Perceptions of Strategic Compensation

Running Head: PERCEPTIONS OF STRATEGIC COMPENSATION
Perceptions of Strategic Compensation
Rick Carter, Jennifer Dunlap, and Trey Holladay
Lipscomb University
December 7, 2015

PERCEPTIONS OF STRATEGIC COMPENSATION ii
Approval Page
This Capstone Project, directed and approved by a Juried Review Committee, has been accepted by
the Doctor ofEducation Program ofLipscomb University's College of Education in partial
fulfillment ofthe requirements for the degree.
Teachers' Perceptions ofStrategic Compensation in the Rural Southeast School District
By
Rick Carter
Jennifer Dunlap
Trey Holladay
for the degree of
Doctor ofEducation(Ed.D.)
Tracey S. Hebert, Ph.D.
Director, Doctor ofEducation
Carole glish, Ed. D.
Ed.D. Capstone Faculty Advisor
4c-:t,/: ��
Roger Wiemers, Ed.D.
-
Juried Revie mmittee Faculty Member
ar Catherine Sevier, J.D.
Ju 'ed Review Committee Faculty Member
M·�
t�Ed.D.
Juried Review Committee Faculty Member

PERCEPTIONS OF STRATEGIC COMPENSATION iii
Acknowledgements
We are thankful to so many that have borne this journey with us, but first we thank our
families that have given up precious time to make this possible. We love you and know we only
made it through with God’s hand and your sacrifices. You all will find us better people for the
growth we experienced away from you. Our commitment to you and our future together is
stronger than ever. We would also like to thank our extended family, friends, and coworkers for
your support and encouragement. You made it possible to move forward during the tough times.
Next we would like to thank the director of schools, faculty, staff, and administration of
the Rural Southeast School District where we conducted our research. Their openness to share
during this process simplified our data collection. Your community is fortunate to have great
people taking care of their children.
We would also like to thank all of the faculty and staff of Lipscomb University. Our
professors that taught us throughout this doctoral program have gone above and beyond in their
mentorship and instruction. We would like to thank especially Dr. Carole English, Dr. Roger
Wiemers, Mrs. Mary Catherine Sevier, Dr. Debi Hoggatt and Dr. Trace Hebert. We want to
express our appreciation for your help, patience, and feedback over the last year of the project.
You all gave incredible advice and helped at inconvenient times. We will not forget your
support.
Last, we would like to express our love and gratitude humbly to all the members of the
Lipscomb University FA13-A Ed.D. cohort. The friendship, struggles, support and the journey
we shared will always be with us even when we are not together. We are all better people for the
time we shared and the relationships built with you. We will cherish this period of our lives long
after our professional careers are over.

PERCEPTIONS OF STRATEGIC COMPENSATION iv
Abstract
This project explored perceptions of teachers in the Rural Southeast School District concerning
their newly adopted strategic compensation plan. The district implemented the compensation
model for all newly hired faculty and allowed current faculty to opt in or out. The district was
able to extract quantitative statistics from student assessments and teacher evaluations but
desired qualitative data to inform its examination of the plan. The purpose of this study was to
inform the superintendent and school board of teachers’ perceptions of the strategic
compensation model, specifically, if teacher behaviors changed because of the plan and if the
plan affected their decision to remain in the district.
The researchers examined the perceptions of 59 elementary, middle, and secondary teachers and
administrators who currently served in the district. The study employed questionnaires,
individual interviews, and focus group interviews as the basis for answering the research
questions.
Through this project, the researchers found many similar themes revealed through other studies
on teacher merit pay. Teachers believed there was a high weight of student achievement in
determining their value but did not necessarily know the criteria utilized for the determination.
Teachers believed that achievement data was important when deciding effectiveness in teaching.
However, teachers desired more input on how that effectiveness was determined. Finally, the
effect of the plan on teacher recruitment and/or retention in the district according to teachers’
perceptions was unclear.

PERCEPTIONS OF STRATEGIC COMPENSATION v
Table of Contents
Abstract…………………………………………………………………………………………...iv
Table of Contents………………………………………………………………………………….v
List of Tables and Charts………………………………………………………………………..viii
Introduction………………………………………………………………………………………..1
Topic, History, and Background..................................................................................................3
Problem Statement.......................................................................................................................7
The Strategic Compensation Plan................................................................................................7
Purpose of the Study..................................................................................................................17
Conceptual Framework..............................................................................................................18
Research Questions....................................................................................................................22
Significance of the Study...........................................................................................................23
Delimitations..............................................................................................................................25
Definitions..................................................................................................................................25
Literature Review……………………………………………………………………………….. 27
Performance-Based Pay.............................................................................................................27
Benefits of Performance-Based Pay ..........................................................................................37
Drawbacks of Performance-Based Pay......................................................................................39
Teacher Perceptions of Strategic Compensation .......................................................................49
Changes in Teacher Behaviors...................................................................................................53
Chapter Summary ......................................................................................................................61
Methodology……………………………………………………………………………………. 63
Purpose of the Study..................................................................................................................63

PERCEPTIONS OF STRATEGIC COMPENSATION vi
Research Questions....................................................................................................................63
Research Design.........................................................................................................................63
Populations.................................................................................................................................65
Demographics of Teacher Participants ......................................................................................66
Interview and Focus Group Participants....................................................................................71
Description of Research Instrumentation...................................................................................72
Variables in the Study................................................................................................................76
Procedures for Data Collection..................................................................................................77
Data Analysis.............................................................................................................................79
Disposition of Data ....................................................................................................................80
Findings and Analysis of Data………………………………………………………………….. 82
Organizational Summary ...........................................................................................................82
Findings Related to RQ1............................................................................................................82
Findings Related to RQ2............................................................................................................92
Findings Related to RQ3..........................................................................................................100
Conclusion and Discussion……………………………………………………………………..103
Summary..................................................................................................................................103
Interpretation of the Findings...................................................................................................104
Relationship to Previous Research...........................................................................................110
Discussion and Conclusions ....................................................................................................116
Recommendations for Practice ................................................................................................121
Limitations...............................................................................................................................124
Recommendations for Further Research..................................................................................125

PERCEPTIONS OF STRATEGIC COMPENSATION vii
Reflections ...............................................................................................................................126
References………………………………………………………………………………………130
Appendix A: Informed Consent Letter………………………………………………………… 141
Appendix B: Research Instrument……………………………………………………………...144
Appendix C: Focus Group Questions………………………………………………………….. 148
Appendix D: Interview Questions……………………………………………………………... 149
Appendix E: Table 25…………………………………………………………………………..150
Appendix F: Pilot Test………………………………………………………………………….151
Appendix G: MOU…………………………………………………………………………….. 153
Appendix H: NIH Certificates of Completion………………………………………………….158
Appendix I: IRB Approval……………………………………………………………………...160
Appendix J: Team Member Biographies……………………………………………………….161

PERCEPTIONS OF STRATEGIC COMPENSATION viii
List of Tables and Charts
Table 1: Entry Level Salary Schedule………………………………………………………….....9
Table 2: Percentage of Annual Base Pay Award………………………..…………………..…...10
Table 3: Salary Schedule for School-wide Awards……………………………………………...11
Table 4: Growth Score Awards.....………………………..……………………...…………........12
Table 5: Hard to Staff Positions Supplement….…….………...………………………...……….13
Table 6: Hard to Staff Positions Supplement….……..………..………………………...……….13
Table 7: Effective Principals Awards Schedule…....……...………..………………...………….14
Figure 1: Adams Equity Introduction……………………………………………………………19
Figure 2: Herzberg’s Motivational Theory………………………………………………………21
Table 8: Gender of Participants………………………………………………………………….67
Table 9: Years of Experience of Participants……………………………………………………68
Table 10: Licensure Level of Participants……………………………………………….………69
Table 11: Grade Level Taught by Participants……………………………………….………….69
Table 12: Tenure Status of Participants………………………………………………….………70
Table 13: Evaluation Level Scores of Participants…..…………………………………….….....71
Table 14: Strategic Compensation Participation of Participants…..…………………….………71
Table 15: Correlation of the Questionnaire and Research Question 1…..……………….………75
Table 16: Correlation of the Questionnaire and Research Question 2……...…….……………...75
Table 17: Correlation of the Questionnaire and Research Question 3…..……………………….75
Table 18: Overall percentages of positive and negative perceptions in RQ1……..….………….83
Table 19: Overall percentages of positive and negative perceptions in RQ2…….……………...93
Table 20: Skewness and Kurtosis Values for CS1, CS2, and CS3 in Relation to Strategic

PERCEPTIONS OF STRATEGIC COMPENSATION ix
Compensation Participation...........................................................................................................97
Table 21: Skewness and Kurtosis Values for CS1, CS2, and CS3 in Relation to No Strategic
Compensation Participation……………………………………………………………………...98
Table 22: P-Values for CS1, CS2, and CS3 as generated by Levene’s Test………………….....99
Table 23: P-Values Associated with Independent T-tests……………...………………………..99
Table 24: Overall Percentages of Positive and Negative Perceptions in RQ3…………………100
Table 25: Individual Interview Question Responses…………………………………………...146

