Congress has historically recognized the importance of teacher quality in improving the academic performance of elementary and secondary school students. The latest amendments to the Higher Education Act (HEA) align with past efforts to improve quality through support and accountability for teacher preparation programs. The Elementary and Secondary Education Act (ESEA) has long sought to improve quality by supporting better professional development, effective recruitment and retention, and smaller class sizes. In perhaps its most direct effort to improve teacher quality, the 107 th Congress established new federal highly qualified teacher requirements through the No Child Left Behind Act of 2001 (NCLB, P.L. 107-110 ). In recent years, researchers and policy-makers have begun to consider and implement ways to use compensation reform to improve teacher quality; however, federal policy up to this point has not been heavily focused on the issue of teacher pay. There is growing concern that the single salary schedule currently in place in nearly all of the nation's schools may be a barrier to improving quality. Many believe that teachers' pay should be used to leverage changes in behavior, knowledge, and skills, and make teaching more financially attractive to successful teachers and to highly able individuals outside of teaching. The recent policy focus on student academic achievement has led some reformers to advocate for various systems of pay-for-performance based on achievement gains, including the use of value-added methods. Others argue that pay differentiation should reward a broader set of factors. These reforms include incentives based on such things as teacher evaluations, advanced credentials, career ladders, and service in hard-to-staff schools or high-need subject areas. Apart from the recently enacted Teacher Incentive Fund (TIF), federal education policy has not significantly addressed the nature of teacher compensation. Nevertheless, significant amounts of funding from several federal programs support the salaries of certain kinds of teachers, including teachers and paraprofessionals serving educationally disadvantaged students under the compensatory education program (ESEA, Title I-A), newly hired teachers under the continuation of activities provided by the Class Size Reduction program (antecedent to ESEA, Title II-A) and special education teachers (under the Individuals with Disabilities Education Act). As Congress moves to reauthorize the ESEA, proposals to leverage federal education spending to reform teacher compensation systems may receive serious consideration. Congress could scale up the current federal role in compensation reform through continued expansion of the TIF program; which is basically providing funding for promising programs that already exist (mainly) at the local level. However, Congress may also consider alternative approaches that would alter or expand the federal role. An example of such a proposal would be to strengthen current language supporting pay reform under ESEA Title II (Sections 2113 and 2123). This report is intended to discuss a variety of issues that relate to compensation reform and the proposals Congress may consider during ESEA reauthorization. The report first provides background on the teacher pay system, including the history behind the development of the dominant feature of this system—the single salary schedule. Second, the report discusses the basic elements of compensation reform, namely performance-based pay, competency-based pay, and service-based pay. The third section of the report describes several reform efforts that are currently underway around the country at the national, state, and local levels. Finally, the report concludes with a discussion of recent legislative action and issues for ESEA reauthorization. The origins of the current system of teacher compensation can be traced to the turn of the 20 th century and the labor movement's drive to improve pay equity in public education and the civil service at large. Prior to that time, "room and board" and "grade-based" compensation models allowed large discrepancies to develop, particularly along racial and gender lines. By the 1920s, new systems of uniform pay steps were taking hold to ensure teachers with the same years of experience and education level would receive the same salary. These systems came to be known as the single salary schedule and have been nearly universal in public schools since the mid-20 th century; adopted in 97% of all schools by 1950 and operational in 96% of schools in 2000. Teacher salary schedules are primarily determined at the level of the individual school district. They are often the subject of negotiation between local school boards and teacher unions where applicable. This salary schedule bases a teacher's pay primarily on two factors—the number of years of teaching experience the individual has and the number of educational credits and degrees the individual has earned. Increases in both teaching experience and credits/degrees lead to increases in salary, up to absolute limits imposed by the applicable pay schedule. Critics view the single salary schedule as largely rewarding longevity and the accumulation of college credits, not classroom effectiveness. Some researchers have found that the schedule's main factors—experience and level of education—have relatively little beneficial impact on classroom effectiveness as measured by the achievement of a teacher's students. Hanushek and Rivkin have concluded: "The results [of a review of the available research] are startlingly consistent in finding no strong evidence that teacher-student ratios, teacher education, or teacher experience have an expected positive effect on student achievement." Other research challenges these conclusions. For example, based on their analysis of the literature, Rob Greenwald et al. concluded: "[R]esource variables that attempt to describe the quality of teachers (teacher ability, teacher education, and teacher experience) show very strong relations