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The Peril and Promise of Performance Pay: Making Education Compensation Work

reviewed by Warren Hodge - January 11, 2010

coverTitle: The Peril and Promise of Performance Pay: Making Education Compensation Work
Author(s): Donald B. Gratz
Publisher: Rowman & Littlefield, Lanham
ISBN: 1607090112, Pages: 284, Year: 2009
Search for book at Amazon.com

Christopher Hedges, in his recent book Empire of Illusion (2009), argues that our society is being threatened by a deluge of propaganda, untruths, and pseudo events—cultural distractions that create their own realities. For these distractions, he blames the media, pop culture, corporate America, and politicians, and he posits that as we move from a print-based society to a post-literate society, we will lose the ability to distinguish between illusion and reality and come to confuse propaganda with ideology, brands with real experiences, and pseudo events for reality. Ultimately, we will be unable to make informed decisions—which could be more perilous than promising.    

More so than any other social institution, schools are charged with propagating literacy and numeracy from generation to generation. But how are we best to enhance and maintain successful transmission—particularly of the ability to think and make decisions? In The Peril and Promise of Performance Pay: Making Education Compensation Work, Donald Gratz explores some of the issues and challenges school districts face while designing and developing performance pay systems, probably the primary strategy under consideration for promoting school reform. If not well planned and implemented, performance pay could fail in its aim, leaving our children and their children mired in the vision outlined by Hedges: living in a post-literate world, unable to solve problems, make informed decisions, or distinguish between pseudo events and reality. Their birthright as citizens able to intelligently exercise Jefferson’s envisioned rights of life, liberty, and the pursuit of happiness could be subverted and denied.

The Peril and Promise of Performance Pay: Making Education Compensation Work is an in-depth exploration of the myriad factors that define and frame the current discourse on school reform in this country. According to the author, its purpose is

to investigate the goals, assumptions, and methods that undergird performance pay plans in light of recent and distant history, lessons learned about human motivation from both education and industry, current attitudes towards teacher compensation, the impact of public education on student and society, and the purposes citizens ascribe to their public schools. (p. 4)  

In addition, the book discusses performance pay history, policy, and empirical evidence, as well as the Denver Professional Compensation system (ProComp)—an exemplar of what a well designed, planned, and “result-driven” comprehensive pay system should resemble. It explains the illusionary aspects of the education establishment’s focus on accountability (defined by standards and high-stakes testing used by state and district policy makers to ensure K-12 students receive a quality, world-class education). At the same time, Gratz examines quality education and performance pay systems when defined by teachers who are liberated and empowered to offer child-centered rather than scripted, compliance-based instruction to students whose growth and development are valued more than the results derived from narrowly-focused state-mandated curricula and tests purported to disseminate the knowledge and skills necessary to prosper in a 21st century world.  

Peril and Promise is divided into two parts: Part I (chapters 1-5) explores the context within which performance pay systems are being designed and implemented. In chapter 1, the book distinguishes between the subjective and distrustful nature of merit pay, the objective nature of performance-based compensation, and several forms of teacher compensation, for example, traditional single salary systems (“step-and-lane”), skill- and knowledge-based systems, career ladder approaches, bonus systems, and based pay increments. This chapter also explores several “critical issues” or problems that contribute to the failure of some pay programs, including ill-defined goals and purposes, the lack of clear definitions for performance pay and ways to measure performance, narrowed curricula, and confusion about the functions of intrinsic and extrinsic motivation.

In chapter 2, the author explores linkages between education and the economy and argues that “when the economy is doing poorly, is changing, or is stressed, for example, the actions of the schools and attainment of students are directly associated with those problems. Unfortunately the reverse is not true” (p. 31). Chapter 3 discusses the history of performance pay from British and American perspectives. It also analyzes the U.S. schooling experience from “boarding around” practices in rural America through 20th century practices that include performance pay. Chapter 4 presents several takes on performance pay from the perspectives of unions, the general public, and business, and chapter 5 details Denver’s experiment with performance pay from its inception of a pilot program through the final and well-regarded ProComp system.

Part II (chapters 6-11) explores the assumptions underlying teacher compensation, what Berliner and Biddle (1995) called the “manufactured crisis” in education and what Rothstein (1998) dubbed “exaggerations.” Specifically, chapter 6 explores the putative crisis in education in terms of its roots: the education-economy linkage, the achievement gap, and false conclusions drawn from international tests about the academic performance of U.S. students. Chapter 7 focuses on the interrelation of race, income, and poverty and their impact on the achievement gap that invariably influences the design, development, and implementation of performance pay systems. Chapter 8 discusses the motivation-performance connection within the framework of several motivational theories.

