In Chicago — Phony Merit Pay is Dead, Long Live True Merit Pay



By 09/19/2012

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The dust hasn’t yet settled from the resolution of the Chicago teacher strike, but it appears that the reforms the city were able to retain will result in a better “true” merit pay system than the “phony” merit pay plan they were forced to concede.

Let me explain the difference between true and phony merit pay.  True merit pay — the kind of compensation for job performance found in most industries — provides effective employees with continued employment and regular raises while ineffective workers lose their jobs.  If you do a good job you get to keep getting a pay check and if you don’t you have to look for work somewhere else.  That’s true payment for merit because un-meritorious workers stop getting paid altogether.

In phony merit pay — the kind that hardly exists in any industry — there is a mechanistic calculation of performance that determines the size of a small bonus that is provided in addition to a base salary that is essentially guaranteed regardless of performance.  You can stink and still keep your job and pay.  The worst that can happen is you miss out on some or all of a modest bonus.  To make it even more phony, in the few cases where this kind of phony merit pay has been tried, the game is often rigged so that virtually all employees are deemed meritorious and get at least some of the bonus.

According to the initial reports, the city of Chicago abandoned its efforts to institute this latter, phony merit pay. As the Chicago Teachers Union put it: “The Board agreed to move away from ‘Differentiated Compensation,’ which would have allowed them to pay one set of teachers (based on unknown criteria) one set of pay versus another set of pay for others.”

But the city preserved key provisions that result in at least some amount of true merit pay.  Specifically, the city preserved the ability to continue opening new, non-unionized charter schools at a rapid clip.  It is already the case that almost 50,000 of the 400,000 students in Chicago’s public schools attend charter schools.  As students migrate from traditional to charter schools, enrollment in the unionized sector has plummeted, causing 86 traditional public school closures over the last decade.  Enrollment is so low in many existing traditional public schools that 120 additional schools are eligible for closure next year.  As long as the city can continue to open charter schools and as long as there is demand by students to leave for charters, traditional public schools will continue to be closed in large numbers.

When Chicago closes a traditional public school for low enrollment the teachers are laid off.  The new contract appears to place some limits on this, but the practice has generally been preserved.  In addition, unlike in some other big cities, principals in Chicago are free to hire teachers as they see fit and are not forced to take teachers laid off from school closures.  The new contract does require that half of all newly hired teachers come from those laid off and guarantees re-hiring only for the highest rated teachers, but according to the city’s summary of the agreement: “Principals maintain full authority to hire whichever teacher they deem best.”

The net effect of growing charter schools, closing under-enrolled traditional public schools, and only hiring back the best and most desired teachers from those schools is a true merit pay system.  Bad teachers are let go.  Good teachers not only get their job back, but they also get an extremely generous pay raise over the next four years for staying and being good.  That’s real merit pay.

-Jay Greene




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