, 2017;Fryer, 2013). TAP, in this respect, also differs from many existing teacher incentive schemes.…”

“…The existence of a feedback mechanism following each evaluation of teaching practices may allow teachers to update their beliefs and may help them alter their teaching practices. The complex nature of value-added scores along with a lack of any meaningful feedback are considered among the reasons why teacher incentives fail (Brehm et al, 2017;Fryer, 2013). Finally, incentives in Louisiana TAP schools are not weak (reaching 12.5 percent of a beginning teacher's base salary) and the structure of the bonus pay includes both absolute targets and rank-order tournament and does not necessarily imply egalitarian distributions.…”