Incentive Strength and Teacher Productivity: Evidence from a Group-Based Teacher Incentive Pay System

Using data from a group incentive program that provides cash bonuses to teachers whose students perform well on standardized tests, we estimate the impact of incentive strength on student achievement. These awards are based on the performances of students within a grade, school and subject, providing substantial variation in group size. We use the share of students in a grade-subject enrolled in a teacher's classes as a proxy for incentive strength since, as the teacher share increases, a teacher's impact on the probability of award receipt rises. We find that student achievement improves when a teacher becomes responsible for more students post program implementation: mean effects are between 0.01 and 0.02 standard deviations for a 10 percentage point increase in share for math, English and social studies, although mean science estimates are small and are not statistically significant. As predicted in our theoretical model, we also find larger effects at smaller shares that fall towards zero as share increases. For all four subjects studied, effect sizes start at 0.05 to 0.09 standard deviations for a 10 percentage point increase in share when share is initially close to zero and fade out as share increases. These findings suggest that small groups provide productivity gains over large groups. Further, they suggest that the lack of effects found in US teacher incentive pay experiments probably are in some part due to specific aspects of program design rather than failure of teachers to respond to incentives more generally.