The other day I left a working session with a client where we were tackling the question of whether and how their team members should be compensated based on performance. Inevitably, it was a challenging and values-laden conversation. Performance-based compensation is an approach where some or all monetary compensation is related to how employee performance is assessed relative to stated criteria. This model is intriguing enough that it comes up in virtually every compensation or performance management project I’ve ever been involved in.
What does research tell us so far about compensation approaches? Most teacher compensation systems, in an attempt to be fair, base rewards off of years of experience and educational attainment using a “step and lanes” system. Yet, research shows that advanced degrees have little effect on student academic success except in the areas of math. And while teachers’ increasing experience in the early years leads to greater student achievement, there is limited evidence that teachers continue improving after five years on the job. With recent attempts at less-traditional approaches involving performance-based compensation, we have learned a great deal about how compensation can help retain our most effective teachers and therefore improve student achievement. Yet the “perfect” organizational compensation plan remains elusive.
Why is there still no playbook we can all follow around performance-based compensation? Because every compensation decision is about tradeoffs, which means there are winners and losers. I have yet to meet an administrator who wants to pay their educators less, yet there is a literal fixed pie that goes into school budgeting decisions, and educator compensation is by far the biggest piece of that limited pie. While we might want a world where we can keep everyone’s pay at least as good as it is now and provide incentives for our strongest teachers to stay in the classroom, that extra money has to come from somewhere (and hopefully a funding source that won’t be gone in a couple of years).
So let’s look deeper at some of the tradeoffs that apply to three different types of performance-based compensation:
1. Stick with a traditional “step and lanes” system, but teachers only move up a step if they meet a minimum specified level of performance
What is this? This is the simplest variation from the traditional experienced-based step schedule we often see in education, and therefore the one most likely implemented in larger districts or those just testing the waters. Truly low-performing teachers stop seeing automatic increases every year. In systems with early teacher tenure — where administrators may otherwise find themselves with low-performing, high-seniority teachers making far more than newer highly effective teachers — limiting increases to those meeting a specified performance level can mitigate limited resources going to low-performing teachers.
Who are the potential winners? The freed-up budget can then go to things that might benefit students, including classroom resources, aides, or other supports. If low-performers self-select out because of lower compensation, that frees up funds and teaching spots to bring in more effective teachers.
Who are the potential losers? This is a policy that sounds like a step in the right direction but might maintain the status quo (if all teachers are rated “effective” regardless of performance). High-performing teachers are potential losers as this policy does not incorporate higher pay for higher performance — it only helps to potentially weed out low performers. Continue reading