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Though the dramatic effects that teachers have on student achievement are indisputable, the exact ingredients of effective teaching are anything but settled. Questions about how to value experience, education, certification, and pedagogical skills—the big four of teacher inputs—have created one of the most highly contentious fields of inquiry in education, particularly since they have clear implications for the design of teacher compensation systems.

In 2000,public elementary and secondary schools spent roughly $180 billion on teachers’ salaries and benefits, about half of their total expenditures; most of it was distributed according to fixed salary schedules that considered only a teacher’s education and years of experience. This system has its origins in the first half of the 20th century and was partly a response to the racial and gender discrimination that existed under more discretionary systems at that time. However, over the past 20 years more educators have wondered whether such pay packages can attract, motivate, and retain high-quality teachers in a highly competitive professional world (see Forum, page 8). In response to such concerns, there was a flurry of merit pay activity in the early 1980s. Twenty-nine states had initiated some sort of merit pay program for teachers by 1986. Since then, however, almost all of them have been diluted or discontinued. A 1997 study by economists Dale Ballou and Michael Podgursky reported that 12 percent of school districts were using merit pay in some way, but the amount of incentive in these districts averaged only two percent of base pay.