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Crazy-eyed Julie Bishop, Federal Minister for Education, has recently been beating the “merit pay for teachers” drum; indeed, it was pushed in the Federal Budget.

Merit-based pay for teachers sounds like a great idea until you think about it for more than a second.

Over the fold is an essay on what merit pay is, how it has worked in the past and in other countries (and Australia when we had it), why it doesn’t work, and some alternative solutions.

Enjoy more Public Policy madness!!

New Public Management and Accountability: Performance-related pay for teachers

On 7 February, the Federal Education, Science and Training Minister, Julie Bishop, announced that ‘like other professions, teachers should be recognised and rewarded on merit.’ This policy announcement, made despite the Federal Government having no legal authority to set pay or conditions on public schools, is based on the pervasive private sector management practice of performance-related pay (PRP) and the incentive principles of New Public Management (NPM). It purports to create an incentive in the employee (teacher) to improve his or her work performance, in order to improve the quality of output (education) that customers (students) receive. The key criteria which merit pay would be decided upon, as outlined in the Minister’s speech, would be literacy and numeracy scores of students. PRP is a method by which proponents of market-based governance seek to introduce private-sector management techniques into the public sector to lead to better out-puts, greater cost-efficiency, and a ‘customer service’ ethos.

Accountability is a crucial aspect of governance, particularly the ‘new governance’ of New Public Management. Traditional lines of accountability between legislature, the executive, independent government auditors, and the public become obfuscated when introducing managerialism and contractualism to the provision of public goods and services. NPM must maintain the legitimacy of government when introducing private sector management techniques, particularly performance measuring and ‘bottom line’ accounting to ensure that public money is being used for public good.

Performance-related pay for teachers as a public policy solution is characteristic of NPM, with its focus on outputs, competition and incentivisation. Collaboration between public institutions, departments, enterprises and officials and the private sector to provide ‘public value’ is on the rise as part of a global trend towards NPM in an attempt to effectively provide services to the public. A key plank of NPM, in addition to the overall goal of opening up the public sector to private sector market competition, is to introduce private sector management practices with the ostensible aim of increasing efficiency, creating an ‘output focused’ culture and discouraging ‘rent-seeking’. PRP is a pay structure that is seen in many private sector firms as a way to improve outputs by creating incentives for employees.

Performance-related pay in Australia, the USA and the OECD

Performance-related pay has a long history in Australia and around the world, with teachers in Australia, England and the United States paid according to ‘pupils’ ‘results’ as assessed in examinations, tests, and visits by “Inspectors”’ as far back as 1862. This system sought to improve the performance of teachers, increase the quality of education received by students, and use pay incentives as the chief means to do so. This system saw no appreciable improvements in students’ education, or morale or quality of teachers, and so was discontinued in the early 20th Century, and was not revived until the 1980s.

Australia

In Australia, PRP for teachers has been most recently proposed by the new Federal Education, Science and Training Minister, Julie Bishop MP. In her National Press Club speech, she set out a PRP system to be introduced by 2009. Although no specifics have been released – except that merit or performance would be measured by principals, parents and students alike – the Minister states that such a system is essential to improve Australia’s standards of numeracy and literacy.

Australia’s teachers are currently paid through an annual incremental salary system, with advancement to the next increment reliant on the teacher passing a review by the school principal (or ‘supervisor’), and based on ‘performance management appraisals’. The salary cap is generally reached after a number of years, meaning that the bulk of Australia’s teachers are paid at the top salary increment. A number of incentives exist for teachers to gain additional income, most notably through the teacher agreeing to take on additional non-teaching responsibilities (generally of an administrative nature). All teachers’ pay and conditions are set out in industrial Awards or Collective Agreements, which lay out the pay increment progression and additional entitlements from professional knowledge, training or supplementary duties.

Minister Bishop’s PRP policy proposal is a response to the state of public education in Australia:

Notwithstanding the billions of dollars invested in schools in Australia, there is evidence that standards have declined, particularly in the teaching of the fundamental areas of literacy and numeracy.

The Minister’s statement is based on ‘the average score of high school students who later became teachers on literacy and numeracy tests. The research covers teachers who entered the profession between 1983 and 2003.’

The Minister also identified accountability as crucial in maintaining national confidence in Australia’s education system – ‘we must open up our education systems to greater public scrutiny’ – amongst parents, teachers, and business. She reported that business groups were complaining about the quality of school graduates, with a focus on literacy and numeracy, and that teachers and parents were concerned about ‘diminishing expectations of students and also by the vague curriculum guidelines’. Accountability and public scrutiny would allow parents to ‘compare schools’ on a set of criteria, including ‘staff qualifications and turnover’ and ‘raw academic scores and improvements in scores’. This NPM measure – to empower the parents as customers and thus encourage them to make a rational market choice in where to send their child to school – is an underlying foundation of the PRP proposal.