Chapter 9 is particularly strong as it presents some of the most convincing arguments for why most state and district compensation systems are not successful—the lack of clear, well-defined goals and purposes. Moreover, it discusses the importance of collaboratively identifying and clarifying goals and purposes during the initial phase of the planning process. The chapter ends by detailing the types of knowledge and “applied skills” needed to succeed in a 21st century world, but cautions that these skills are not being taught as we have not yet “determined what we want to accomplish.”

In chapter 10, Peril and Promise examines the deficiencies of teacher and student assessment methods and argues for alternative approaches that would emphasize improvement over comparison, student learning instead of academic achievement, and growth and development instead of test-driven achievement. Chapter 11 synthesizes lessons learned in the previous chapters and “suggests potential planning and implementation steps based on these lessons” (p. 211). Finally, the book ends with two appendices. Appendix I discusses the work of the Community Training and Assistance Center (CTAC) and the Teacher Advancement Program (TAP), two entities that assist districts with designing and implementing teacher compensation systems. Appendix II presents 12 planning questions, which the author calls “A Framework for Defining School, Teacher, and Student Performance.”   

While some parts of The Peril and Promise of Performance Pay beg for expansion and further explanation, it nevertheless has numerous strengths and through them makes several substantive contributions to the ongoing discourse on teacher compensation. The strengths are reflected in compelling and evidence-based explanations of what could be called necessities or key elements for designing performance pay programs. Among the most significant are the following:  

Identify and clarify national and local assumptions underlying decisions and actions relative to performance pay programs.

Follow a process of development and implementation that first involves stakeholders.

Identify and clarify assumptions, goals, and purposes and regard them as prerequisites to the implementation phase of any compensation plan.

Design compensation plans with the knowledge that while intrinsic and extrinsic motivation are important, teachers are motivated and encouraged more when districts focus on student growth and development and teacher professional development, and when they align effective measures with effective instruction, professional development, and student learning.

Use assessment methods that “encompass the range of desired activity and/or results of students and teachers, not just what is easily measurable” (p. 193).

Be cognizant of the fact that empirical evidence does not completely support the education crisis and achievement gap.

Consider using lessons learned from performance pay exemplars such as Denver’s ProComp system.

The book is engaging and informative; arguments are convincingly marshaled and substantiated with empirical evidence, especially with regard to the development process of performance pay systems, the critical role played by clear goals and purposes, the significance of growth- and development-based assessment approaches, and Denver’s ProComp exemplar.

First, as explained in several sections of the book, the effort to involve stakeholders in each phase of the process—from design to implementation—contributed to the successful completion of Denver’s ProComp system. The three key concessions (teacher evaluation on the basis of objectives the teachers identify, evaluation of the system by an independent entity, and institution of a pilot program to test feasibility followed by a vote) won by teachers at the program’s inception were possible because a true partnership existed between the Denver Classroom Teacher Association and the Denver Public School District from the beginning. Teachers, through their union representatives, were involved in each phase of the process. In other words, “a joint labor-management team” collaborated and employed genuine shared decision-making throughout the process.

Nevertheless, a discussion of the Teacher Incentive Fund (TIF) would have underscored the importance of stakeholder involvement because that federally funded program requires principal and teacher involvement as a condition for obtaining funds. Another helpful discussion would have been to outline other compensation systems where stakeholder involvement and collaboration are prominent features, for example, the Teacher Advancement Program (TAP) in New York City, Chicago, and other districts. These discussions would have contributed to the growing consensus that the story of any compensation system’s success has to be first a story “about the process of organizational change, not what [the] process eventually produced” (p. 1).

Second, it may seem natural to develop compensation systems by first identifying and clarifying the purposes and goals. But, as many state-mandated, top-down systems attest, this essential element has not been and is not reflected still in many state and district performance pay systems. As demonstrated in The Peril and Promise of Performance Pay, successful organizational alignment in districts is more likely when purposes are defined, when policies and practices are structured around purposes and goals, and when compensation systems regularly monitor the attainment of goals and objectives. Perhaps no other phase of the compensation system process deserves more focused attention than correctly identifying, clarifying, and aligning education purposes, goals, and objectives. The misalignment of these critical elements, as well as the need for an organic curriculum, student-centered instruction, and growth and development assessment, are cogently explained throughout the book, especially in chapter 9.

Gratz correctly points out that while many test-driven curricula and standard-based instructions are framed by teacher-centered philosophies (essentialism and perennialism), instruction that focuses on knowledge and skills more germane and useful in our 21st century world are guided by child-centered philosophies like progressivism and social constructivism. Put another way, standard-based instruction focuses on achieving “implied goals” (e.g., closing the achievement gap, outperforming other countries on international tests, increasing work productivity), while 21st century globalism requires “explicit goals” that help students develop applied skills such as problem solving, social interaction, decision making, respect for self and others, critical thinking, learning how to learn, research, collaboration, and teamwork. The argument that our attention should be on developing the whole child (consistent with positions held by Jefferson, Dewey, and Emerson) and not simply on narrow goals of economic efficiency and productivity is prevalent throughout the literature on education, but few sources present that argument as clearly and eloquently as The Peril and Promise of Performance Pay. However, this argument, too, could have been bolstered by a review of performance pay plans for which purposes and goals had been identified and clarified at the plan inception. Many of the TAP and TIF programs now reflect state and district planners’ attention to this element of performance pay planning (TAP, 2009; TIP, 2009).   

