Merit Pay and the Evaluation Problem: Why Most Merit Pay Plans Fail and a Few Survive

Abstract

Richard J. Murnane and David K. Cohen use the framework of microeconomics to account for the short lives of most merit pay plans. They demonstrate that teaching is not an activity that satisfies the conditions under which performance-based pay is an efficient method of compensating workers. They then show that merit pay plans survive in a few school districts,in part because the districts are special and in part because the merit pay plans are quite different from conventional notions of performance-based pay.