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February 1, 2001
Vol. 58
No. 5

How Merit Pay Undermines Education

Merit pay policies misconstrue the sources of human motivation and devalue the work of educators.

Proposals for merit pay, including pay-for-performance, continue to surface as policymakers search for ways to motivate administrators and teachers to be more effective—and to make educators do what policymakers want them to do. These types of remuneration plans are different from paying a teacher extra for taking on additional duties, such as running an after-school computer laboratory or serving as a mentor or master teacher. Instead, these merit pay policies give individual employees extra compensation, above and beyond the base salary, for work and contributions that exceed some pre-established criteria. These criteria often include achieving higher student test scores on standardized tests.

Carrots and Sticks

Why can't teachers and administrators be "incentivized" like aluminum-siding salespeople? Not all lawyers in a legal firm take home the same annual salary and bonuses, so why can't policymakers for public education find a way to pay similar classifications of employees different rates of pay on the basis of their job performance? Professional sports teams pay their players on the basis of their performance and perceived potential value to the team, so why can't school districts do the same?
But do compensation decisions really reflect employees' contributions? As Rosabeth Moss Kanter (1987) points out, "Status, not contribution, has traditionally been the basis for the numbers on employees' paychecks. Pay has reflected where jobs rank in the corporation hierarchy—not what comes out of them" (p. 60). Despite centuries of experience with employee compensation plans, status still wins out over contribution. Contrast the pay of corporate CEOs in the United States, some of whom earn more than 600 times as much as their typical nonmanagement employees, to the much smaller differential between the pay of employees and CEOs in Europe and Japan. Do American corporate boards know something about compensation plans that their foreign competitors don't?
In fact, the seemingly logical link between employee production and compensation is often debatable and highly subjective. We can understand why new approaches to determining pay are so difficult to establish in public school districts today if we look at the historical development of educators' most common compensation approach—uniform salary schedules with steps and lanes. This compensation system rewards professionals for their years of experience on the job and level of educational attainment. Incentives are structured to encourage teachers and some administrators to remain loyal to the school district and to improve their skills and knowledge by pursuing additional training, usually by attending approved workshops and courses or earning graduate degrees.
In the ideal situation, this system rewards a teacher or principal who, for example, participates in a workshop, typically on his or her own time, about the educational uses of computers. This employee is building on a knowledge base and thus is able to make a greater contribution to the school district's mission to prepare students for success in our democratic society. In theory, this compensation system motivates employees to get better at their jobs. Critics argue that the theory behind this system doesn't hold up. They point to the lack of linkage between the incentive system and outcomes in schools and classrooms. They also challenge the abuses in such systems, where employees are rewarded for taking courses in wok cooking or given graduate credit by diploma mills for signing up for the walking tour of downtown Los Angeles.
But the tenacious attachment to this system has deep roots. In the past, policy leaders set up teacher compensation systems according to criteria that they felt were justified and appropriate, and boards of education, city councils, and other similar deliberative bodies used democratic means to arrive at pay policies. Nonetheless, some of these decisions look strange to us today. Consider the Chicago school system in the early 1900s. As the school system matured, policymakers moved to standardize the employee compensation system. One of the components of their system was a substantial pay differential between male and female employees (Peterson, 1985), and the gender pay differential continued even when women started to assume administrative roles. At the beginning of the 20th century, pay differentials in Atlanta, Georgia, were based on race. Although the African American community had managed to secure minimal services from the Atlanta school board, the dual system of education determined that African American and white teachers would not have the same rate of pay (Peterson, 1985). History has demonstrated that governing bodies are capable of establishing unfair practices. The legacy of such compensation systems in public education has been to elevate one criterion—fairness—as the paramount consideration in all pay decisions.
Logic would dictate that a teacher's years of experience in the classroom and level of educational attainment are somewhat related to the academic performance of students. In theory, a first-year chemistry teacher fresh out of college is not as effective with high school students as is a 10-year veteran with a master's degree in science teaching or organic chemistry. But critics counter that empirical evidence doesn't support such logic. They assert that a teacher's training is irrelevant and that experience counts for nothing. What matters, they say, are the results a teacher gets with students; outcomes, not inputs, should determine rewards. Using an outcome-based criterion, they claim, is the only fair approach to rewarding teachers.
Educators point out that such proposals for output-based compensation are not fair, reverting once again to the fairness issue. How can teachers be held accountable for school conditions that they cannot control? Unless all inputs are equalized for all teachers and administrators, how can policymakers judge the value of the outcome? Educators further argue that their jobs involve more than teaching academic subjects and often extend beyond the measurable—for example, consoling a child whose parents are going through a divorce or advising a student about options for college.