PERCEPTIONS OF STRATEGIC COMPENSATION 1
Introduction
A strong teaching force is necessary for the well-being of our country’s citizens and
society as a whole. Not only does education allow for individual success and achievement, but it
can also dictate the future stability of the country. Therefore, raising underperforming student
achievement levels is a focus throughout the United States today. In order to accomplish this
goal, there is also a focus on increasing teacher effectiveness. The belief that some teachers are
more effective than others in advancing student outcomes has led to an increasing interest in the
use of strategic compensation for teachers. Many supporters have proposed rewarding teachers
as a strategy for improving teaching, learning, and student outcomes.
Over the last 100 years, U.S. schools have primarily used a limited salary schedule based
on teachers’ degrees and years of experience in K-12 public education (Podgursky, 2007).
Personnel salaries dominate every school district's budget and influence the allocation of system
resources. This ultimately will shape the district's ability to achieve its overarching goal of
maximizing student learning (Battelle for Kids, 2010). Notwithstanding this common
characteristic in salary schedules, contemporary research has cast doubt on whether increased
years of experience and advanced degrees have a significant positive impact on student learning
(Harvey-Beavis, 2003). All of these factors combined with highly accessible performance data
and bipartisan political support for compensation reform have stimulated the growth of
compensation policy programs across the country.
Education Secretary Duncan (Jehlen, 2009) argued that his department’s highest priority
was performance-based pay for teachers. Moreover, the Obama Administration created the $4.3
billion Race to the Top fund to encourage states to implement performance-based pay systems
among other initiatives. Both President Obama and the U.S. Secretary of Education, Arne

Duncan, had supported the push for performance-based pay. According to Gratz (2009), the
implementation of performance-based pay was a primary goal for them. Duncan, speaking at the
2009 National Education Association convention, argued that teachers would do well to support
performance-based pay and that “although test scores alone should never drive evaluation,
compensation, or tenure decisions, not including student achievement in teacher evaluation is
illogical and indefensible” (p.76). At the same time, the most controversial component of
performance-based pay systems has been payment based on standardized achievement test scores
of students.
In 2010-11, the State of Tennessee began the process of implementing an alternative
compensation model. Fourteen school districts across the state were the first to be part of a $501
million Race to the Top (RTTT) grant provided by the U.S. Department of Education (USDOE),
of which $36 million was designated to provide high-need districts with funding for
performance-based compensation. Tennessee also received two additional grants in the RTTT
funding that contributed to the initial pool of money the districts accessed, bringing the total
amount to over $50 million (TNCRED, 2011).
The Race to the Top grants and new state legislative laws that accompanied the $501
million statewide grant changed teacher tenure laws and provided incentive funds for these
innovative school districts to move away from the traditional salary schedule where teachers
were paid based on years of experience and degrees earned. This new pay system was referred
to as strategic compensation. In this reformed pay system, teachers were paid using a baseline
salary with potential bonuses determined by indicators focusing on student performance
(USDOE, 2010). Tennessee was one of only three states (including Texas and Florida) that had

taken the initiative to begin the transformation of policy regarding performance-based pay for
teachers.
In 2010, the Rural Southeast School District was awarded Innovation Acceleration Funds
(IAF) from the RTTT grant to organize a steering committee to design a strategic compensation
plan for the district. In 2011, this district was one of five school districts in the State of
Tennessee that was awarded an Innovation Acceleration Grant (IAG) of over $1 million as part
of the RTTT funding to move the school district to an entirely alternative-based compensation
model (TNGOV, 201l).
Topic, History, and Background
According to Gratz (2009), the first instances of performance pay occurred during the
mid-1800s in Britain. At this time, schools and teachers were paid based on test results. Over 30
years later, “the testing bureaucracy had burgeoned, cheating and cramming flourished, and
public opposition had grown dramatically. The practice was abandoned as a failure” (p. 76).
Gratz suggested that over the next fifty-plus years, there were two significant turns in
perceptions about performance-based pay. The first shift in perceptions occurred in 1907 from
Great Britain’s chief education inspector Edmond Holmes. Holmes believed that performance-
based pay devalued the process of teaching and learning because it placed a premium on test
scores. Teachers had shifted their focus from students to test scores so they could earn more
money. Holmes believed students were being mentally starved because of the focus on
regurgitating answers for exams instead of the in-depth mastery of content knowledge. As a
world education leader, his negative view on merit pay had an international effect. The second
paradigm shift happened in 1918 in the U.S. during the women’s suffrage movement, which led
the public to start considering fairness and gender inequalities. At that time, performance-based

pay began to be viewed as merit-based pay. The merit-based pay system was perceived to be
favorable to white male teachers. Because of the reality that women and minorities were treated
unequally to white males and the perception that merit-based pay was part of this inequality, the
public demanded a uniform pay scale. This new shift brought objectivity to a system that had
perpetuated a negative view on differentiated pay. A pay scale that was equalized by ensuring
teachers received the same pay for the education and experience brought a belief that all teachers
were treated equal regardless of gender or ethnicity. These beliefs would play out through the
next 50 years in the U.S. through the civil rights era. Leading up to the 1960s, 96% of school
systems across the country had a uniform pay scale.
In 1983, the U. S. Department of Education (USDOE) published A Nation at Risk, which
suggested that schools were becoming mediocre. President Ronald Reagan, a proponent of merit
pay, experimented with performance-based pay with negligible results. However by 1985, with
the promotion of Reagan’s idea that teachers should be rewarded for their merit and competence,
25 states had mandated incentive pay programs for teachers. Some districts during the era
experimented with incentive programs, management by objectives, and career ladder models or
differentiated staffing with little sustainability (Gratz, 2009; Harris, 2007).
By 1999, tying student achievement to teacher pay was being considered and even piloted
in some school districts. For example, the Denver, Colorado school board and teachers’
association jointly sponsored a new approach to performance-based pay focusing on student
achievement. The pilot study was successful overall; however, student performance was still
thought to be inadequate, suggesting that teachers were ineffective. According to Gratz (2009),
making the connection between the standard measures of students’ learning and teacher
performance was difficult to establish because the measurement being used was not applicable to

over half of the teachers in the district including teachers of the arts, as well as special education
teachers and those in untested grade levels. This particular model did not consider incentives for
those teachers working in difficult situations (such as exceptional needs), nor did it examine
incentives for those teachers that worked in non-tested subject areas. Additionally, teachers that
showed immense support for their school or attendance zone by taking on high-risk students or
serving at schools in high crime and poverty neighborhoods had no chance for monetary reward.
According to Gratz (2009), after four years of tremendous effort from teachers and
administrators, Denver expanded its definition of performance. They produced their most
effective performance-based pay plan with four different components used in evaluating the
effectiveness of the teacher- student academic growth, teacher skill and knowledge, professional
evaluation, and market incentives. The plan placed special attention to those teachers in hard-to-
serve schools or in hard-to-staff positions.
Gratz (2009) noted that when performance is broadly defined and all parties agree to the
plan, many educators agree that performance-based pay can be successful. During the past
decade, performance-based pay has been pushed to motivate teachers to increase achievement,
particularly in the context of student test scores. Thus, it can be asserted that modern
performance-based pay, which developed in part because of the No Child Left Behind Act,
increased standards required of schools over that same decade (USDOE, 2001).
Not all educators believe that performance-based pay can work. According to Terpstra
and Honoree (2008), if teachers see their peers earn bonuses for activities they completed during
the previous year, their perception of the system will likely change for the worse. Additionally,
Wragg, Haynes, Chamberlain, & Wragg (2002) stated that teachers may view a system as being
unfair if school goals are not aligned with those of the incentive system and result in preventing

teachers from receiving bonuses. However, Terpstra and Honoree also presented contrasting
research to these perceptions of unfairness within performance-based pay systems, asserting that
when merit pay distinctions were clearly demarcated at attainable levels, teacher motivation to
achieve each new level was much higher and the perceived fairness of the system was boosted.
Job satisfaction is tied closely to perceptions of compensation fairness. Teaching is a
uniquely difficult profession in which to judge individual effectiveness because of the large
number of intangible qualities and habits involved. Wragg et al. (2002) and Figlio and Kenny
(2007) found when teachers were judged based on criteria that they do not feel is representative
of the work that they were doing or that ignored important aspects of their perceived worth, they
often felt dissatisfied with the way they were rewarded. According to Lussier and Forgione
(2010), even within a fair and opaque system of evaluation, if record keeping was done sloppily
and resulted in incorrect payouts to teachers, confidence in the reward system could plummet
along with teachers' satisfaction with it.
According to Wragg et al. (2002), quotas on bonuses were another reason for decreased
satisfaction in schools using performance based-pay. In districts where teachers felt there was
too much competition for incentives, they were less likely to feel content with their system of
compensation. A study by Belfield and Heywood (2008) found that working under a
performance-based pay system showed no effect on career satisfaction among teachers and
resulted in a decreased satisfaction with their salaries.
Teacher perceptions of job motivation and satisfaction under merit pay systems seemed
to be decidedly negative based on previous research. One primary concern was that school
systems might be unable to fairly recognize and reward good teaching. Another concern was
that the school system might be financially incapable of meeting the budgetary needs for those