USA

In the United States of America, the Bush Administration has introduced a number of education reforms, including PRP programmes and ‘test-based accountability’ systems. The most recent programme was the establishment of the Teacher Incentive Fund that gives up to 100,000 teachers in the United States a reward of $5,000, in an attempt to increase the number of states using incentive-based PRP systems.

In Florida, the Florida Department of Education is introducing a system called STAR (Special Teachers are Rewarded) that will give a 5 per cent pay increase to ‘the 25 percent of teachers with the highest ratings in two areas: an evaluation from their superiors, and improvements in student test scores, notably the Florida Comprehensive Assessment Test.’ Massachusetts has also introduced a programme to link teacher pay to evaluations of student performance’ with the goal of providing ‘incentives for high-performing teachers’ and placing teachers on a ‘comparable standing’ with private-sector employees ‘where rewards for performance have steadily increased’. California Governor Arnold Schwarzenegger called in 2005 for merit-pay to ‘usher California’s schools into the modern era’ and that it was the duty of government to ‘financially reward good teachers and expel those who are not.’

Numerous other states have introduced PRP programmes into the public education sector, almost all of which include bonus pay, and most bonuses linked to improvements in student test (or other measure) scores. Most PRP systems in education sector in the USA ‘base performance on limited criteria, including tests of student achievement’, and have a life of four to five years.

OECD

An OECD report entitled Performance-related pay for Government Employees found that in OECD countries, the number of civil servants on performance-related pay (PRP) schemes has significantly increased from rates in the mid-1970s. Two thirds of OECD countries have introduced PRP systems, or are in the process of doing so, as at 2004. In most cases this is limited to management level public employees, but is increasingly applied to employees in non-management roles. These PRP systems have been introduced as a result of the corporatisation and economic rationalist reforms of the public sector of the 1980s and 1990s. The report states that PRP systems are based on the following assumptions:

• organisations can accurately measure individual, team/unit or organisation outputs;

• individual and team/unit outputs contribute to organisational performance; and
• pay can be administered in a way which capitalises on its expected incentive value for potential recipients.

This shift reflects the trend of new public management principles; i.e., private sector management practices of incentives and individual accountability, and more broadly reflects a movement towards ‘increased pay flexibility and individualisation.’

The OECD report has a focus on PRP systems in public education, with teachers in many countries making up a significant, if not largest, proportion of civil servants. Given the significant part of the public salary bill held by teachers, it is not therefore surprising that a new public management approach would be taken with regard to teacher performance and education standards.

Public value sought is higher quality of standards in education. The apparent government failure is the ‘declining standards of education’, in particular with high turn over amongst teachers, public sector teachers moving to the private sector and poor testing results amongst students. Performance pay is seen in OECD countries as a method to make teaching a more attractive and respected profession.

In particular PRP purports to provide extrinsic rewards in the form of higher pay, and intrinsic rewards through recognition of effort and achievement. This in turn is expected to lead to higher quality teachers, through attracting higher quality graduates and teachers from university, and other nations and industry sectors; and encouraging competition between teachers to achieve higher teaching standards.

Models of performance-related pay for teachers

In the literature, there are different models of PRP for teachers (and schools), based on private sector models, and the extensive experience of PRP programmes in the USA. The most common PRP systems are:

• true merit pay – salary bonuses linked to performance (i.e., improvements in quantifiable outputs – students’ test results, etc);

• job enlargement – pay increases linked to doing more and/or different work (primarily administration or leadership roles);
• knowledge based increases – pay increases linked to academic qualifications and skill/knowledge improvements; and
• professional certification – pay increases linked to central-agency or independent agency certification.

The policy proposal announced by the Australian Education Minister suggests a ‘teacher training and registration process that is nationally consistent, not only for the benefit of the current teaching workforce, but also to make it easier for potential teachers to enter the profession.’ The recently created body, Teaching Australia, would monitor teacher registration and teaching quality.

New Public Management and Accountability in the literature

New Public Management
New Public Management seeks to serve the public interest through market mechanisms: public (customer) choice used to determine ‘demand’, with either public or private (publicly funded or regulated) services delivering ‘supply’. NPM aims to manage ‘inputs and outputs in a way that ensures economy and responsiveness to customers.’ NPM was at the spearhead of a wave of reforms in public sector bureaucracies in the Western world, in particular Britain and the USA, from the 1980s. NPM is a part of a wider trend of anti-bureaucratic instruments introduced into the public sector, and encompasses the rapid introduction of market systems into government departments, including privatisation, an ‘entrepreneurial’ ethos and ‘contracturalism’.