Understanding Human Motivation

The problem with both the input-reward system and the outcome-reward system is that they ignore the basic dynamics of what motivates human beings. The approach of focusing on fairness above all else has inhibited the contribution of some members of the group—for example, those with exceptional abilities who may not fit the mold. In contrast, the outcome-centered motivation system devalues the significance of an individual's contribution and oversimplifies the role of the educator. Neither system considers the body of research related to the psychology of human motivation.
Consider the work of Frederick Herzberg (1987) and his studies of employee motivation. He and his colleagues identified a series of more than 3,000 items that either motivated workers or diminished employees' enthusiasm for their jobs. The "satisfiers" and "dissatisfiers" will surprise policymakers who view money as the sole motivator on the job. Organizational policy and administrative procedures, supervisory practices, employee-employer relations, working conditions, and salary proved to have greater potential to be dissatisfiers than satisfiers. These dissatisfiers are important and need the attention of employers. But the satisfiers—the motivators that are essential to spurring performance to higher levels—included achievement on the job, recognition for one's contribution or for a job well done, the work itself, job responsibility, opportunities for career advancement, and professional growth.
Abraham Maslow's (1970) study of human motivation should also inform policymakers who are intent on lighting a fire under professional educators. Maslow bases his theory on a hierarchy of needs to which all humans respond. This hierarchy ascends from basic needs (water, shelter, and food) to complex needs (advancement, growth, and achievement). Money, benefits, and job security appear at the lower end of the hierarchy. Merit pay systems that attempt to use money alone as a lever for improvement are more likely to cause educators who have other employment options to leave the school district than to strive for the desired results of their supervisors.
William Glasser (1997) presents an articulate explanation of human motivation through his Choice Theory. Glasser points out that all people are motivated to meet their needs for belonging to groups, maintaining a sense of self- efficacy or power, and having fun. These are natural and intrinsic needs that humans are driven to meet. When institutions use extrinsic motivation devices to manipulate their members, they often divert their members from meeting these intrinsic human needs. The frustration and anger that often result are destructive to the organization. Ill-conceived reward systems that diminish employee loyalty and increase resentment toward management can cause incalculable productivity losses in organizations. Here again, money alone does not work as a motivator.
Perhaps no one has been more eloquent than the late W. Edwards Deming (1993) in addressing the destructive nature of extrinsic reward systemsthat squeeze out from an individual, over his lifetime, his innate intrinsic motivation, self-esteem, dignity. They build into him fear, self-defense, extrinsic motivation. We have been destroying our people, from toddlers on through the university, and on the job. (p. 124)
According to Deming, the forces of destruction include grade rankings; merit systems, particularly ones that categorize people; contrived competition among people within organizations; schemes for incentive pay and pay-for-performance; and numerical goals, targets, and quotas—without any guidelines on how to achieve them. These forces suboptimize the system and cause humiliation, resentment, and fear. Using such approaches also shifts the burden to produce results from management to the employees. Deming asserts that such practices belie the fact that more than 90 percent of the organization's outcomes are the result of the leadership and governance structure of the organization and not the effort of individual workers who work in the system.
Extrinsic reward systems create the illusion of employer control but at the expense of the full involvement and commitment of dedicated, enthusiastic employees. Extrinsic reward systems divert resources and energy from what is much more likely to move the organization to higher levels of performance. They discard the most valuable resources in the organization: the brainpower, problem-solving ability, and innovative thinking that every employee brings to the job.

