Performance pay schemes aim to create a direct link between teacher pay and the performance of their class in order to incentivise better teaching and so improve student outcomes.

A distinction can be drawn between awards, where improved performance leads to a higher permanent salary, and payment by results, where teachers get a bonus for higher test scores in a particular school year. 

Approaches also differ in how performance is measured and how closely those measures are linked to outcomes for students. In some schemes, students’ test outcomes are the sole factor used to determine performance pay awards. In others, performance judgements can also include information from lesson observations or feedback from students, or be left to the discretion of the principal. Some performance schemes incentivise individuals, others incentivise groups of teachers.

1. The impact of performance pay is low (+1 month), schools might consider other, more cost effective, ways to improve teacher performance, such as high quality continuing professional development.

2. Given the lack of evidence that performance pay significantly improves the quality of teaching, resources may be better targeted at developing existing teachers.

3. Implementing performance related pay can narrow the focus of teachers to particular groups or particular measures, so care should be taken to try and minimise undesirable effects.

The results of rigorous evaluations, such as those with experimental trials or with well-controlled groups, suggest that the average impact of performance pay schemes has been low (+ 1 months’ progress). The use of loss aversion – where awards have to be paid back if student results fall below a certain level – are less widespread in many education systems, but where these approaches have been trialed evaluations have found some larger impacts.

There is some evidence that impact may also be greater in developing countries. Overall, evaluations of a number of performance pay schemes in the USA, where the approach is also known as ‘merit pay’, have been unable to find a clear link with improved student learning outcomes.

There are some concerns that performance pay schemes can create unintended consequences. For example, that they may encourage teachers to focus only on tested outcomes, leading to a narrowing of the curriculum, or to focus on groups of students near a particular assessment threshold. 

A related approach that has shown promise is using bonuses or enhanced pay to attract teachers to challenging schools.

Overall, approaches which simply assume that incentives will make teachers work more effectively are not well supported by existing evidence.

There are several different approaches to performance pay including bonuses, loss aversion and enhanced pay. Key elements of performance pay approaches might include:

• A clear and transparent pay policy with financial incentives to motivate teachers or retain high-quality staff.
• Accurate assessments of student progress, achievement, and barriers to achievement.
• Monitoring of schemes to assess impact on student groups, the curriculum and teacher motivation.
• A wider culture of support and teacher professional development.

It is crucial that strategies that reward teacher performance also include support for teachers to develop and careful strategies to mitigate the risk of focusing only on the measures used to distribute performance related pay.

Overall, the median costs of implementing performance pay are estimated as low. The costs associated with performance pay arise from either paying bonuses to staff, or increases in staff salaries, all of which are recurring costs.

While the median cost estimate for performance pay is low, the range in the amount paid as bonuses means that the costs can range from very low to moderate. 

Applying performance related pay to the roles of senior leaders and headteachers is likely to lead to higher overall costs.

Alongside cost, school leaders should consider how to retain high-quality teaching staff through a strong culture of professional support and development. Performance pay approaches should be carefully monitored to avoid schemes that can lead to unintended consequences, such as a greater attention on specific student groups closer to assessment thresholds at the detriment to other students.