rewards. Similarly, quotas and unfair criteria for rewards can also deter teachers from placing
their confidence in merit pay.
Problem Statement
In 2011, the Rural Southeast School District implemented a strategic compensation plan
for all newly-hired faculty members with an option for existing faculty to join. The model
correlated with individual teachers’ effectiveness scores. Tennessee uses the Tennessee
Educator Acceleration Model (TEAM) to train and evaluate public school teachers and
administrators (TNDE, 2014a). The teacher effectiveness score was determined through TEAM
and included observations, professional development, and value-added scores from state-
mandated testing that show academic growth of students over time.
The major rationale for the district’s strategic compensation plan was based on the belief
that it provided faculty members with an incentive to improve teaching strategies and thereby
increase student achievement. The director of schools worked with a team of teachers,
administrators, and the board of education to create and implement the current performance-
based pay system used in the Rural Southeast School District. While the district had collected
quantitative data since the inception of the strategic compensation plan, they had not examined
the teachers’ perceptions of the model.
The Strategic Compensation Plan
Overview. In 2010, the Rural Southeast School District was awarded $50,000 from the
Competitive Supplemental Fund (CSF) of the Race to the Top (RTTT) grant to assist in the
planning and development of a strategic compensation model. A steering committee consisting
of the director of schools, system and school administrators, K-12 system teachers, and local
community leaders were charged with the task of designing the model. The committee’s work

was substantial enough to impress external evaluators and by January 2011 the district was
notified by the Tennessee Department of Education that they were one of four school districts in
the state to be awarded RTTT funds for alternative salary models. The district received over $1
million from the Innovation Acceleration Fund (IAF) to move the school district to the new
alternative based compensation model.
In the spring of 2011, the district’s Strategic Compensation Plan was approved by both
the local and state boards of education. The Commissioner of Education gave final approval and
special permission to implement the Strategic Compensation Plan in order to abolish the
traditional Basic Education Program (BEP) salary schedule in the district. The new plan was
implemented at the start of the 2011-12 school year.
Section A. The district plan for determining compensation was constructed of six
sections of which teachers could choose to be a part. Section A consisted of the entry-level
salary schedule that all employees hired during the initial year of implementation or after
received. The base line, entry-level salary was set at the time of initial employment and could
not change with experience or degree after the first year of employment. Table 1 shows the
entry-level salary schedule for teachers.

Table 1
Entry-level salary schedule for teachers
Degree Years of Experience Salary
Bachelor Level 0 $30,876
1-5 $31,446
6-10 $34,066
11+ $37,461
Masters level 0-5 $34,291
6-10 $37,906
11+ 41,766
Section B. Section B of the plan provided the first performance pay incentive of the
strategic compensation model. This section was designated as the annual base pay schedule.
Base pay was determined by each teacher’s summative evaluation score and determined through
the 100th
decimal place. The individual teacher’s Tennessee Value-Added Assessment System
(TVAAS) score and Tennessee Educator Acceleration Model (TEAM) rubric score were utilized
to determine individual teachers’ summative evaluation scores for annual base pay.
According to the Tennessee Department of Education (2011), TVASS was designed to
measure how teachers and schools grow students academically. The evaluation was designed to
measure growth on state assessments and not necessarily the level of proficiency of the
individual student. TEAM scores were determined for teachers utilizing the 19-point criteria
rubric for teacher observations. The rubric was developed for educators to have constructive
conversations and to promote best practices for teachers to utilize in their classrooms. TVASS
growth scores and the TEAM observation score were combined for the summative evaluation of
section B of the strategic compensation model.

Teachers with more than 19 years of experience and who elected to move to the strategic
compensation plan could not receive a base pay award. Additionally, any employee with over 30
years of experience could not receive a base pay award. The two groups of teachers’ salaries
exceeded the maximum benefit for determining base pay and therefore would have caused those
groups to receive an unfair increase through the new compensation model. Table 2 shows the
percentage increments that were awarded for evaluation scores.
Table 2
Increments awarded for evaluation scores
Evaluation Scores Percentage of Annual Base Pay Award
< 3.49 0%
3.5 – 3.99 1.45%
4.0 – 4.49 1.70%
4.5 – 4.74 1.95%
4.75 > 2.20%
Section C. Section C of the plan designated the criteria for teachers to receive school-
wide bonuses. Each teacher could receive a school-wide bonus, but it could not exceed $2,500.
The bonuses were determined by the percentage of benchmarks achieved by the school during
the academic year. A benchmark rubric was established to determine school-wide awards.
Table 3 shows the salary schedule for school-wide awards.

Table 3
Salary schedule for school wide awards
Benchmarks Met Percentage Award Stage 1
50%
Stage 2
80%
Stage 3
100%
11 100 $2,500 1,250 2,000 2,500
10 91 $2,272 1,136 1,818 2,272
9 82 $2,045 1,023 1,636 2,045
8 73 $1,818 909 1,454 1,818
7 64 $1,590 795 1,272 1,590
6 55 $1,363 682 1,090 1,363
5 45 $1,136 568 909 1,136
4 36 $909 455 727 909
3 27 $681 341 545 681
2 18 $454 227 363 454
1 9 $227 114 182 227
Section D. Section D was aligned to student performance for individual teachers. In
kindergarten through fifth grade, student assessment data for reading was used to award teachers
for Level 4 and 5 student averages. Additionally, student average assessment scores for fourth
and fifth grade math received monetary awards for Level 4 and 5. Middle school teachers for
fifth, sixth, and eighth grades with student assessment scores of Level 4 or 5 in math, science,
English, and social science could also earn monetary awards. Finally, high school teachers who
teach Algebra I or II; English I, II, or III; or U.S. History could earn monetary awards for Level 4
or 5 scores. Table 4 shows each grade level with the monetary award for subject area growth
through assessment level average.

Table 4
Monetary award for subject area growth through assessment level average
Grade Performance Level Award
Kindergarten
1st
grade Reading >
Predicted
$750
1st
grade Reading Level 5
Level 4
$1,500
$750
2nd
Level 4
$1,500
$750
3rd
Level 4
$1,500
$750
4th
gradeReading Level 5
Level 4
$1,500
$750
5th
Level 4
$1,500
$750
4th
& 5th
grade Math Level 4+ $750
MiddleSchool
(Math,ELA,Science,Social Studies)
Level 5
Level 4
$1,500
$750
High School
(Algebra I & II, ELA I, II, & III, US History)
Level 5
Level 4
$1,500
$750
Section E. Hard to staff positions made up Section E of the compensation plan. The
hard to staff positions were defined as areas that had a critical shortage of available teachers.
Severe special education and high school math received the highest compensation rates.
Moderate special education, high school chemistry/physics, foreign language, and high school
language arts teachers also received stipends. Teachers that taught out-of-field only received
50% of their stipend until they received proper licensure. Table 5 shows the compensation
schedule for hard to staff areas.

Table 5
Compensation schedule for hard to staff areas
Hard to Staff Positions Monetary Compensation Amount
Special Education Moderate $1,000
Special Education Cognitive $2,000
High school Math $2,000
High School Chemistry/Physics $1,500
High School Foreign Language $1,500
High School Language Arts $1,000
Section F. The fifth section in which classroom teachers were provided extra monetary
compensation was based on leadership roles. High school department heads, elementary and
middle school grade level chairpersons, and Stage 3 academic intervention coaches could all earn
stipends for their additional work. Table 6 shows the positions and compensation levels.
Table 6
Positions and compensation levels
Extra Duty Positions Supplement Amount
High School Department Heads (Math, Science, ELA, Civics) $1,500
Elementary and Middle School Grade Level Chairpersons $1,500
Stage 3 Coaches (2 per school) $1,750
Section G. The last monetary bonus offered under the strategic compensation plan was
for principals and assistant principals. The section labeled Effective Principals allowed
principals to receive an annual school-wide bonus award up to $5,000 based on the TEAM
evaluation score. There was a 20% reduction for each score drop below Level 5. Additionally,
principals and assistant principals could earn awards based on the school-wide benchmark rubric
score following each academic year. Table 7 shows the compensation schedule for principals
and assistant principals based on the school-wide benchmark rubric.

Table 7
Compensation schedule for principals and assistant principals
Benchmarks Percentage Award Level 1
20%
Level 2
40%
Level 3
60%
Level 4
80%
Level 5
100%
11 100% $5,000 1,000 2,000 3,000 4,000 $5,000
10 91% $4,545 909 1,818 2,727 3,636 $4,545
9 82% $4,090 818 1,636 2,454 3,272 $4,090
8 73% $3,636 727 1,454 2,182 2,909 $3,636
7 64% $3,181 636 1,272 1,909 2,545 $3,181
6 55% $2,727 545 1,091 1,636 2,182 $2,727
5 45% $2,272 454 909 1,363 1,818 $2,272
4 36% $1,818 364 727 1,091 1,454 $1,818
3 27% $1,363 273 545 818 1,090 $1,363
2 18% $909 182 364 545 727 $909
1 9% $454 91 182 272 363 $454
The district also had guidelines in place for all certified school-based employees. The
guidelines were put in place during the initial year of implementation and remained in place with
minor edits and changes. The following were the district guidelines.
District Alternative Compensation Eligibility Rules:
1. To be eligible to participate in the Alternative Compensation program all teachers and
principals must meet all of the following general eligibility requirements.
2. Requirements may change annually. All educator inquiries/issues with requirements
shall be reviewed by the Steering (Design) Committee, which consists of teachers,
principals, board members, community members, and the Director of Schools and
approved annually by the Board of Education.

