Washington State Institute for Public Policy
Teacher performance pay programs
Pre-K to 12 Education
Benefit-cost estimates updated December 2016.  Literature review updated October 2015.
Teacher performance pay programs distribute bonuses to individual teachers and sometimes to school wide staff. Performance is usually measured as value-added student test scores alone or in combination with some other assessment (such as principal evaluations). These evaluations examine the impact on student test scores from short-term, pilot performance pay programs.
BENEFIT-COST
META-ANALYSIS
CITATIONS
The estimates shown are present value, life cycle benefits and costs. All dollars are expressed in the base year chosen for this analysis (2015). The chance the benefits exceed the costs are derived from a Monte Carlo risk analysis. The details on this, as well as the economic discount rates and other relevant parameters are described in our Technical Documentation.
Benefit-Cost Summary Statistics Per Participant
Benefits to:
Taxpayers $577 Benefits minus costs $2,230
Participants $1,197 Benefit to cost ratio $63.23
Others $500 Chance the program will produce
Indirect ($8) benefits greater than the costs 86 %
Total benefits $2,266
Net program cost ($36)
Benefits minus cost $2,230
1In addition to the outcomes measured in the meta-analysis table, WSIPP measures benefits and costs estimated from other outcomes associated with those reported in the evaluation literature. For example, empirical research demonstrates that high school graduation leads to reduced crime. These associated measures provide a more complete picture of the detailed costs and benefits of the program.

2“Others” includes benefits to people other than taxpayers and participants. Depending on the program, it could include reductions in crime victimization, the economic benefits from a more educated workforce, and the benefits from employer-paid health insurance.

3“Indirect benefits” includes estimates of the net changes in the value of a statistical life and net changes in the deadweight costs of taxation.
Detailed Monetary Benefit Estimates Per Participant
Benefits from changes to:1 Benefits to:
Taxpayers Participants Others2 Indirect3 Total
Labor market earnings associated with test scores $558 $1,228 $544 $0 $2,329
Health care associated with educational attainment $34 ($9) ($37) $17 $5
Costs of higher education ($14) ($22) ($7) ($7) ($50)
Adjustment for deadweight cost of program $0 $0 $0 ($18) ($18)
Totals $577 $1,197 $500 ($8) $2,266
Detailed Annual Cost Estimates Per Participant
Annual cost Year dollars Summary
Program costs $33 2010 Present value of net program costs (in 2015 dollars) ($36)
Comparison costs $0 2010 Cost range (+ or -) 20 %
The performance bonuses in the evaluated programs ranged from a minimum of $1,500 to a maximum of $15,000; in over half of the programs, the maximum award was $3,000. For this estimate, we use the median bonus of approximately $2,500 per teacher (including administrative costs), spread across 25 students.
The figures shown are estimates of the costs to implement programs in Washington. The comparison group costs reflect either no treatment or treatment as usual, depending on how effect sizes were calculated in the meta-analysis. The cost range reported above reflects potential variation or uncertainty in the cost estimate; more detail can be found in our Technical Documentation.
Estimated Cumulative Net Benefits Over Time (Non-Discounted Dollars)
The graph above illustrates the estimated cumulative net benefits per-participant for the first fifty years beyond the initial investment in the program. We present these cash flows in non-discounted dollars to simplify the “break-even” point from a budgeting perspective. If the dollars are negative (bars below $0 line), the cumulative benefits do not outweigh the cost of the program up to that point in time. The program breaks even when the dollars reach $0. At this point, the total benefits to participants, taxpayers, and others, are equal to the cost of the program. If the dollars are above $0, the benefits of the program exceed the initial investment.

Meta-analysis is a statistical method to combine the results from separate studies on a program, policy, or topic in order to estimate its effect on an outcome. WSIPP systematically evaluates all credible evaluations we can locate on each topic. The outcomes measured are the types of program impacts that were measured in the research literature (for example, crime or educational attainment). Treatment N represents the total number of individuals or units in the treatment group across the included studies.

An effect size (ES) is a standard metric that summarizes the degree to which a program or policy affects a measured outcome. If the effect size is positive, the outcome increases. If the effect size is negative, the outcome decreases.

Adjusted effect sizes are used to calculate the benefits from our benefit cost model. WSIPP may adjust effect sizes based on methodological characteristics of the study. For example, we may adjust effect sizes when a study has a weak research design or when the program developer is involved in the research. The magnitude of these adjustments varies depending on the topic area.

WSIPP may also adjust the second ES measurement. Research shows the magnitude of some effect sizes decrease over time. For those effect sizes, we estimate outcome-based adjustments which we apply between the first time ES is estimated and the second time ES is estimated. We also report the unadjusted effect size to show the effect sizes before any adjustments have been made. More details about these adjustments can be found in our Technical Documentation.

Meta-Analysis of Program Effects
Outcomes measured Primary or secondary participant No. of effect sizes Treatment N Adjusted effect sizes (ES) and standard errors (SE) used in the benefit-cost analysis Unadjusted effect size (random effects model)
First time ES is estimated Second time ES is estimated
ES SE Age ES SE Age ES p-value
Test scores 28 652322 0.019 0.011 12 0.015 0.013 17 0.019 0.095
Citations Used in the Meta-Analysis

Dee, T.S., & Keys, B.J. (2004). Does merit pay reward good teachers? Evidence from a randomized experiment. Journal of Policy Analysis and Management, 23(3), 471-488.

Figlio, D.N., & Kenny, L.W. (2007). Individual teacher incentives and student performance. Journal of Public Economics, 91(5-6), 901-914.

Fryer, R.G. (2011). Teacher incentives and student achievement: Evidence from New York City public schools (Working Paper No. 16850). Cambridge: National Bureau of Economic Research.

Glazerman, S., Seifullah, A. (2010). An evaluation of the Teacher Advancement Program (TAP) in Chicago: Year two impact report. Washington, DC: Mathematica Policy Research.

Goodman, S., & Turner, L. (2010). Teacher incentive pay and educational outcomes: Evidence from the NYC Bonus Program. Unpublished manuscript, Columbia University, New York.

Hudson, S. (2010). The effects of performance-based teacher pay on student achievement. Discussion Paper for the Stanford Institute for Economic Policy Research, Stanford University. Retrieved from: http://www.stanford.edu/group/siepr/cgi- bin/siepr/?q=system/files/shared/pubs/papers/09-023_Paper_Hudson.pdf

Marsh, J.A., Springer, M.G., & McCaffrey, D F. (2011). A Big Apple for Educators: Final Evaluation Report. Santa Monica: RAND Corp.

For more information on the methods
used please see our Technical Documentation.
360.664.9800
institute@wsipp.wa.gov