How Turning A Gain Into A Loss Makes Merit Pay Work

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Researchers say they've found a new twist on teacher pay-for-performance which works better.

A team of economists says a new study shows teachers are motivated by performance pay and produce better student results.

That’s contrary to a handful of prior pay-for-performance studies which showed little to no improvement among students.

The difference this time? Teachers were given the money up front and told they would lose it if they did not meet goals.

The psychology is called “loss aversion.”

Past merit pay studies have offered teachers bonuses at the end if students meet targets.

The economists randomly selected teachers from nine schools in Chicago Heights, Illinois (most teachers who were asked participated).

Teachers were then divided into groups. One group of teachers was offered $80 per percentile improvement in student performance, for a maximum bonus of $8,000. The other group of teachers was given $4,000 up front and told they would have to repay any reward they did not achieve.

Teachers in each group with the same student performance would earn equivalent bonuses.

The result was that teachers given the bonus up front produced twice the gains in students than teachers paid bonuses at the end. The study’s authors say this “loss aversion” is a more powerful motivation than the possibility of gaining a bonus.

The study has drawn criticism from teachers, who worry about the effect on classroom culture. Here’s California teacher Larry Ferlazzo, writing on The Washington Post‘s Answer Sheet blog:

I questioned what kind of positive classroom culture a “loss aversion” strategy would create with students, and I wonder what kind of effect a similar plan with teachers would have on school culture. The usual kind of teacher merit pay is bad enough but it seems to me that this kind of threatened “take-away” strategy might even be more offensive. It exemplifies what behavioral economist Dan Ariely said as part of the National Research Council report criticizing policies that ignore the fact that test scores are of limited value in determining causes of improvements in student performance…

…Abraham Maslow said “If you only have a hammer, you tend to see every problem as a nail.” It appears that many (though not all) economists see teachers and students only through the lens of financial incentives.

Pay-for-performance is a hot button among Florida teachers. State law requires school districts pay teachers based on student test results, evaluations and other factors.

Penny Arcade’s Extra Credits team took a look at using the two concepts in classrooms, and how they might be used to “gamify” education and motivate students. Check out their entertaining video here, but also read the comments to see a discussion of the shortcomings.