3. All new employees entering the district will participate in the Alternative Compensation
Plan.
4. No employees hired prior to July 25, 2011, shall have the ability to join the alternative
compensation plan after the July 30-August 3, 2012 enrollment window.
5. Current employees with the district who joined with 20 or more years of teaching
experience are not eligible for increases to annual baseline pay in any year but shall be
eligible for all bonus and incentive awards.
6. Employees as of SY 2011-12 who joined with 19 or less years of teaching experience
shall be eligible for increases to annual baseline pay for up to 30-years of teaching
experience at which time annual baseline increases shall no longer continue. Employees
who joined with 20 or more years of teaching experience as of SY 2011-12 shall be
eligible for all bonus and incentive awards based on program funding.
7. Employees must be employed in a campus-assigned position within the first 20 days of
school.
8. Central office staff, substitute teachers, or student teachers are not eligible. Hourly
employees are not eligible to participate in the alternative compensation program.
9. Eligible employees must hold a valid teaching license from the State of Tennessee to be
eligible to receive bonus awards.
10. Employees must be supervised and evaluated by the principal or his/her designee of the
campus where they are serving students. (This does not apply to Principals)
11. For applicable employees: employees must review instructional-linkage and assignment-
verification information for accuracy (Teachers are responsible for claiming their
students' individual scores).

12. Employees must attend 94.44% or 170 days of the 180 instructional days identified in the
"instructional school calendar" to receive their school-wide bonus, individual teacher
performance, teacher leader incentive, or principal bonuses. This means that employees
cannot be absent for more than 10 days. Employees who miss more than 10 days will,
however, be eligible for their annual baseline pay increase per annual teacher evaluation.
The following types of leave will be held harmless (not count as days absent) and match
the Board's current policies and term definitions: military leave, FMLA - family medical
leave (must be authorized through the Central Office), assault leave, jury duty, and off-
campus duty (such as professional development opportunities or activities approved by
the District).
13. Bonuses and incentive awards are not ensured to occur every year. They are contingent
upon program funding. Only increases to annual baseline pay increase are guaranteed.
14. Employees must be continuously employed in a tested position until the last day of
school to receive the Individual Teacher Performance bonus.
15. Employees must be in "good standing" to receive any bonus. "Good standing" means
that all paperwork/certifications are up to date.
16. Bonuses for employees who transfer from one bonus-eligible position to another bonus-
eligible position during the school year shall be determined on the basis of the bonus-
eligible position held for the majority of the school year.
17. Employees who are involuntarily transferred to another school within the district may
permanently "opt out" of the Alternative Compensation Plan. The employee shall return
to the present BEP salary schedule for the corresponding years of experience and
degree(s) held by the employee. The employee shall not be entitled to any payments

within the scope of the Alternative Compensation Plan in the school year for which they
"opt out". The employee can never return to the Alternative Compensation Plan once
such option is exercised.
18. Employees will not be eligible for bonuses that transfer from a bonus eligible position to
a non-bonus eligible position.
19. Employees who work at multiple schools will receive awards determined by the school
for which they are evaluated.
20. Employees who voluntarily elect (except for retirement) not to return to the district in the
following year for which bonuses are rewarded shall not be eligible any bonus award
payments except Hard to Staff, Department Head, Grade Level Chairperson, and Stage 3
Coaching duties.
Purpose of the Study
The purpose of this study was to determine the teachers’ perceptions of the strategic
compensation model and its influence on teachers in the district. More specifically, the study (1)
investigated the perceptions of faculty members concerning the strategic compensation plan; (2)
identified perceived changes in teacher behaviors as a result of the strategic compensation plan;
and (3) examined whether the teachers’ perceptions of the strategic compensation plan affected
decisions to continue or discontinue employment in the district. For purposes of this study, the
dependent variables were individual faculty members with consideration of gender, years of
teaching experience, licensure status, tenure, evaluation rank, and participation in the plan. The
independent variables were the faculty participants’ perceptions of traditional and non-traditional
payment plans.

Conceptual Framework
The conceptual framework for this study was based on two significant models that have
been utilized for the past few decades to study how workers perceive their jobs. These theories
crossed all lines of the public and private sectors, as well as the blue-collar versus white-collar
view of how people perceive job worth and satisfaction. The framework models illustrated
relevance for those inside and outside of educational institutions.
Because teacher perception of strategic compensation was the basis for this study, the two
theoretical frameworks used were equity and motivation. These theories were chosen because of
their qualitative values and descriptors. The researchers utilized these theories in the
development of the research instruments used for this study. Both theories have unique
paradigms that show how employees can have opposing perceptions in response to the same
question even when they have similar jobs. The researchers analyzed the teacher perceptions
from the questionnaire, focus group, and individual interview responses, and afterwards,
compared and contrasted them with the theories of equity and motivation.
Adams Equity Theory. Equity theory (Huseman, Hatfield, & Miles, 1987) proposed
that as a result of the distress of either over-reward or under-reward, inequitably rewarded
individuals should experience lower levels of job satisfaction than equitably rewarded
individuals. Figure 1 shows the balance needed for employees to perceive that job satisfaction
experiences are generally seen as a positive experience. It also illustrates the importance of the
balance of the scales, specifically, that input and output ratios are crucial pieces of the theory and
not simply a rendering of whether or not rewards are appropriate for efforts.

Figure 1: Adams Equity Theory.
Adapted from “Adams Equity Theory” by Alan Chapman, 2015, Retrieved from
http://www.businessballs.com/adamsequitytheory.htm. Copyright Businessballs 2015.
Reprinted with permission.
Adams first introduced his equity theory in 1963 as cited in Huseman et al. (1987). He
suggested that a motivational tension was created when a worker sees a sense of inequity when
comparing a worker’s job inputs and outcomes (rewards) with other workers. He postulated that
if one perceived this inequity he or she would feel either anger or guilt. However, in practice,
equity theory presents a number of challenges (p. 222). When applied to performance-based pay
systems in a school setting, teachers could question the comparative fairness or procedural
justice of the rewards at their campuses based on several factors including student assignment to
classes, the difficulty level of the content taught, and the relative support given to teachers. A
performance-based pay system that rewards teams rather than individual teachers may address
some of these potential equity issues.

Herzberg’s Motivational Theory. Frederick Herzberg’s (1968) motivation-hygiene
theory was developed from research that indicated that there was a separate and distinct
difference between job satisfaction and job dissatisfaction. For example, when workers were
asked about what factors contributed to job satisfaction, they tended to answer with
characteristics such as achievement, recognition, and the work itself. When asked about what
factors contributed to job dissatisfaction, they tended to answer with characteristics such as
supervision, relationships, work conditions, and salary. Herzberg noted that the characteristics
that produced job satisfactions were intrinsic motivators and that the characteristics that
produced job dissatisfaction were extrinsic to the job itself. Herzberg called these extrinsic
characteristics hygiene factors in contrast to motivation factors. Figure 2 represents Herzberg’s
visual of hygiene and motivation. This differentiation shows the effect of hygienic factors on
motivation.

Figure 2: Herzberg’s Motivational Theory.
Adapted from “Job Satisfaction” by Brian Redmond, 2015, Retrieved from
https://wikispaces.psu.edu/display/PSYCH484/11.+Job+Satisfaction. Copyright 2015
Pennsylvania State University
Herzberg (1968) described his theory in contrast to three general philosophies of
personnel management: organizational theory, industrial engineering, and behavioral science.
Rather than concentrating on work efficiency, Herzberg’s theory suggested that the work be
enriched in order to maximize effective use of personnel (p. 58-59). The systematic approach of
motivating employees through manipulating the motivator factor was known as job enrichment.
Job enrichment provided the opportunity for the employee’s psychological growth (p. 59).
Herzberg concludes with the following:
The argument for job enrichment can be summed up quite simply: If you have
someone on a job, use him. If you can’t use him on the job, get rid of him, either

via automation or by selecting someone with lesser ability. If you can’t use him
and you can’t get rid of him, you will have a motivation problem. (p. 62)
The theoretical frameworks influenced the survey instruments (Appendices B-D) used for
data collection and were designed to produce participants’ perceptions of strategic compensation,
teacher behaviors, and the recruitment and/or retention in Rural Southeast School District. These
frameworks also assisted the researchers in their data analysis and were used to organize the
qualitative data related to questionnaire responses, focus group responses, and interview. The
theories were further utilized to understand the motivational benefits of a performance-based pay
system in the elementary, middle, and high school and determine teachers' perceptions of the
strategic compensation program, specifically during the data interpretation phase. Finally, the
concepts of equity and motivation in a school setting guided the conclusions drawn from this
study.
Research Questions
The researchers sought to answer the following questions through this mixed methods
research study:
1) What are the teachers’ perceptions of strategic compensation in Rural Southeast
School District?
2) What teacher behaviors have been affected as a result of the strategic compensation
plan in the Rural Southeast School District according to teachers’ perceptions?
3) How has strategic compensation affected teacher recruitment and/or retention in Rural
Southeast School District according to teachers’ perceptions?

