Designing incentives to improve teacher performance

How do teachers respond to financial incentives and contract tenures? Karthik Muralidharan and Venkatesh Sundararaman have examined the results of a randomized evaluation of various policy options to improve the quality of primary education implemented across a large representative sample (500) of government-run rural primary schools in five districts of the Indian state of Andhra Pradesh and found several interesting results.

They found that providing an extra teacher with fixed-term renewable contracts to a randomly-chosen subset of primary schools led to an improvement in student performance in math and language tests by 0.16 and 0.10 standard deviations (a treatment impact of 0.1 SD is equivalent to saying that an average child who received the treatment would have improved his/her rank by 4) respectively over the untreated control group schools after two years. The treatment effects were found to be the largest in remote schools and for students in the first grade. The contract teachers were significantly less likely to be absent than employee teachers, and more likely to be engaging in teaching activity when observed during unannounced visits to schools.

As the authors point out, unlike that of contract teachers, the wages of regular teachers are pushed up by their higher education qualifications and availibility of opportunities, premium to work in remote and rural locations, and the effect of unionization. The wage differential is often a multiple of more than five. The biggest criticism against the employment of contract teachers has been the on the grounds that it would lead to dilution of learning standards. Without claiming that a contract teacher is more effective than a regular teacher, they write,

"The combination of low cost, superior performance measures than regular teachers on attendance and teaching activity, and positive program impact suggest that expanding the use of contract teachers could be a highly cost effective way of improving primary education outcomes in developing countries... expensive policy initiatives to get highly qualified teachers to remote areas may be less cost effective than hiring several local contract teachers to provide much more attention to students at a similar cost... there may be an extent to which quantity can more than make up for the lower qualifications of contract teachers (especially for primary schooling) and do so in a cost-effective way."

In order to avoid the problems associated with mass recruitment of un-trained contract teachers and the resultant dilution of professional standards, the authors propose a performance-linked tenure track to integrate contract and regular teachers into a career progression. Under this arrangement, only contract recruitments are made and consistently high-performing contract teachers could be promoted to regular civil-service rank at the end of a fixed period of time.

Another policy experiment that involved providing bonus payments to teachers based on the average improvement of their students' test scores in independently administered learning assessments (with a mean bonus of 3% of annual pay) found that students in treatment schools performed significantly better than those in control schools by 0.28 and 0.16 SDs in math and language tests respectively at the end of two years. They found that the gains in test scores represented an actual increase in learning outcomes, and that the treated schools also performed better on subjects for which there were no incentives, suggesting positive spillovers. They also find that teacher incentive programs were three times as cost effective in raising test scores than unconditionally provide additional schooling inputs. The challenge with this is to arrive at the optimal level of bonus which incentivizes effort without creating distortions. Combining these two results, the authors suggest 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. Such a system could both move the entire distribution of teacher effectiveness to the right (by increasing effort) and further increase average teacher effectiveness by not renewing the contracts of ineffective teachers... The use of teachers on fixed-term renewable contracts can be a highly cost effective policy for improving student learning outcomes, especially if placed in the context of a long-term professional career path that rewards effort and effective teaching at all stages of the teaching career."

I am inclined to believe that the performance-based pay system being proposed may be more difficult to scale up than anticipated. While it may have succeeded in the limited context and time over which it was implemented, it may not yield the desired results with a more ambitious scope and larger area of implementation. As the program is expanded to cover all the teachers, the incentive award risks becoming an routine entitlement and getting diluted.

There are likely to be four major problems associated with the determination of bonuses. First, what would be the most optimum bonus? It should neither be too small as to have limited incentive effect nor too large as to waste scarce resources and generate incentive distortions. Second, as the program coverage expands, it will become difficult to cover all the teachers under a single bonus formula with broad acceptance among the stakeholders. Third, there will be increasing conflict between the search for accuracy of the formula in approximating the actual impact of teacher efforts and its transparency so as to generate broad-based acceptance. Finally, and most crucially, there will always be the problem with administering accurate data collection on such a massive scale. How do we guard against potential problems like grade inflation and data manipulation?

Efforts to incentivize teachers with performance based-pay and choice in transfers have been attempted in many states across India, albeit on smaller scales, with not so satisfactory results. The problem ultimately boils down to administering such massive programs and guarding against the dilution of its standards as it expands to cover all the schools. Given the standards of school supervision that prevails and the massive numbers of supervisors at different levels involved, it will be a major challenge to ensure the quality of data collection even for a district, leave alone a state. It will be very difficult, even with extensive computerization to effectively address this challenge. Once the programs are institutionalized, there is an ever-present danger that the performance incentive system loses its sanctity.

Further, in the absence of a sunset clause, these incentives are liable to be distorted. With time, there is the imminent danger, especially given the influence wielded by unions, that the incentives could become internalized as part of the salary structure. Ultimately, this could merely add to the substantial premium that government teachers enjoy over private school teachers.

Since behavioural economists have shown that people are more averse to losses than attracted to similar sized gains, penalties are more likely to be effective than incentive rewards. However, penalties raise opposition from the unions and would therefore be difficult to implement.

The policy of renewable fixed-term contract appears more practical and easier to implement. It opens up the possibility of a tenure track for newly recruited teachers that incentivizes them to perform and not shirk work. But the challenge with this approach would be to actually fire or discontinue the contracts of the poor perfroming contract teachers.

There is already a provision in the existing teachers' recruitment process in many states, that takes in these teachers initially as probationers whose services will be regularized after two or three years on receipt of a "satisfactory service certificate" issued by their supervisory officer. It is therefore legally possible to discontinue the probations of poor perfroming teachers. But there have been no or very few instances of such terminations, so much so that the process of declaration of probations has become superfluous and degenerated into a routine activity.

One way to overcome this problem is to keep the contract periods relatively short, two or three years, so as to leave the discharged candidates enough time to seek an alternative career. A policy on the recruitment process assumes significance in view of the current proposals in a number of states to recruit teachers in large numbers.