Pay by Design: Teacher Performance Pay Design and the Distribution of Student Achievement

We present results of a randomized trial testing alternative approaches of mapping student achievement into rewards for teachers. Teachers in 216 schools in western China were assigned to performance pay schemes where teacher performance was assessed by one of three different methods. We find that teachers offered “pay-for-percentile” incentives (Barlevy and Neal 2012) outperform teachers offered simpler schemes based on class average achievement or average gains over a school year. Moreover, pay-for-percentile incentives produced broad-based gains across students within classes. That teachers respond to relatively intricate features of incentive schemes highlights the importance of close attention to performance pay design.