Driven by the motive to ‘do more with less’ (generally counterposed to ‘tax and spend’ approach to government), NPM has changed the face of ‘traditional’ public sector administration through dramatically increasing the powers of senior government bureaucrats (managers) in the hope that ‘they would use this new power to serve their governments better’ – that is, rapidly and enthusiastically introduce the policies of the government of the day. Programme budgeting, corporate strategic planning, key performance indicators, individual contracts for top managers, and performance pay are management tools used by government executives to introduce market systems into the public sector. Managers under NPM seek to maximise outputs through agreed targets. These targets are determined through government, departmental or team policies. Outputs are delivered in an economical manner; i.e., through use of private sector, market drive systems, they are efficient and respond to customer (public) demand to provide most effective service delivery and respond to competitive pressures.

Performance-related pay for teachers seeks to improve outputs through an incentive system, and as we have seen is a principle part of the managerialism of NPM. PRP is used to measure specific outputs (such as improved student test results, increased teaching standards); the proposal by Minister Bishop would grant additional powers to school principals (managers) to financially reward teachers who achieved high output levels. As the Minister said, public schools need to do more with less: ‘governments cannot simply increase the level of investment year after year, cross their fingers and hope that it will inevitably lead to higher standards’. Instead, the Minister is applying NPM practices to the public education sector in order to reverse the apparent decline in standards: ‘principals must be given greater autonomy over their schools… [and] must have power over staffing.’ This is a key part of the decentralisation – and increased local responsiveness – of government bureaucracies, and also increases the levels of accountability of principals and teachers to deliver improved standards.

Accountability

Under NPM, accountability is essential to maintain trust amongst the public that the public good is being served, that decisions being made are made in good faith and in the public interest, and that the organisations delivering services are doing so legitimately. Public reporting is one of the ‘main means of discharging public accountability obligations… well-documented and reported performance information is fundamental to public agency accountability and effective management.’ Under the Weberian model of governance, accountability is delivered through Ministerial responsibility. With NPM, accountability is delivered ‘upward’ through ‘performance contracts’, either the individual public employee to his or her manager, team leader, department executive, or ultimately the minister, or through black-letter law contracts between government bodies and private sector contractors. NPM can also be accountable ‘outward’ to customers (the public) through their buying decisions, satisfaction surveys and (in the UK) citizen charters. NPM thus provides multiple and overlapping avenues of accountability to stakeholders.

Accountability in the public sector is a means to ensuring improved, effective provision of public services. It is particularly important as public services are funded through taxes and gains legitimacy through the democratic process (parliamentary and Ministerial lines of authority and accountability). It is important to NPM that the reformed, efficient and effective public services has a form of ‘accountability that articulates what is collectively desired’; that is, the public services must be relevant to the public and achieve the desired social outcomes. Accountability, so strong a part of traditional Weberian bureaucracies, is a more complicated matter in NPM. There are numerous issues to ensure accountability in government areas where NPM has been implemented:

• accountability of managers and employees that provide public services;

• accountability in the relationship between the service provider (either a public institution or a private firm contracted to provide the service) and its customers (the public), particularly on the matter of whether the public service is relevant to public needs/wants and whether the service is affordable; and
• tensions between the need for private contractors to make a profit, the government that wants to ensure services are provided, and the public who want quality goods/services at a low price (either in tax burden or user-pays systems).

How can accountability measures – in particular NPM accountability – be applied to teaching standards? Wayne Cameron and Richard Mulgan suggest a number of criteria for accountability in good governance: the questions of ‘who’, ‘to whom’, and ‘for what’, are standard measures of public accountability, in addition to the ones noted in the dot points above.

In the case of NPM and teaching standards, the Minister has not suggested that the private sector be involved in the provision of public education (as there are already private schools). Instead, the management techniques of NPM proposed to be introduced into public education prompts the question of accountability. The Minister states that ‘there must also be greater accountability to parents at the individual school level’, however there are also other lines of accountability in the public education system (as laid out by Mulgan):

Who is accountable for education standards?

• Collective accountability (school, teacher-teams)

• Individual accountability (individual teachers, principals)
• Governmental accountability (education departments, Ministers)

To whom are teachers accountable?

• Legal/compliance/financial (parents/departments/Ministers)

• General policy/ performance (students/ parents/ peers/ principal/ school community)
• Particular decisions (parents/ students/ principal/ department)

For what are teachers accountable?

• Education standards (curriculum)

• Individual students’ education measures (test scores)

Clearly, there are multiple complex and overlapping levels and lines of accountability in the public education system, going ‘upwards’ and ‘outwards’.

The Minister places a great deal of accountability at the feet of teachers specifically, and schools more generally. She uses a number of criteria, such as staff qualifications, raw academic scores, post-school first destinations (such as University attendance) and parent/student feedback, to allow for parents to decide whether or not to send their child to a particular school. The proposed public reporting requirements on these criteria are an essential part of NPM accountability measures: ‘making this type of information public gives parents informed choice when deciding which school their child will attend, and also creates an incentive for the school to continuously improve.’