Third, the 800-pound gorilla confronting designers and developers of performance-based pay systems seems to be the essential element of assessment, or identifying and using effective measures of instruction and learning. Before deciding how to effectively use alternative approaches to high-stakes tests (the federal Race to the Top program requires standardized tests as one approach among many), the author contends that teacher action and student results must be clear, for the assessment approach used, it “must be possible to measure student performance clearly and accurately relative to goals, and it must also be possible to determine the extent to which a teacher’s action influence[s] the results of his or her students” (p. 194). These caveats are credible and deserve careful attention before making value-added assessment the major or sole objective measurement approach in a compensation system. But this is a minor matter, because there is no clear substitute now for value-added assessment as an objective measure of teacher and student performance.

The author acknowledges the advantages of value-added assessment (which takes into account a student’s growth, family background, and history), but does not see it as a panacea. First, he questions the representativeness of the base years used to calculate academic growth. Second, he argues that intervening variables or circumstances, for which the teacher is not responsible, may influence students’ growth and development. And, third, value-added assessment, he claims, “still bases significant decisions on test scores: these tests cover a limited range of topics, they are a snapshot of learning but not a comprehensive picture of it, and they can lead to negative behaviors and consequences” (p. 198).

The fact that assessment approaches should be consistent with child-centered instruction seems reasonable and should become integral to all incentive pay programs. As numerous top-down, state-mandated pay programs now show, many academic achievement initiatives narrowly focus on basic knowledge and skills measured by standardized tests. According to the author, they should instead focus on instruction and student learning that require multiple assessment approaches. Among the approaches or “surrogates” discussed in the book are simulations, surveys, “performance or demonstrations,” and “project-based learning.”

In reading the author’s discussion of the role assessment plays in incentive pay systems, some issues and unanswered questions are evident. For example, Gratz explains that the Denver ProComp system includes numerous assessment approaches but does not clearly explain what they are or how they are used. Given that the standardized testing component is an integral part of Denver’s DSTA-DPS contract ratified in September 2009, is it value-added? If so, what proportion of the testing scheme does it comprise? Additionally, the author claims that “Denver continues to focus on teacher-set objectives, an approach that has led to hundreds of different assessments, depending on the teacher’s view of student needs” (p. 202). If this is the case, it seems reasonable to assume that teacher-made tests are among those “hundreds of different assessments.” Assuming that is true, how are the validity and reliability of these tests determined? And by whom?  

Finally, it would behoove districts contemplating their own pay programs to become cognizant of the lessons learned from well-designed compensation systems. Most of these lessons are discussed in The Peril and Promise of Performance Pay and summarized in chapter 11. Many are not new and have been discussed elsewhere (Adams, Heywood, Rothstein, & Koretz, 2009: Springer, 2010). What is new, however, is how clearly and persuasively they are talked about in this book. For example, consider these abbreviated versions of five lessons:  

Lasting and substantive change occurs when stakeholders are involved, not just represented.

Goals and purposes are the heart of assessment and provide parameters for evaluating both student and teacher performance.

Ambitious young teachers are more likely to remain in teaching if they see opportunity for advancement, and experienced teachers need new challenges and ways to improve their skills and grow professionally.

There is a spectrum of evaluation. On the subjective end, one could find supervisor and peer evaluation and, on the objective end, one could find sales commission, piecework, and state-mandated high-stakes tests.  

The need for congruent and aligned goals, actions, and assessment is not simply a compensation issue but an organizational issue as well.

While other sources explain ProComp in more detail (Gonring, Teske, & Jupp, 2007), Peril and Promise does a credible job of explaining the work of the design team, pilot program, lessons learned from the pilot program, the transition from the pilot program to the Joint Task Force, the development of the full ProComp plan, and the technical assistance role of the Community Training and Assistance Center (Gratz acknowledged his active role in CTAC.).

Among the book’s many contributions to the ongoing discourse on incentive pay programs, two stand out. One is the clarity of discussion and arguments relative to issues and several integral elements in performance pay systems—clear assumptions, a process involving stakeholders, clear purposes and goals, a recognition of the roles of intrinsic and extrinsic motivation, and the significance of growth-oriented assessment. The discussions of the school-economy linkage, the hegemonic weight of the achievement gap evidence on pay plan designers, and Denver’s ProComp exemplar also provide some arresting reading.    