with student achievement." Regardless of the strength of the relationship between teacher quality and student achievement, the single salary schedule (and perhaps low overall pay, see box below) is argued by some to fail to draw the highest caliber of potential teachers into the field; to fail to reward teachers who are exceptionally productive; or to fail to allocate the supply of teachers to fields where they are most needed (like math and science). Criticism of the single salary schedule has undergirded efforts to implement performance-based pay plans in elementary and secondary education. Teacher compensation reform efforts have a long history and have fallen into and out of favor in public schools repeatedly throughout the 20 th century. Throughout this history there has been a consistent tension in the balance between rewarding inputs versus outputs . Put simply, should teachers be given additional pay for improving the skills and abilities they bring into the classroom or should they get additional pay for improving the skills and abilities their students carry away from school? Reflecting this debate, a recent review of the history of compensation reforms described the two classic approaches as (1) knowledge-based pay and (2) merit-based pay. Many writing in this area conflate these two reforms (among other reforms) under terms like "performance-based pay" and "pay-for-performance." To avoid confusion, in this report, the term performance-based pay is used to refer strictly to output-based compensation reforms that reward teachers for improving student performance. Input-based incentives (such as rewards for improving a teacher's knowledge) are referred to as competency-based pay . In addition to these two types of reform, there exists a third category that will be called service -based pay . These reforms include financial rewards for those teaching in hard-to-staff schools and hard-to-staff subject areas, but can also include rewards for those who move up the career ladder to serve in more advanced roles (e.g., team leadership) and take on additional responsibilities (e.g., mentoring). In the labor market generally, performance-based pay policies attempt to correlate employee pay directly with employee output and take the form of either individual incentive plans or group incentive plans. Performance-based pay is consistent with widely held beliefs that employees should be rewarded based on effort and with theories of human motivation which contend that effective motivation is predicated on a close relationship between performance and rewards. Most employers rely principally on time-based pay (paying employees on an hourly or salaried basis) but incorporate some form of performance-based pay on an adjunct basis. Implementation of performance-based pay requires supervisory time and, consequently, entails costs for employee monitoring among other managerial problems. However, it is presumed that because of the additional incentives to individual performance, less supervision will be required than under strictly time-based pay. These performance incentives may reward productive workers with larger annual wage increases (or one-time bonuses) on an individual basis. As an alternative to supporting individual performance, group incentive plans reward organization-wide effort. Because group incentive plans ideally foster cooperation and teamwork rather than competition among coworkers, they overcome one of the potential limitations of individual incentive plans. On the other hand, group incentive plans are sometimes criticized for not sufficiently recognizing individual effort. In practice, many employers rely on both group and individual incentives to try and enhance individual performance and teamwork. Gain-sharing plans, which tie part of pay to some measure of group effort, often include some components of individual performance plans, thereby potentially enhancing group and individual effort. Gain-sharing rewards are tied to improvements in organizational performance attributable to factors controllable by employees. Thus, gain-sharing plans affect performance by influencing employee motivation and organizational culture. The first wave of performance-based pay reforms for teachers mainly took the form of so-called merit pay . Merit pay is a, "system that hinges on student outcomes attributed to a particular teacher or group of teachers rather than on 'inputs' such as skills or knowledge." Following the release of A Nation at Risk in 1983, a significant number of public school districts began considering merit pay as a supplement to the single salary schedule. These merit pay systems provided bonuses to individual teachers, groups of teachers, or schools based on any number of factors including student performance, classroom observations, and teacher portfolios. A 2002 report by the Progressive Policy Institute found that the most common form of merit pay were school-based performance awards. These bonus awards were based on the aggregate performance of schools that may include a wide range of possible measures. Student-related measures may include achievement levels, attendance rates, dropout rates (for secondary schools), participation rates in advanced placement courses (for secondary schools), and college going rates (for secondary schools). Measures of school performance need not be student-based. For example, they may include the extent of parental and community involvement in school activities, or whether the schools have developed and implemented new curricula. The awards are made to individual schools for use at the school level. Some, but not all, of the initiatives being implemented that include school-based performance awards require the distribution of these awards to individual teachers as additional compensation. Early pay reform efforts demonstrate that measuring teacher performance is quite difficult. Many highly valued activities by teachers are qualitative, and as a consequence, hard to measure: One key problem in predicting teacher quality is