Performance Pay and Incentive Strength for Better and Worse Teachers


This paper evaluates the test score effects of individual teacher performance pay schemes implemented in a number of high-need schools in North Carolina. Since performance bonuses were paid to teachers with value-added above a threshold toward the top of the district-wide distribution, I evaluate whether this policy generates larger incentives for teachers with higher probability of attaining the bonus. I find evidence for the opposite: those expected to be further away from the threshold increased their value-added, though the performance incentives did not have a significant overall effect. I show that the single-year value-added estimates are quite noisy, which likely was a reason for this. I also find that almost all of the teachers in these high-need schools were predicted to have value-added below the performance threshold. Both of these factors could explain the lack of overall incentive effectiveness. One possibility is that lower value-added teachers have more scope to improve effort.