Significance of the Study
The significance of this study centered on the need to identify teachers’ perceptions of the
strategic compensation program in Rural Southeast School District. In January 2010, the state of
Tennessee became one of the first states to apply for Race to the Top (RTTT) funding from the
U.S Department of Education. Tennessee finished second to Delaware in the nationwide
competitive grant application score, but was the top winner in funding for Phase 1 with a $500
million award. The RTTT grants asked states to show how they would advance public education
reforms in four specific ways; adopting college and career ready standards and assessments, data
systems that show growth and success, teacher development and retention, and turning around
low-performing schools (USDOE, 2015b). The Tennessee First to the Top program was
established by the state legislature immediately after receiving the USDOE notification of the
RTTT award. Tennessee has invested a substantial amount of the RTTT grant money into pilot
programs, and the validation of successful implementation could expedite the education reforms
outlined under state and federal legislation (TNGOV, 2010).
Implementing a successful strategic compensation program requires teachers’
involvement. School districts benefit from teachers playing an active role in the process of
creating and implementing future programs. This research attempted to provide the perceptions
of Rural Southeast School District’s teachers toward the implementation of their strategic
compensation program. Knowing how these teachers perceived the compensation program as
well as understanding how they believed their behaviors had changed as a result could be very
beneficial to Rural Southeast School District, as well as other districts in and outside of
Tennessee. Additionally, local and state officials throughout Tennessee will benefit from the

findings regarding how strategic compensation affected teacher recruitment and/or retention
according to teachers’ perceptions.
This study is also beneficial because it encourages teachers to collaborate with one
another to improve student outcomes. One of the most important rationales for using strategic
performance-pay is to encourage and motivate teachers to perform at their best. Therefore,
stakeholders in the educational system (including students themselves) should be interested in
whether or not strategic performance-pay motivates their teachers.
The factors relating to performance-based pay are also significant. According to Harvey-
Beavis (2003), there are many possible facets to strategic compensation plans based on the needs
of the district. For example, performance measures can be based on the performance of each
school as a whole or each teacher as an individual unit, and may or may not involve monetary
incentives. Some strategic plans include measures such as school or individual sanctions for
poor performance, whereas others are designed with tiered levels of rewards for positive
performance above a given baseline expectation.
Finally, there are a wide variety of options for compensation or incentives in strategic
compensation plans based on the needs of each district, as each district can elect whether to
reward with bonus pay, compensatory days, or other benefits. Not only do districts have the
ability to design the measures and types of incentives given, they may also adjust the scope of
those benefits to match the needs and capabilities of the system. Because strategic compensation
can be implemented in such a variety of ways, studying the type of program implemented in
Rural Southeast School District could lead to a greater understanding for other districts as they
seek to create their own strategic compensation plans.

Delimitations
The Rural Southeast School District served more than 1,200 students in Tennessee. The
Tennessee Department of Education designated the district as an exemplary school district.
Three schools (one elementary school, one middle school, and one high school) comprised the
district.
This study was delimited to certified, school-based instructional and administrative
personnel employed by Rural Southeast School District. The district was chosen because in the
2011 - 2012 school year it implemented a merit-based pay component as a part of its overall
compensation plan. Any inferences beyond this group should be drawn only after careful
consideration of the target population.
Definitions
TVAAS - According to the Tennessee Department of Education (2014b), “The Tennessee
Value-Added Assessment System (TVAAS) measures the impact schools and teachers have on
their students’ academic progress. TVAAS measures student growth, not whether the student is
proficient on the state assessment” (para. 1). The data collected by TVAAS is used strategically
to help educators make informed decisions about what is best academically for their students.
TVAAS data is also factored into the teachers’ overall evaluation scores. For teachers who are
in tested subject areas and grade levels, TVAAS data counts as 35% of their overall evaluation
score. For teachers in non-tested grade levels and subjects, TVAAS data counts as 25% of their
overall evaluation scores (TNDE, 2014a).
Strategic Compensation - For the purpose of this study, strategic compensation was
defined as any performance-based or merit pay that is awarded to teachers as the result of
excellent student achievement and teacher evaluations. Strategic compensation also may be paid

to teachers who are recruited to fill hard-to-staff positions.
TEAM - The Tennessee Educator Acceleration Model (TEAM) is the evaluation model
that is used to train and evaluate public school teachers and administrators in Tennessee (TNDE,
2011a). TEAM evaluations incorporate frequent observations both announced and unannounced
and constructive feedback for educators. Using the TEAM rubric, educators work together with
administrators (TNDE, 2011b). The goal of TEAM is to identify what is working well in the
classroom (Area of Reinforcement), where there is room for improvement (Area of Refinement),
and options for professional development to support continued growth (TNDE, 2011a).

Literature Review
In this chapter, the review of past research looks at studies conducted and the
deliberations that must be considered when implementing a strategic compensation program. In
the first section, the review examines different types of performance-based pay and how they
have been implemented in the past. The second section focuses on the benefits of performance-
based pay for teachers. Past positive outcomes for districts, teachers, and students as well as
other stakeholders will be discussed. The third area for review is drawbacks of performance-
based pay.
The fourth section of this chapter will review how teachers perceive strategic
compensation. Understanding how teachers have viewed performance-based pay is essential,
especially when school districts plan to use financial rewards to motivate teachers. The fifth
section will explore past literature regarding changes in teachers’ classroom behaviors following
performance-based pay implementation. Research findings on classroom behaviors are
discussed first, focusing on subsequent areas of teaching performance, expectations, and student
achievement. The final section of this chapter will examine hiring and retention practices of
school districts following the implementation of performance-based pay. There is also a brief
discussion of why teachers may be drawn to a system that is performance-based and whether
such a plan would cause employees to want to leave the system.
Performance-Based Pay
In a study conducted by the Center for American Progress, Brenneman (2014) noted that
even after gaining experience, most teachers were not likely to see major salary gains. The
United States offers low salaries for teachers and provides few salary growth opportunities,
unlike other developed countries. Japan and Korea, for example, have increased the salaries of

elementary school teachers by almost 80% in the past 15 years. The United States, in
comparison, had only increased the salaries of elementary school teachers by approximately 25%
in the past 15 years (Brenneman, 2014; Organization for Economic Co-operation and
Development, 2014). According to Brenneman (2014), there were only four states (Connecticut,
Maryland, New Jersey, and New York) that allow the highest pay scale for teachers to exceed
$60,000. New York offered the highest maximum salary of $90,700; however, New York also
had a relatively high cost of living.
While other professions may have the opportunity to earn many types of additional pay or
bonuses, there are usually only two options available for teachers to increase their salaries –
performance pay and professional development (PD) pay. According to Brenneman (2014), both
of these options allowed high performing teachers to earn bonuses in addition to their regular
salaries. In many cases, teacher bonuses were dependent on students’ test scores. This bonus
plan was undesirable to teachers because they believed it to be flawed.
Even though teachers are concerned with how performance-based bonuses are calculated
and the impact test scores may have, they understand the need for improving their salaries and
being recognized as professionals. Teacher accountability continues to dominate the current
educational discourse as attention is focused on the role teachers’ play in affecting student
achievement as measured by test scores and dropout rates. Consequently, the effectiveness of
teacher strategic compensation pay has become an issue of increasing importance.
Harvey-Beavis (2003) suggested that performance-based pay plans can have a wide range
of frequency and duration; checkpoints may be set up for multiple measures during a school
year, annually, or multi-year depending on the needs of the system. Likewise, incentives may be
given at each checkpoint or spread out, occurring at fixed points such as every three years with

experience-based scheduled salary increases. In addition to duration and focus, there were also
many options for the measures and incentives themselves. Districts may decide to utilize
principals or other internal groups to measure performance or use an outside service or counsel
to assess performance. Performance itself can also be defined in many ways and strategic plans
can take into account many different measures to generate a perception of success or failure.
According to Harvey-Beavis (2003), some common teacher-centered measures, whether
alone or in combination, included classroom observations, state teacher assessments, evaluation
of teacher qualifications, National-Board style teacher portfolios, and professional growth of
teachers through training or further education. Teacher-centered measures were often coupled
with student-centered measures as well, which frequently involve comparison of standardized
assessments to ascertain whether students are making gains, defined as group increases in overall
average score, from year to year or course to course. Each plan has the potential to measure
goals that are customized to the needs of the district, whether related to faculty retention and
recruitment or student performance.
Goldhaber, Dearmond, and Deburgomaster (2011) recognized that there was not
sufficiently researched evidence about the effects of differential monetary incentives in
education (pp. 441-442). Typically, researchers have made inferences about the level of
incentives by observing teachers in a traditional compensation system that was based on the
experience and education levels of teachers rather than on their performance. Direct analysis of
incentive reforms can be difficult to find. Goldhaber et al. sought to survey and examine
teachers in order to identify their views on strategic compensation plans in Washington.
Goldhaber et al. (2011) analyzed teacher attitudes and perceptions about compensation
reform using the Washington State Teacher Compensation Survey (WSTCS), an original survey

