A recent study of country-level performance-pay measures from the PISA-2003 (does not include India) international achievement micro data by Ludger Woessmann of the University of Munich estimated student-level international education production functions. After controlling for various cross- and within-country biases and other salary adjustments, he finds that math, science, and reading achievement scores in countries with performance-related pay are about one quarter standard deviations higher. He writes,
"The results of cross-country education production functions that extensively control for student, school, and country background factors suggest that students in countries that make use of teacher performance pay perform significantly better in math, science, and reading than students in countries that do not use teacher performance pay. The size of the association between use of performance-related pay and student achievement is about one quarter of a standard deviation on the math and reading tests and about 15 percent of a standard deviation on the science test.
Given the well-established nature of teacher bonuses in many countries, these associations are likely to capture general-equilibrium effects of performance-related pay which are likely to combine long-term incentive effects of motivating current teachers with sorting effects of changing the pool of applicants for the teaching profession."
I had blogged earlier about a study by Prof Karthik Muralidharan about evaluation of incentives-based teacher performance in 500 government primary schools in Andhra Pradesh which found that "there could be significant gains from moving to a system of hiring teachers on fixed-term contracts and then using performance measures to pay bonuses on an ongoing basis and to inform the tenure decision after a longer period of performance measurement".
I am inclined to believe that any teacher performance-based pay system, while unobjectionable at a theoretical level, may be very difficult to implement, both for political and administrative reasons, in the prevailing environment in countries like India. While it may succeed in a limited area and time, it may not yield the desired results with a more ambitious scope and pan-Indian area of implementation.