Changing Teacher Compensation Methods: Moving toward Performance Pay

There is a growing movement in this country to abandon traditional methods for calculating teacher pay in favor of new models based on a teacher's performance. This brief examines whether it is fair to base teacher pay on subjective factors.

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Executive Summary:
In every state, the bedrock of a teacher’s salary has historically been a combination of educational attainment and experience. However, research generally shows no correlation exists between a teacher having a master’s degree and an increase in student achievement. Recently, new models of teacher compensation have been gathering steam, based on performance-based pay. Supporters contend these alternative compensation systems will reward outstanding teachers and hold them more accountable for their students’ performance. However, many educators fear teacher pay will become based upon student test scores, which they consider unfair. This policy brief will explore those arguments and examine what some states are doing to change the way teachers are paid.

Teachers with advanced degrees earn 10 percent more, on average, than those with bachelor’s degrees in the U.S. According to the most recent data from the U.S. Department of Education’s National Center for Educational Statistics (NCES), a teacher with a master’s degree and no teaching experience in the U.S. will earn almost $3,000 more than one with just a bachelor’s degree. After 10 years, the average gap between teachers with master’s degrees and those with bachelor’s degrees is $4,500.

Given the same level of experience, every state pays teachers with advanced degrees more money than those with bachelor’s degrees. A 2007 study by Education Sector, Frozen Assets: Rethinking Teacher Contracts Could Free Billions for School Reform, estimated that 2.1 percent of all current public education expenditures could be attributed to teacher compensation related to advanced degrees. To put that figure in perspective, the so-called master’s bump (the increase a teacher receives for obtaining a master’s degree) costs the average school district approximately $175 per student, according to the study. Slightly more than half of all public school teachers in the U.S. have a master’s degree or other advanced degree.

Nationally, states and school districts spend more than $8.6 billion to compensate teachers for their advanced degrees, according to Separation of Degrees, a report released in July 2009 by the Center for American Progress and the Center on Reinventing Public Education, two education think tanks based in Washington state. However, the report questions whether money spent to compensate teachers with advanced degrees could be better spent.


Researchers agree that teacher’s content knowledge influences student performance. However, most research shows that a teacher’s educational attainment beyond a bachelor’s degree is not an accurate predictor of student success. In other words, students whose teachers have advanced degrees are unlikely to perform any better than those whose teachers have bachelor’s degrees.

There are some exceptions. Some research has found that students of teachers with advanced degrees in math and science tend to perform better than those whose teachers have only bachelor’s degrees. However, no correlation exists for teachers who have advanced degrees in English, social studies or education, according to Evaluating the Effect of Teacher Degree Level on Educational Performance, a study by economists Dan Goldhaber and Dominic Brewer.

However, 90 percent of master’s degrees earned by teachers are in education programs, according to NCES data, including three-fourths of those who teach in secondary schools. Graduate degrees in education programs tend to be more process- than content-oriented. These findings raise questions whether state education dollars are being spent wisely to compensate teachers with advanced degrees when there appears to be no benefit to students.

Separation of Degrees recommends phasing out the nearly universal pattern of compensating teachers for earning a master’s degree. “The long-cherished master’s bump makes little sense from a strategic point of view,” the report states. “Looking forward, many school systems will need to both reign in automatic cost escalators, and to finance reform by repurposing current expenditures. Under these criteria, compensation schemes are ripe for redesign: Teacher salaries increase each year with longevity and graduate credits, making them destined to escalate, and yet they have little link to student achievement.”

Bill Raabe, the director of collective bargaining and member advocacy for the National Education Association, said the value of an advanced degree for a teacher as it relates to student performance is “an open question. There is mixed research on that.”

In a recent attempt to add standards to a teacher’s graduate education, New Jersey’s legislature unanimously approved SB826 in February 2010, which requires teachers seeking higher pay for earning an advanced degree to obtain their education from an accredited academic institution in a subject related to their position.


The master’s bump differs significantly from one state to another. (See Table One) In Washington, for example, a teacher with a master’s degree and 10 years experience earns $9,000 more than one with a bachelor’s degree, the biggest gap of any state. Teachers with a master’s degree and 10 years experience in Washington, D.C., can expect to earn $8,900 more per year than one with a bachelor’s degree and $8,600 more in Nebraska. At the other extreme, the master’s bump after 10 years is a mere $700 in Texas and $1,700 in Oklahoma and Louisiana, according to the 2007-08 Schools and Staffing Survey published by the NCES.

Now, it appears that extra pay for an advanced degree might not be the sacred cow that it once was. A 2009 report to the Washington legislature’s Joint Task Force on Basic Education Finance also found “no statistically significant effect for graduate degrees.” The current system of teacher preparation assumes that more post‐graduate coursework and degree attainment translates into increased student learning, but research contradicts this belief, the report states. The task force recommends that states invest in intensive mentoring of new teachers by expert teachers, coupled with an ongoing system of objective, structured peer review of teachers’ classroom practice, and school‐wide rewards and incentives for improvement.

The task force also recommends creation of a career ladder for teachers that includes three levels: residency, professional and master teacher. Moving up this career ladder would require successively higher scores on an objective, structured peer review process. The Professional Educator Standards Board will create this peer review process and set scores for entry into the teaching profession and advancement on the career ladder. The master level will be equivalent in skill and effectiveness to teachers who have earned National Board for Professional Teaching Standards certification.

NEA has developed a similar four-tier professional growth salary schedule that would enable teachers meeting certain standards to move along a career path that would result in increased compensation for higher levels of performance. Table Two lists NEA’s suggested criteria for the provisional teacher, emerging teacher, professional teacher and accomplished teacher. Raabe explains the proposed salary structure would provide an alternative framework for recruiting and retaining the top college graduates to our public schools by providing a career path with opportunities for growth.