Raising standards in schooling under the NPM also requires that there are incentives for improved performance – PRP is a means for managers (principals) to measure teachers’ performance in improving teaching standards. This measure addresses the first two dot points listed above for NPM accountability (accountability of managers and employees, and accountability between schools and customers/parents). The NPM rhetoric requires that publicly funded programmes are being run efficiently and effectively – PRP purports to ensure quality of outcome through creating incentives to improve the value of service delivery.

Does Performance-related pay work?

There is a great deal of literature on the effectiveness of PRP programmes in the teaching profession, including a 1998 Senate inquiry, A Class Act, and research commissioned for the Minister for Education Training and Science by the Australian Council for Educational Research. Numerous reports and studies from the British and American experiences also exist. The research suggests that since the 1980s – a period that marked a spurt of PRP proposals for teachers – performance based pay plans have been introduced as a result of market governance and NPM pressures on the public sector, specifically to improve the outputs of public education.

It is the view of the ACER report, and the majority of reports on PRP programmes in the USA, that ‘there was no evidence… to support the position that it was pay-for-performance which improved student achievement’. There is further literature that suggests that there is little effectiveness at all in PRP systems either in the public sector or the private sector, in terms of increased productivity and outcomes. The concerns raised by opponents of the introduction of PRP programmes into public education are the same as those reported in the Harvard Business Review: PRP programmes have

been shown to undermine teamwork, encourage employees to focus on the short term, and lead people to link compensation to political skills and ingratiating personalities rather than to performance. Indeed, those are among the reasons why W. Edwards Deming and other quality experts have argued strongly against using such schemes.

This view is repeated in the ACER report: ‘incentives in themselves did not necessarily improve what teachers knew and could do, or lead them to teach more effectively. Improved student learning outcomes were more likely to result from long-term, high quality professional learning promoted by knowledge- and skills-based approaches to performance-based pay’.

A study by Stuart Tannock (professor at the Graduate School of Education at the University of California) for CEPR reported that despite the appeal of PRP systems when they are regularly introduced in states around America, a series of negative, unintended consequences arose:

• competition between teachers for limited performance bonuses fostered ‘jealousy, resentment, and divisiveness, and undermine the spirit of workplace collaboration’;

• morale amongst teachers plummeted, and perceptions of ‘merit’ awards were viewed as ‘subjective, arbitrary, unfair, and prone to favoritism and discrimination’;
• performance criteria create incentives for teachers to ‘teach to the test’, narrow curriculums to focus on those that are part of the PRP measure, and often cause teachers to ‘shun low-achieving students and “hard-to-serve” schools, where gains in student test scores or other measures of learning often are more difficult to produce’; and
• administrative costs (mostly through lack of productivity) sky-rocket as principals or other school supervisors spend time reviewing teacher performance, and overall costs of teacher salaries rose, resulting in PRP being capped or suspended.

Even those stakeholders that oppose PRP acknowledge that two forms of PRP can be successful in improving standards of teaching: ‘when given a choice, most teachers much prefer task accomplishment to salary’. Most criticism is leveled at ‘true merit pay’ and ‘job enlargement’ PRP programmes, due to the reasons noted above by Tannock. The OECD study into performance-related pay in England and Wales questioned whether PRP achieved its sought-after goals, with the overwhelming view of classroom teachers and school heads opposing PRP until it moved away from ‘true merit pay’ and focused instead on skills development, qualifications and professional development of teachers. In particular, there was evidence that many school heads acted ‘like a shop steward, keen to ensure that her or his staff got the pay increase from the government’.

The most strident critic of the introduction of PRP in Australia’s public education system, the Australian Education Union, suggests that increasing the skills and academic qualifications of teachers, and linking salary increases to those qualifications – within the structure of an Award or Collective Agreement – are the most effective way to improve the teaching standards of teachers (in reference to the Senate’s A Class Act inquiry).

It is clear from the numerous studies, including the study commissioned by Minister Bishop that PRP programmes have a long way to go in Australia’s public education sector. The Minister suggests that PRP systems with pay bonuses linked to improvements in outputs (test scores) is the way for Australia’s educational standards to reverse their decline. This PRP would be linked to the public reporting of test scores, teacher qualifications and the overall levels of school achievement, to give parents information on which school they would send their child to. Under this NPM system, accountability would fall to individual school principals and teachers to improve measures in literacy and numeracy, rather than with Ministers (both state and Commonwealth). The overwhelming evidence in both England and the USA suggests that a more effective way for teaching standards to improve is through improving professional development, accreditation and qualifications, measures that are not necessarily encapsulated in New Public Management systems.