The Design of Teacher Incentive Pay and Educational Outcomes: Evidence from the New York City Bonus Program

Teacher compensation schemes are often criticized for lacking a performance-based component. Proponents argue that teacher incentive pay can raise student achievement and stimulate systemwide innovation. We examine a group-based teacher incentive scheme implemented in New York City and investigate whether specific features of the program contributed to its ineffectiveness. Although overall the program had little effect on student achievement, we show that in schools where incentives to free-ride were weakest, the program led to small increases in math achievement. Our results underscore the importance of carefully considering the design of teacher incentive pay programs. * Correspondence should be sent to [email protected]. We are especially grateful to Jonah Rockoff for his thoughtful comments and advice. We also thank Todd Kumler, Bentley MacLeod, Ben Marx, Derek Neal, Petra Persson, Maya Rossin, Jesse Rothstein, Miguel Urquiola, Till Von Wachter, Reed Walker, and seminar participants at the Columbia applied microeconomics colloquium, AEFA annual meeting, Teacher’s College Economics of Education Workshop, and the Harvard Kennedy School’s Program on Education Policy and Governance’s Merit Pay Conference for useful discussions and feedback. We are grateful to the New York City Department of Education for the data used in this paper.