Georgia Gov. Sonny Perdue is one of the latest state policymakers to push for a teacher compensation model based on student performance rather than on the traditional system. Perdue is backing legislation that would overhaul the statewide teacher salary schedule and allow current teachers to opt into one that determines pay based on performance-based measures. Teachers hired after Jan. 1, 2014, would automatically be enrolled the new pay-for-performance system.

Perdue’s push for pay for performance follows a teacher survey in which the governor stated that 80 percent of teachers in his state supported changes in teacher compensation. He wrote, “Of the 20,000 teachers and leaders from which we heard, 80% believe that teachers should be evaluated on both observation of planning and instruction and the degree to which they help students grow academically. You spoke, and we listened. Our legislation will calculate the effectiveness of teachers based on both quantitative and qualitative measures. Compensation will then be based upon a teacher’s overall effectiveness with 50% of that being the academic progress of an individual teacher’s students.”

The issue of compensation based on teacher performance is clearly gathering momentum. The Utah Senate Education Committee unanimously passed HJR3 in February 2010, which recommends guidelines for a teacher performance pay plan. That resolution is sponsored by Rep. Marie Poulson, herself a teacher, who says pay for performance would reward outstanding teachers.

“It needs to be something that the education community can agree to and sign off on,” Poulson explained. “I would never advocate paying teachers on test scores because there are so many variables there.”

In an effort to link teacher pay with student achievement, many educational think tanks and state policymakers have begun advocating for a change to the models for teacher compensation. In a 2007 report by the Center for Teaching Quality, Pay for Performance: Designing a System that Students Deserve, the organization states, “We do not shy away from the principle that teachers who perform at high levels and spread their expertise deserve extra compensation for their performance and accomplishments. And we do not agonize over the fact that teacher salaries may be less predictable. But we worry that many of the performance-pay blueprints now on the table will not translate into the high-achieving schools imagined by their architects.”

That report lists strategies for creating a pay-for-performance system that it states is “fair, strategic, and likely to win teacher support.” It proposes an overhaul of the current teacher compensation teacher system that is based on the following points:

  • Get the base-pay system right;
  • Supplement the base-pay system with a performance-pay system that is open to all teachers;
  • Reward teachers who help their students make significant academic gains;
  • Provide additional pay for additional degrees and professional development, but only if the training is relevant;
  • Allow local flexibility;
  • Encourage collaboration between teachers and their colleagues;
  • Offer incentives to teachers who want to teach in high-needs, low-performing schools, but only if they’re qualified;
  • Reward leadership, not seniority; and
  • Make sure to include accomplished teachers in any efforts to overhaul your teacher compensation plans.

NEA’s Raabe agrees that any pay-for-performance system needs to begin with quality base pay for incoming teachers and that factors such as quality professional development and the teacher’s knowledge and skills should be factors in their compensation. He makes a distinction that while a teacher’s knowledge and skills may be defined in part by student learning, student test scores should not determine teacher compensation.

“We should absolutely, without question, make sure that what we’re doing is improving student learning,” Raabe said. “We should be assessing it. We should be evaluating the teachers. The problem is when you (base teacher compensation on student test scores) you end up with unintended consequences. You end up with kids determining whether adults are getting paid.”

He adds, “I think what’s really important in this whole discussion is that people are really thoughtful and that none of us fall victim to rhetoric or what’s politically popular right now, but that we take a look at what can make a difference in terms of improving both instruction and learning. Don’t do this because you heard somewhere at some conference that this is a good thing without checking it out because there’s plenty of research out there.”

Several states have adopted alternate compensation systems which take new measures into account besides experience and educational attainment in determining teacher compensation. Among them:

  • Arkansas enacted the Public Funding Act of 2003, which included a component that knowledge and skills-based pay system for teachers and school-based performance awards.
  • Florida statute 1012.22 governs pay for performance and empowers school districts to develop and adopt a performance pay system.
  • South Carolina’s Teacher Advancement Program includes multiple career paths. Teachers move up the ranks knowing that compensation will increase, as do responsibilities, qualifications, performance and professional development requirements. It also contains a performance-based accountability system that is determined by student progress, academic achievement and performance demonstration.
  • Most recently, in an effort to win federal Race to the Top funding, West Virginia state education officials have indicated they want to use a portion of federal funds to create a pilot program based on how well teachers and their students are doing in the classroom. 

A survey conducted in 2009 by the Center for American Progress points out that teachers support compensation reform and that inexperienced teachers are more supportive than experienced ones of financial incentives for teachers who work hardest and teachers who consistently receive outstanding evaluations from their principals. The survey also found that less experienced teachers were more supportive of merit pay.

Clearly, a movement is underway in this country to change the manner in which teachers are compensated. In many states, that movement has already resulted in a change from purely objective standards based entirely on experience and educational attainment to standards that are more subjective, based on teacher skills and student performance. While there appears to be  strong support for teacher compensation reform that results in improved teacher quality, policymakers should also be aware that opposition from teacher organizations is likely to result if teacher pay is connected to student test scores.

  Download Table 1: Master's Bump by State


Marguerite Roza and Raegen Miller. "Separation of Degrees." Center for American Progress. 2009. 

Center for Teaching Quality. "Pay for Performance: Designing a System that Students Deserve." 2007.

Clotfelter, Charles T., et al. "How and why do teacher credentials matter for student achievement?" Sanford Institute, Duke University. 2007.

Goldhaber, Dan and Dominic Brewer. "Evaluating the Effect of Teacher Degree Level on Educational Performance." 1996.

Joint Task Force on Basic Education Finance. "Final Report to the Washington Legislature." 2009).

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