Initially the main method of assessing teacher’s performance under the merit pay system was classroom observation through checklists. However, to enhance the assessment, measures of student achievement were also introduced, “test based accountability system” (Ingvarson, Kleinhenz & Wilkinson, 2007). Merit pay therefore generally involved financial incentives for teachers based on student performance and classroom observations (Beavis 2003).
Merit pay scheme was developed in the 1970s and 1980s and was used extensively in the United States, however its success was short lived. Despite the limited success of this performance pay system there has been keen interest in its adoption even in recent years suggesting that “belief in its benefits is still held” (Alafita, 2004). “Florida Special Teacher Reward Scheme” rewarded “5% of the base pay to the best performing 25% of teachers within cooperating school districts”. Performance was in terms of student test scores measurement of which was to be defined by the school districts. (Ingvarson, Kleinhenz & Wilkinson, 2007). In 2004, USD 500 million was allocated for “Teacher Incentive Fund” which was to provide USD 5,000 bonus for 100,000 teachers across USA, and in 2006 an incentive plan was also introduced in Houston which was to distribute up to USD 3,000 annually to teachers (Why performance pay fails the test, 2007).
Alafita (2004) conducted research to provide empirical evidence on the ability of merit pay to improve student performance. The study suggested that positive relationship existed between wage incentive and student performance however the results were not strong enough to eliminate certain concerns with the study. Alafita (2004) also quoted earlier studies one (Beaver, 1991) which showed no significant effect on student learning and second (Sloat, 1994) which showed positive effect but there were concerns with the methodology used in the study thus casting doubts on the findings of the study. Ingvarson, Kleinhenz & Wilkinson, (2007) quote Morrow’s (1992) study on merit pay plans for several American States and district suggesting that “there was no evidence in this study to support the position that it was pay-for-performance which improved student achievement”.
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