The other striking contribution is the manner in which the book corroborates several organizational and leadership theories, particularly in chapter 5, where the Denver ProComp program is reviewed. Theories on motivation, shared decision making, collaboration, transformational learning, capacity building, and change were directly or indirectly invoked throughout. Examples are evident in the discussion on involving teachers in the design, planning, and implementation processes by allowing them to set objectives (shared decision making, collaboration, and motivation theory), the discussion on how the Denver school district “learned to change its focus in ways that supported schools” (transformational learning), and the explanation about how the joint labor-management team built “a change rather than simply announcing it” (change theory).  

The book addresses issues and answers questions germane to audiences concerned about comprehensive education reform. Stakeholders such as policy makers, educational leaders, teachers, parents, high school students (principally Grades 11 and 12), and community members should find the book interesting and informative because of the depth, breadth, and relevance of school-related issues and ideas it covers. Researchers should find several empirical questions to pursue. For example, what are the best sustained revenue streams or funding approaches for compensation programs? This question is particularly important because even well designed and executed pay programs end prematurely when state or district funding dries up (Johnson & John, 2009; Springer, 2010).

Although contexts differ, a relevant and necessary question is: What could we learn from randomized experimental performance pay studies conducted in other countries? For example, several well designed and executed experimental studies conducted in India, Kenya, and Israel found performance-based pay systems to be highly effective in improving instructional quality and student achievement, albeit with a focus on achievement measured by standardized tests and not according to the growth and development assessment approaches advocated in the book (Glewwe, Ilias, & Kremer, 2008; Levy, 2008; Muralidharan & Sundararaman, 2009).

All told, The Peril and Promise of Performance Pay easily fulfilled the aims set forth by the author—an investigation of goals, assumptions, and methods integral to the design, development, and implementation of performance pay programs. It provides an opportunity to understand the critical assumptions and issues that are framing and reframing the debate on the role of performance pay in education reform. It provides insights, perspectives, and understanding necessary for effectively reforming schools—the schools that help our children grow, develop, and avoid becoming victims of illusionary snares laid by the media, popular culture, and corporations that do not value social responsibility, but deceive and misrepresent the truth. It is highly likely that students who attend schools with well designed performance pay systems—systems with teachers free to provide child-centered and growth-focused instruction—will become critical thinkers and problem-solvers who will deftly avoid the ravages of Hedges’ post-literate world and its pseudo events and illusions. The book illustrates how and why that reality and promise are possible.


Adams, J. A., Heywood, S. J., Rothstein, R., & Koretz, D. M. (2009). Teachers, performance pay, and accountability: What education should learn from other sectors. Washington, D.C.: Economic Policy Institute.

Berliner, D., & Biddle, B. J. (1995). The manufactured crisis: Myths, fraud, and the attack on America's public schools. Reading, MA: Addison-Wesley.

Glewwe, P., Ilias, N., & Kremer, M. (2008). Teacher incentives. Cambridge, MA: Harvard University Press.

Gonring, P., Teske, P., & Jupp, B. (2007). Pay for performance teacher compensation: An inside view of Denver’s ProComp Plan. Cambridge, MA: Harvard University Press.

Hedges, C. (2009). Empire of illusion: The end of literacy and the triumph of spectacle. New York: Nation Books.

Levy, V. (2002). Evaluating the effect of teachers’ group performance incentives on pupil achievement. Journal of Political Economy, 110(6), 1286-1317.

Muralidharan, K., & Sundararaman, K. (2008). Teacher performance pay: Experimental evidence from India. Retrieved January, 10, 2010, from http://www.columbia.edu/~ws2162/seminar/Muralidharan.pdf

Springer, M. S. (2009). Performance incentives: Their growing impact on American K-12 education. Washington, D.C.: Brookings Institution Press.

Rothstein, R. (1998). The way we were? The myths and realities of America’s student achievement. Washington, D.C.: Century Fund.

Teacher Advancement Program. Retrieved January, 10, 2010, from http://www.talentedteachers.org

Teacher Incentive Fund. Retrieved January, 10, 2010, from http://www.ed.gov/programs/teacherincentive/factsheet.html


Cite This Article as: Teachers College Record, Date Published: January 11, 2010
https://www.tcrecord.org ID Number: 15896, Date Accessed: 12/3/2021 8:21:38 AM

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About the Author
  • Warren Hodge
    University of North Florida
    E-mail Author
    WARREN HODGE is an associate professor of educational leadership at the University of North Florida where he teaches graduate education courses, among them, leadership development and assessment, education research, and education law. His research interests include transformational leadership and its impact on school reform, and the nexus between law, ethics, and leadership behavior.
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