sent to 5,238 teachers in Washington during the spring of 2006 (p. 446). This survey asked
teachers the following question:
How much do you favor or oppose giving extra compensation to the followng
types of teachers?
a) teachers who specialize in hard-to-fill subjects, such as science and
mathematics;
b) teachers who work in tough neighborhoods with poorly performing schools;
c) teachers whose students make greater gains on standardized tests than similar
students taught by other teachers;
d) teachers who receive accreditation from the National Board of Professional
Teaching Standards (NBPTS), a voluntary program of national certification.
(pp. 446-447)
The purpose of their study was “to highlight important distinctions among teachers and
schools that have generally been ignored in prior research and that have important implications
for (incentive-based) reform implementation” (p. 442).
Goldhaber et al. (2011) found that teachers who related to and put more trust in their
colleagues were less likely to support merit pay, while those who build strong connections to
their administration were more likely to do so. This division in teacher attitudes was an indicator
of some of the other perceptions of fairness or unfairness associated with incentive pay in
schools. Whether or not teachers support salary reform largely depends on whether they feel the
system will reward all individual teachers fairly. If a system favored some teachers over others
when the unrewarded teachers felt they did the same amount or more work, job satisfaction for
those teachers who do not receive rewards decreased drastically. Discussions of these two

issues, fairness and job satisfaction, were found in much of the research on incentive pay and
teacher perceptions.
The analysis associated with the study of Goldhaber et al. (2011) treated the various
incentive plans as if they were separate from each other, but suggested that future research may
need to be centered on analyzing combinations of incentives (p. 460). The results from their
study also suggested that secondary school teachers might be more likely to support merit pay.
The researchers noted that teacher opinions about compensation reform implementation needed
to be examined further in order to understand how those perceptions shape the workforce. They
further noted that teacher opinions prove to be a complicated analysis as these opinions involves
their attitudes and all the aspects that influence these attitudes. Their findings seemed to
illustrate the relationship between teacher attitudes toward merit pay and professional norms and
collegiality. These findings appeared to suggest altruistic concerns related to collegial trust
among teachers, and this is consistent with Lortie’s (2002) research. In other words, teacher
opposition to merit pay may be related to the egalitarian ethos of the profession (Lortie, 2002).
Goldhaber et al. (2011) felt that the findings of their study also left many complicated issues
unaddressed, such as the successful adoption of compensation reform depending on the
relationship between districts and union officials.
Lavy (2007) described two primary performance-based pay schemes (p. 89). He noted
that these pay schemes could compensate teachers: 1) based on their individual performance, or
2) based on team/group performance whereas the total team incentive payment is divided among
all team/group members regardless of individual performance (p. 89). He also noted that some
performance-based pay systems involved sanctions for substandard performance. This means
that performance-based pay schemes can incorporate financial penalties for subpar performance.

Lavy (2007) described three main prototypes of performance-based reward programs:
merit pay, knowledge- and skill-based compensation, and school-based compensation (p. 90).
He also noted that merit pay “generally involves individual incentives based on student
performance” (p. 90). However, knowledge- and skill-based compensation usually involved
payment to individual teachers based on teacher performance in the classroom rather than
student outcomes on standardized tests. He further noted, “Knowledge- and skill-based pay
differs from merit pay because it provides clear guidelines on what is being evaluated” (p. 90).
Lastly, he described school-based compensation as pay that involved school-wide bonuses based
on student performance. This last form of compensation would be measured through student
outcomes on standardized assessments overall. In buildings with non-tested grade levels and
subject areas, school-based compensation may be a way for additional teachers to qualify for
performance-based pay.
Performance-based versus outcome-based systems. According to Wisconsin Center
for Education Research (2008), frequently there are misunderstood limitations associated with
performance-based pay systems. They defined two types of strategic compensation as follows:
Performance-based systems (also known as behavior-based systems) tie some
portion of salary to observable teacher behavior, such as demonstration of a
specific pedagogical technique. Outcome-based systems (also known as pay for
performance) link compensation to student performance, such as test scores and
attendance. (Wisconsin Center for Education Research, 2008, p. 1)
According to the Wisconsin Center for Education Research (2008), the most common
merit pay systems are performance-based and outcome-based. Both systems offer incentives for
teachers to continue ongoing professional development to enhance teaching techniques that will

affect student outcomes as well as for aquiring advanced degrees. They also may encourage
teachers to remain in education for the duration of their careers. Even though there are
advantages to both merit pay systems, with outcome-based systems there is also concern that
teachers may focus solely on necessary actions to earn the rewards, which may have a negative
impact on their students.
Subject-area pay. Subject-area pay is used to provide teachers serving in hard-to-staff
subject areas additional pay for their expertise. Goldhaber et al. (2011) noted the research of
Cohen, Walsh, and Biddle who found that 30% of states offer subject-area incentives. Subject-
area incentives vary based on the needs of the state and could include math, science, special
education or any other area of high-need or hard-to-staff positions. Goldhaber et al. (2011)
found that teachers who showed more support for a particular incentive (e.g. subject-area
incentives) were also more likely to say a larger dollar amount was a “fair” incentive in that area
(p. 449). The researchers noted, “As with the merit pay findings, veteran and female teachers are
less supportive of subject-area incentives whereas Hispanic teachers are more supportive” (p.
453). While this finding was noted, the study did not offer any explanation as to why some
teachers are more receptive to particular forms of performance pay. The researchers found that
teachers with middle and high school assignments in mathematics and science were more
supportive of subject-area bonuses. This finding did not surprise them because teachers of
subjects that offer bonuses would naturally favor receiving additional pay for continuing to teach
that subject. They further noted, “When it comes to the trust factors, it appears that a teacher’s
support for subject-area incentives is not systematically related to impressions of his or her
coworkers” (p. 453). The teachers who favored subject-area pay did so knowing that other
teachers in the district would be ineligible for the same bonuses they received.

Combat pay. Goldhaber (2009) described pay incentives designed to entice teachers to
teach in high-needs schools as combat pay (p. 15). The combat pay expression is utilized as a
comparison between teachers who agree to work in low performing schools in much the same
way that the military gives combat pay to soldiers who serve in war zones (Wickham, 2011).
Goldhaber et al. (2011) found that when given the choice between merit-pay, subject-area pay,
combat-pay, and NBPTS incentives, teachers prefered combat pay. The researchers theorized
that combat pay may have been preferred because all teachers in the school were eligible for
earning the bonus, whereas the other incentives were more exclusive. The reasearchers indicated
that with the exception of certain variables (experience, student poverty, and mathematics
performance), support for combat pay is not systematically related to indvidual or workplace
characteristics (p. 454).
Goldhaber et al. (2011) found that teachers in schools with higher math scores appear to
be less supportive of combat pay. They further noted that teachers in schools with higher
reading scores are more supportive of combat pay. The researchers were surprised by this
finding and did not offer an explanation as to why the reading teachers were more supportive of
combat pay. As a means of summarizing their findings in relation to secondary school teachers,
Goldhaber et al. stated, “When it comes to types of reform, teachers are more supportive of
combat pay and least supportive of merit pay” (pp. 459-460).
NBPTS incentive. Goldhaber et al. (2011) collected data related to the incentive pay of
teachers who are certified by NBPTS (p. 454). The USDOE provides $5,000 for NBPTS
certification. The researchers found that teachers already receiving that incentive were
supportive of the extra pay given to teachers with NBPTS certification. They also found that
teachers who feel more trust and respect toward their principal are more supportive of NBPTS

incentives (p. 454). The researchers further noted that “teachers who identify themselves as
members of teachers’ unions are more supportive of incentive pay for NBPTS certification after
controllling for school district effects and the clustering of teachers within schools” (p. 454).
Goldhaber et al. (2011) acknowledged that their findings left many complicated issues
unadressed such as why the teachers receiving the NBPTS incentives felt more trust toward their
administration or why members of unions prefered that incentive.
Individual and peer group compensation. These compensation classifications are
beneficial in their own way. Regardless of the differences, they are both based on value-added
measures. These measures are defined as “growth measures used to estimate or quantify how
much of a positive (or negative) effect individual teachers have on student learning during the
course of a given school year” (The Glossary of Education Reform, 2013, para. 1). These
measures can be applied to individual teachers or peer groups.
The Tennessee Department of Education (2014b) defines growth scores under the
Tennessee Value-Added Assessment System (TVAAS) model. The model measures individual
student learning progress through annual state assessments. The data collected by TVAAS was
utilized in two strategic ways in school systems. The first utilization of TVASS data was to
make educational decisions that are best for students and student outcomes. The second
utilization of the data was for the evaluation of individual teachers. TVAAS data counts between
25-35% of their overall evaluation score in the teacher’s annual evaluation.
Monetary earnings, reducing teaching load, promotions, or public recognition. Lavy
(2007) stated, “Although monetary rewards are the most common incentive in performance-
related pay, other incentives can include reduced teaching load, promotion, and public
recognition of outstanding teachers” (p. 89). He noted that rewards could be one-time events or

