This paper proposes an incentive scheme for educators that links compensation to the ranks of their students within comparison sets. Under certain conditions, this scheme induces teachers to allocate socially optimal levels of effort. Moreover, because this scheme employs only ordinal information, it allows education authorities to employ completely new assessments at each testing date without ever having to equate various assessments. This removes incentives for teachers to teach to a particular assessment form and eliminates opportunities to influence reward pay by corrupting assessment scales.
Barlevy, G., & Neal, D. (2012). Pay for percentile. The American Economic Review, 102(5), 1805-1831.
Teacher merit pay has garnered significant attention as a promising reform method for improving teacher performance and, more importantly, student achievement scores. This meta-analysis, which examined findings from 44 studies of teacher merit pay, found that merit pay is associated with a modest, statistically significant, positive effect on student test scores. The research also found that not all merit pay programs are equal. The best results are dependent on constructing efforts that incorporate sound, evidence-based practice elements.
Pham, L., Nguyen, T., & Springer, M. (2017). Teacher Merit Pay and Student Test Scores: A Meta-Analysis. Nashville, TN: Vanderbilt University.