Dud Silver Bullets

A growing number of legislators, governors, mayors, superintendents, school board members, and business people advocate programs for merit pay or pay-for-performance. Their good intentions to make schools better often lead them to quick-fix solutions and seemingly obvious, but wrong, answers. Perhaps one of the biggest ironies encountered by school leaders is the ill-informed advice they receive, often unsolicited, from business leaders who proffer "real-world" solutions—like merit pay—to fix school problems. These business leaders are ignorant of the research literature that does not support such practices; ironically, these findings often come out of business leaders' own university-based business colleges. In some cases, unfortunately, the political leaders know better but cannot resist the temptation to scapegoat the less powerful members of the organization—teachers—and pander to an ignorant public and news media. And in the worst cases, leaders are so cynical about the public education system that they blame and punish employees as a way of diverting attention from the real, and typically more costly, issues confronting the schools.
Donald Campbell, Kathleen Campbell, and Ho-Beng Chia (1998) conducted a thorough investigation of merit pay systems. They concluded that pay-for-performance programs raise problematic issues related to measurement, performance appraisal and feedback, and the desirability of the rewards. For example, questions arise about the validity either of the instrument used to measure performance or the nature of the work. Attempts to address these issues through training or better measures fall short. Additionally, the researchers found that employees tend to reject most or all of the evaluation systems, regardless of what adjustments are made. Money, the key factor in such systems, is usually in short supply, so the potential impact of rewards is minimal and does not outweigh the negative effects of the merit pay system. Finally, the authors conclude that the implementation of merit pay systems becomes unwieldy, contributes to mission drift, and often leads to unintended consequences, such as enormous pay differentials between subordinates and supervisors, or the ignoring of work assignments that do not earn consideration for merit.

Questions to Ask

  • Do I understand the nature of human motivation? Why have our teachers and administrators chosen to work in our school district? It is often difficult to tap into the employee's motivation for employment, and some appraisal and reward systems may even reduce enthusiasm for the job and productivity.
  • Can a school district be run like a business? Do business practices readily transfer to a publicly held organization run by highly trained professionals with an educational mission? Do the culture and structure of a school district support or deter the use of business-like evaluation and merit systems?
  • Is this evaluation and reward system fair? How would I feel if my employer instituted such a program at my job? Fairness in the design and implementation of appraisal and reward systems is both crucial and complex. The fairness issue will permeate any proposed system and must apply to the employee, the appraiser, the organization, and the organizational stakeholders, including students, parents, and taxpayers.
  • Can my organization find an evaluation and compensation system that is not excessively burdensome and that operates effectively? Do I understand that some important job functions may not be measurable? Do I understand that some elaborate evaluation systems may distract staff from their duties?
  • Have I explored the unintended consequences of a new system? Organization leaders must be careful about what is rewarded in a merit pay system—because they will get it! Have I considered what won't get done because it doesn't count for merit pay? The goal is to move forward, not to suboptimize the organization.
  • Am I clear about whom to reward? This central question must be part of policymakers' considerations. Will the system reward individuals or teams? Enterprises that are highly collaborative should be cautious about setting compensation systems in motion that promote destructive competition.
A candid discussion of these questions among policymakers, school leaders, and stakeholders will go a long way toward forming sound education policy. Employee evaluation and reward systems are complicated matters that require thoughtful deliberation. They have the potential to be as destructive as they are constructive. Our schools are too important to operate with misguided policies.

Campbell, D. J., Campbell, K. M., & Chia, H. B. (1998). Merit pay, performance appraisal, and individual motivation: An analysis and alternative. Human Resources Management, 37 (2), 131–146.

Deming, W. E. (1993). The new economics for industry, government, education. Cambridge, MA: Massachusetts Institute of Technology Center for Advanced Engineering Study.

Glasser, W. (1997). A new look at school failure and school success. Phi Delta Kappan, 78 (8), 596–602.

Herzberg, F. (1987). One more time: How do you motivate employees? Harvard Business Review, 65, 109–120.

Kanter, R. M. (1987, March/April). Attack on pay. Harvard Business Review, 65, 60–67.

Maslow, A. H. (1970). Motivation and personality. New York: Harper & Row.

Peterson, P. E. (1985). The politics of school reform, 1870–1940. Chicago: University of Chicago Press.

Al Ramirez has contributed to Educational Leadership.

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