ongoing events that have the potential to yield permanent increases in salary (p. 89). He further
noted that a reward could be based on: 1) a relative criterion such as the average test score gain
of a teacher’s class relative to the classes of other teachers, or 2) an absolute criterion such the
class average test score being higher than a predetermined threshold (p. 89). In relation to the
monetary value of awards/incentives, he indicated that awards/incentives could: 1) come in fixed
amounts that are equal for all winners, or 2) increase with winners’ levels of achievement (p. 89).
The different types of compensation used by school systems are unique and designed to
appeal to different teachers. For example, a teacher with a family to support may appreciate
monetary earnings as a reward for his or her work. Monetary bonuses may not be as motivating
to some teachers as other incentives. At the same time, a mid-career teacher may appreciate
promotions or public recognition more. Veteran teachers with immense experience may
appreciate reducing teaching loads the most. Both Caillier (2010) and Wragg et al. (2002) found
that rewards, such as paid time off, were seen as more valuable to teachers. Working conditions
including administrative and psychological support and parental involvement were more likely to
motivate better quality instruction.
Lavy (2007) believed, “tying teachers’ pay to their classroom performance should
improve the current educational system both by clarifying teaching goals and by attracting and
retaining the most productive teachers” (p. 87). His study sought to thoroughly explore
performance-based pay and the challenges and difficulties associated with its implementation.
The researcher stated, “In the teaching profession, earnings are based primarily on input (that is,
skills and time worked), rather than on output” (p. 88). Pay systems based on input are based
solely on level of degree (skills) and years of experience (time worked).

Lavy (2007) advocated for a salary structure that was results-oriented (p. 88). He stated,
“Moving to an earnings structure that ties pay—at least partially—to some performance
indicators should thus improve the current [pay] system” (p. 88). Performance-based pay
typically involved some objective assessments of schools’ or teachers’ effect on student
outcomes to determine success. In other words, performance-based pay is a pay structure
denoted by its linkages to measurable performance indicators.
Benefits of Performance-Based Pay
There are many benefits to performance-based pay implementation. As noted in earlier
studies, incentive pay schemes did not damage teacher collaboration in schools and may have
even increased teacher cooperation (Jones, 2013; Wells, 2011; Yuan et al., 2013). This section
of the literature review will examine researched benefits of performance-based pay including the
following subsections: increased group work, increased accountability, and stakeholder benefits.
Increased group work. Wisconsin Center for Education Research (2008) stated:
Group-based rewards recognize the collaborative nature of any school’s
effectiveness and reward teachers for their collective effort. Group-based
systems are generally less costly to administer than their individual-based
counterparts. However, it is hard to screen out effects of the district, prior
schools, parents, and the community. (para. 14)
This suggests that performance-based systems may be beneficial by increasing innovation
among groups of teachers. Professional development programs are important to assist teams of
teachers as they strive to increase their knowledge and skills collaboratively.
Increased accountability. Performance-based programs may lead to an increase in
classroom recordkeeping. This is done to accommodate the differences in teaching methods,

which may increase compensation benefits. For example, Lavy (2007) noted increased
recordkeeping "requires school principals to monitor closely the quality of their teachers’ work”
(p. 91). The increase in accountability could lead to better quality teaching. Although these
results may be inadvertent, their residual effects provide an appealing influence of performance-
based pay.
Stakeholder benefits. Lavy (2007) discussed several benefits associated with
performance-based pay programs. He first stated, “Rewarding teachers or schools on the basis of
an agreed metric aligns incentives directed at teachers or schools with those directed at students
and potentially the entire society” (p. 90). The researcher indicated that performance-based pay
programs have the potential to motivate teachers and/or schools to intentionally “take into
account the social returns to education when making choices about their work” (p. 90). For
example, if a student were considering dropping out of school, a teacher who was considering
the benefits to society as a whole may work harder to encourage the student to persevere
knowing how much the community benefits from having educated citizens as well as how much
the student could benefit in the future from completing his or her education.
Lavy (2007) further stated, “Individual performance-based pay schemes improve
efficiency by helping correct distortions in a teacher’s effort that might result from gaps between
[his or] her preferences and those of [his or] her students” (p. 90). One example of this could
occur when a teacher avoids giving homework because she does not want so spend additional
time grading papers even though she knows the extra assignment would benefit her students’
learning. Performance-based pay systems offer incentives to teachers for doing what is right.
Lavy (2007) noted that basing performance on pay has the potential to attract and retain
the most productive teachers. He stated:

Even if teachers are unable to alter their own behavior to enhance performance, as
measured, say, by students' test scores, some people are still inherently better than
others at affecting test scores. Basing pay on output also tends to discourage
teachers who cannot enhance their students' performance from remaining in the
profession. A related point is that output-based pay will create a market for
teaching quality that will help teachers move to schools where their talent is most
highly valued. Equalization between productivity and wages will result, with
poorly performing teachers receiving reduced wages and lower probabilities of
promotion, and more capable teachers commanding better options. (p. 91)
Lavy (2007) suggested that performance-related pay based on individual or school wide
schemes could also improve school productivity by inducing better governance (p. 91). This
benefit implies that principals will be required to more closely monitor the quality of their
teachers’ work as well as provide consistent information, feedback, and guidance (p. 91). Many
critics of traditional education pay systems charge that rewarding teachers for formal
qualifications rather than performance is unfair to exceptional teachers who work harder and
show more effort. Because performance-based pay rewards teachers for how well they meet
expectations rather than rewarding for degrees and years of experience, it may increase support
for public education from politicians and members of the general public (p. 91).
Drawbacks of Performance-Based Pay
While performance-based pay is meant to motivate teachers to achieve at high levels,
there have been some unintentional negative consequences following strategic compensation
implementation. This section of the literature review will examine negative issues that have
resulted from the use of performance-based pay. The following subtopics will be discussed:

student-to-teacher ratio, measurement problems, teaching to the test, negative effects on
motivation and collegiality, unintended consequences, cost of performance-based pay, union
opposition, and non-monetary motivation.
Student-to-teacher ratio. Some performance-based pay systems consider the student-
to-teacher ratio when assigning compensation awards. However, this is not always considered as
a fair method. For example, those teachers with special needs students may have fewer students,
yet have more taxing jobs due to the extra help that these students need. Therefore, since
“compensation investments too often are based on factors unrelated to student achievement,
states and districts should re-examine compensation structures to better support and drive
effective teaching” (USDOE, 2015a, para. 1).
Measurement problems. Research has suggested, “teachers generally want to be held
accountable and supported by a fair evaluation system” (Homeroom, 2010, para. 3). As a result,
it can be concluded that a fair evaluation process measures the accountability of the teacher.
Therefore, teachers that focus on accountability and measure their success through that of their
students’ achievements may be better served through a fair evaluation process, especially if they
show improvements in students’ progress. The compensation program design may not be
effective. For example, those programs that are based solely on test scores may find themselves
at a disadvantage because the awards are not equitable. There are strong arguments suggesting
that student test scores are not reliable indicators of the efficacy of the teacher.
Lavy (2007) noted that performance measurement poses two separate problems for
performance-based pay: 1) agreeing on goals, and 2) evaluating progress towards goals (p. 91).
The researcher stated, “Agreeing on goals is particularly difficult in education because
competition between public schools is rare” (p. 91). He believed that when parents and students

were unhappy with the choices and options that their local school gave them, they would choose
to move to other schools in the area. Some residents would choose private schools and others
may choose neighboring school districts. However, this choice is too costly for many and not an
option for struggling families. In relation to evaluating progress towards goals in a fair and
accurate manner, Lavy noted that problems arise because the evaluation systems have been based
on proxies, such as self-reported effort and motivation. This study pointed out that it was
extremely challenging to know what an individual teacher contributes to improving student
outcomes (p. 91).
Student testing is also not necessarily effective for teacher evaluations. The emphasis on
student test scores became exaggerated with the No Child Left Behind Act. As a result, teacher
evaluations are commonly based on these scores. If the student exam is ineffective, then the
teacher evaluation will be ineffective as well. For example, “standardized tests are narrow,
limited indicators of student learning. They leave out a wide range of important knowledge and
skills. Most states assess only the easier-to-measure parts of math and English curricula” (Fair
Test, 2014, para. 1).
According to some opponents, there is immense unfairness in basing “teacher personnel
decisions on student test scores [because] students have different levels of ability and
commitment and different experiences outside the classroom, [suggesting that] no two students
get exactly the same amount of parental support” (Kane & Darling-Hammond, 2012, para. 3). It
has also been argued that the test scores be merely starting points as to the efficiency and
effectiveness of the teacher, suggesting that the link is over-emphasized between teacher
appraisals and student assessments. According to some studies, “the right approach to feedback

