I am not the greatest fan of incentive pay for teachers. Higher pay for all teachers, yes; big bonuses for just a few teachers, not so much. Given that, I’m intrigued by a new report by Victor Lavy about an incentive pay experiment in Israel that seems to have been a raving success.
The Israeli experiment, which Lavy helped design, offered incentive pay to grade 10 through 12 teachers in 49 schools. Bonuses depended on how well students did on exams compared to their predicted scores from a statistical model. Teachers were ranked according to how well their students performed compared to students of other teachers of the same subject in the same school. Winners received one-time bonuses ranging from $7,500 down to $1,750. This at a time when teacher salaries averaged around $30,000. Note these are potentially very large bonuses.
Lavy finds that a decade and a half later, students in the schools where bonuses were offered are earning 7 percent more than students who’d attended other schools.
Big deal? Yes, very big deal.
Suppose we run these numbers into an American context. U.S. labor earnings are around 6 trillion (which leaves out all sort of stuff that probably ought to be counted, so we’re going to get a low-ball estimate). 7 percent of 6 trillion is $420 billion a year.
What about the cost side? We don’t have numbers on the total cost of the bonuses in Israel. We do know they ranged from 25% to 6% of salary, and that not all teachers won a bonus at all. Let’s be outrageous and imagine that every teacher got a 25% bonus.
A very rough number is that in the U.S. we spend $250 billion on teacher salaries. 25% of that is $62.5 billion.
In other words, the payback is 7 to 1. Hmmm, once you account for not all that many teachers getting a 25% bonus the payback would seem to be more like 15 to 1. But even 7 to 1 is an extraordinarily high return.