http://www.people.fas.harvard.edu/~muralidh/Karthik_Muralidharan_JMP_Teacher_Incentives_In_Developing_Countries.pdf"Performance pay for teachers is frequently suggested as a way of improving educational outcomes in schools, but the empirical evidence to date on its effectiveness is limited and mixed. We present results from a randomized evaluation of a teacher incentive program implemented across a representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. The program provided bonus payments to teachers based on the average improvement of their students' test scores in independently administered learning assessments (with a mean bonus of 3% of annual pay). Students in incentive schools performed significantly better than those in control schools by 0.19 and 0.12 standard deviations in math and language tests respectively. They scored significantly higher on "conceptual" as well as "mechanical" components of the tests suggesting that the gains in test scores represented an actual increase in learning outcomes. Incentive schools also performed better on subjects for which there were no incentives. We find no significant difference in the effectiveness of group versus individual teacher incentives."
The key to this study is that the bonus payments were not made according to the average of the students' test scores but rather the average
improvement of the student's test scores - i.e. a "value-added" measure.
It is commonly argued that giving teachers financial incentives to
improve their students test scores would 'dumb down' the learning or cause teachers to 'teach to the test' resulting in lessons that are mechanical in which encourages rote-learning. However, an interesting finding of this study is that, "Incentive schools do significantly better on both mechanical components of the test (designed to reflect rote learning) and conceptual components of the test (designed to capture deeper understanding of the material), suggesting that the gains in test scores represent an actual increase in learning outcomes.".
Furthermore, another problem with this argument is that it does not suggest anything wrong with performance pay itself, but rather it suggests that the curriculum and assessement do not encourage learning. If that is the case, then the solution ought to be reforming the assessment and curriculum so that it does not encourage superficial rote-learning.
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