and evaluation is to combine student achievement gains with other measures, such as systematic
classroom observations and student surveys” (Kane & Darling-Hammond, 2012, para. 15).
This same study suggests that “teachers working with a large contingent of new English
learners or special education students scored lower than when they taught more-advantaged
classes of students. Even teachers of gifted classes were penalized, because their students had
already maxed out on the tests,” emphasizing the over-weighting of student assessments on
teacher appraisals (Kane & Darling-Hammond, 2012, para. 21). While gifted students tend to
have high achievement scores, they may be unable to show high growth scores because they
have already scored as advanced in the past. Moving students that are within the top 10% of the
assessment score is extremely challenging. The National Research Council and the Educational
Testing service emphasized this challenge of moving gifted students, concluding
Ratings of teacher effectiveness based on student test scores are too unreliable—
and measure too many things other than the teacher—to be used to make high-
stakes decisions. Test score gains can reflect a student's health, home life, and
attendance; schools' class sizes and curriculum materials; and the influence of
parents, other teachers, and tutors. Because these factors are not weighed,
individual teachers' scores do not accurately reveal their ability to teach.
(Kane & Darling-Hammond, 2012, para. 24)
Teaching to the test. Guisbond et al. (2012) found that evaluations based on test scores
can harm educational quality because the evaluations influence a teacher’s career, which may
intensify “incentives to narrow the curriculum and teach to the test” (p. 2). Thus, less
consideration is provided for teacher collaboration and creativity. As a result, this type of
evaluation does little to stimulate the imagination of either the teacher or student.

Under a performance-based system, teaching methods may change. This is especially
true if the compensation is based on student test scores. An example of unwanted teacher
behavior may be a focus on test taking rather than on the curriculum. This is commonly blamed
on the No Child Left Behind Act (Walker, 2014). Thus, as Walker (2014) points out:
The law is uniformly blamed for stripping curriculum opportunities… imposing a
brutal testing regime that has forced educators to focus their time and energy on
preparing for tests in a narrow range of subjects... For students in low-income
communities, the impact has been devastating (p. 2).
Therefore, in the quest to achieve higher test scores, students are unprepared for
life and higher education opportunities. Because of the focus on test scores, Walker
(2014) continues:
Schools …have been reduced to mere test prep factories, where teachers and
students act out a script written by someone who has never visited their classroom
and where ‘achievement’ means nothing more than scoring well on a bubble test
(p.3)
Many teachers and administrators assert that the No Child Left Behind Act has
“corrupted what it means to teach and what it means to learn … Teachers have to teach in
secret and hope they don’t get into trouble for teaching to the Whole Child instead of
teaching to the test” (Walker, 2014, p. 3).
Lavy (2007) also suggested that basing teacher pay on test scores in certain
subjects might cause the focus of elective courses (viewed as non-core subjects) to
narrow. This may also encourage teaching to the test, which involves honing in on skills
in the classroom that are in direct alignment with the test being used to measure student

performance and/or growth, as well as teacher performance (p. 92). Linking
compensation to test scores may cause teachers to sacrifice the nurturing of curiosity and
innovative thinking to teaching the skills tested on standardized exams, forfeiting all
other curriculum standards. When preparing for exams, teachers focus on the material
that is likely to be found on the exam, such as reading and math, excluding other
curriculum needs, such as the arts and physical education. This may prohibit students
from learning other necessary core skills that would benefit them as they further their
education or enter the workforce.
Figlio and Kenny (2007) also report an increase in teachers using class time to “teach to
the test,” as did Podgursky and Springer (2007). Lavy (2007) describes teaching to the test as
“[sacrificing] the nurturing of curiosity and creative thinking to teaching the skills tested on
standardized exams” (p. 92). For example, a business manager may need to have creative
thinking skills to motivate employees or entice customers to earn a profit. If courses only focus
on standardized testing, then creative and critical thinking skills are not as emphasized during
class. As a result, students have less time for creativity and the opportunity to develop creative
thinking skills. In some schools, test prep takes place during time that would otherwise have
been spent on physical education or music, extra-curricular subjects that students need in order to
gain a well-balanced education (Wragg et al., 2002).
Negative effects on motivation and collegiality. Lavy’s (2007) findings suggested that
providing financial incentives may demoralize teachers, resulting in decreased effort. When
faced with compensation gains, teachers may experience decreased loyalty to their schools and
students. For example, if another school offers a more beneficial compensation plan, teachers

may be more likely to leave their current school in favor for the new school with the increased
compensation plan. However, remaining teachers may experience increased resentment.
Lavy (2007) further noted that performance-based pay has the potential to create
unhealthy competition among teachers. He emphasized that performance-based pay has the
potential to undermine collaboration among teachers. He also noted that the evaluation system
associated with performance-based pay has the potential to negatively impact teacher motivation
by questioning their levels of competence (p. 92). Further, he stated, “Evaluation may also
create new hierarchies by giving administrators an additional source of power over teachers and
the curriculum” (p. 92). This additional source of power would mean that principals would
influence teachers’ pay. Whereas in a traditional pay system teachers are rewarded based on
their level of education and years of experience, in a performance-based pay system principals’
evaluations may be the deciding factor in determining whether teachers receive bonus pay.
Unintended consequences. Lavy (2007) discussed the unintended consequences
associated with potentially unethical behavior (p. 92). He stated, “Unintended consequences
may also arise if teachers ‘game play’ and develop responses that generate rewards contradicting
the profession’s spirit. In other words, measuring student output may stimulate teachers to
participate in inappropriate or deviant behavior such as cheating” (p. 92). The research of Jacob
and Levitt (as cited in Lavy, 2007) indicated that cheating occurred frequently after changes in
teacher incentives. They detected cheating in approximately 4% to 5% of the classes within their
research sample (p. 92).
Lavy (2007) suggested that providing financial incentives to improve performance may:
1) demoralize teachers, and thereby promote reduced work effort, and 2) undermine intrinsic
motivation, which is the sense of duty and satisfaction that motivates coming to work (p. 93). He

also noted that teachers might devote a disproportionate amount of time to “bubble students”—
those students who are most likely to improve their test scores (p. 93). He further stated, “The
highest- and lowest- performing students may consequently be neglected because they do not
promise adequate returns on investments of teachers’ quality time” (p. 93).
Cost of performance-based pay. Lavy (2007) stated, “The risks posed to teachers by
performance-based pay could lead them to demand high compensation, which could in turn raise
the cost of education” (p. 93). Most public school systems have limited sources of tax-based
income and would be unable to provide higher levels of pay for local teachers unless the state or
federal government provided grants. He noted that performance-based pay exposes employees
to earnings variability beyond their control such as changes in pay as a result of a poor testing
year. The teachers cannot control how well the students perform on the assessments. They can
only control how well they teach.
Lavy (2007) further stated, “If teachers, like other workers, are risk averse, inducing them
to accept a risky compensation packages will entail higher average pay overall” p. 93). The
researcher emphasized that implementing performance-based pay is easier in small organizations
than in large organizations, such as public school systems with sizeable teaching staffs. He
found that adequately evaluating each teacher would be costly and require substantial resources,
if conducted routinely.
Lavy (2007) found “improved productivity in the private sector can generate added
income to help mitigate budget problems, but enhancements to productivity in public schools has
no such effect” (p. 94). This means that a business has the potential to grow additional income
because of higher productivity; however, school systems, which are funded through tax dollars,
do not receive additional funds as a direct result of higher productivity. In summary,

performance-based pay programs have the potential to incur high average costs over the long run
because of multiple variable financial risk factors.
Union opposition. Ramirez (2010) found unions commonly oppose different
compensation packages. In fact, “unions are skeptical about promises of extra bonus money
because they realize that money is in short supply. They know that teachers' salaries function in
an almost zero-sum environment” (p. 57). This opposition may be attributed to understanding
that “awarding bonuses usually means diminishing cost-of-living raises for the entire teaching
corps” (p. 57).
Furthermore Ramirez (2010) noted, “The union understands that many of its good
teachers will lose out” when money for salaries in performance-based pay systems becomes
insufficient (p. 57). When faced with a new pay structure in Denver, the union was able to
negotiate an understanding that it would not take effect until voters passed a $25 million tax
increase to fund the plan (p.57).
Lavy (2007) suggested that teacher unions worldwide strongly oppose performance-
based pay. He stated, “Unions view wage differentiation on the basis of subject taught, as well
as any sort of subjective evaluation of teachers, as threats to their collective bargaining strategies
and therefore reject them [wage differentiation and subjective teacher evaluation] outright” (p.
93). He also noted that union objections appear to reflect the direct opposition voiced by
teachers. He further stated, “Teachers see performance-based pay supported by unfair
evaluation, as a threat to their autonomy” (p. 93).
Non-monetary motivation. Non-monetary motivators can include achievement,
recognition, and responsibility. They are intrinsic and provide long-lasting employee
satisfaction, are less costly, and generate a desire to succeed. Conversely, hygienic factors are

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