that managers using the criteria demand quantitative measurements, while the factors that actually relate to classroom performance are typically qualitative and vague. Even if the factors important in producing a good teacher were known, specifying true quality and implementation standards would still be exceedingly difficult. Historically, merit pay reforms foundered frequently on the evaluation portion of the plans which often involved subjective assessments of teacher performance by principals, teachers, or others. In many instances, teachers considered this process to be ill-defined, overly subjective, or basically biased. Measuring performance remains one of the biggest obstacles to these reforms. Heneman et al. point out that teachers do not necessarily object to merit pay itself, "but the way in which plans were designed, implemented, and administered." In recent years, much has changed in the area of measuring teacher performance. With the growth of student assessments and related data systems, student test scores are increasingly used as a measure of teacher effectiveness. To many advocates, test scores are viewed as a more quantitative and less subjective way of gauging teacher performance than traditional evaluation procedures. Debate over the use of student test scores for this purpose focuses on the attribution of changes in student test scores to the effectiveness of an individual teacher, given the multitude of other factors, including family background and the quality of previous teachers, that are known to influence achievement. In addition, issues arise concerning the validity and reliability of the testing instruments, and whether such assessment instruments measure the full range of student outcomes that policymakers and others desire. Goldhaber summarizes the debate this way, "while such research has taught us valuable lessons about the appropriate ways to measure teacher effectiveness, it is an overstatement to suggest that debates about how precisely to measure teacher contributions to student learning are anywhere close to settled." One avenue of research that has attempted to address the debate over the use of student assessments for teacher evaluation has come to be known as value-added modeling (VAM). Most notably tied to the work of William Sanders at the University of North Carolina and later at the SAS Institute, Inc., VAM attempts to estimate the improvement in student achievement that can be attributed to teachers' interventions net of the effect of all other factors. In its pure form, these procedures use linked student-teacher unit records to identify teacher effects; however, at the present time such data systems exist in only a handful of states. A recent comprehensive review of VAM research undertaken by the RAND corporation declared the lack of these data systems to be "among the greatest challenges facing VAM" and concluded that "the research base is currently insufficient to support the use of VAM for high-stakes decisions." In contrast to performance-based pay incentives that attempt to reward teacher output, other pay reform programs reward teachers for improving inputs thought to lead to better student performance. In the private sector, such reforms are often referred to as "competency pay" in which employees receive pay increases or bonuses for obtaining skills needed by the employer. Odden and Kelley have identified several ways in which competency-based pay reforms have been implemented in public schools including financial incentives for obtaining additional licensure or certification, such as National Board Certification, and teacher performance as measured by a standards-based teacher evaluation system. Obtaining additional formal training leading to an advance degree is built into the current salary schedule; however, teachers are increasingly being offered financial incentives to obtain additional certification. Teachers may receive extra pay for obtaining certification in a second or third subject area or for earning advanced certification. Probably the best known and most widespread example of the latter is additional compensation awarded to teachers who become certified by the National Board for Professional Teaching Standards (NBPTS). Such certifications are growing in popularity among a significant number of states and school districts, with many of them adopting incentives designed to reward teachers for becoming NBPTS-certified, and in some cases these rewards are quite large. In standards-based teacher evaluation systems, teachers' performance is evaluated against a set of standards that define a competency model of effective teaching. Such systems replace the traditional teacher evaluation system and seek to provide a more thorough description and accurate assessment of teacher performance. A popular competency model of teacher performance intended to apply to all grade levels and subjects is the so-called "Framework for Teaching," developed by Charlotte Danielson. The framework attempts to describe the full range of teacher performance, from beginner to expert. It defines four performance domains: planning and preparation, the classroom environment (classroom management), instruction, and professional responsibilities. For each domain there is a set of specific performance components, each of which has one or more elements (a total of 66). Each element has four performance levels/standards, defined by specific behavioral rubrics. This section discusses two teacher compensation reforms that involve increased pay for teachers who fill hard-to-staff positions or take on advanced responsibilities. Compared to the reforms described above, these reforms have a relatively short history. The notion of hard-to-staff teaching positions was recognized recently as a turnover and distributional problem rather than a result of a labor shortage. Thus, recruitment policies have been tailored to encourage teachers to move into schools and subjects which are experiencing the greatest demand. Meanwhile, retention policies often seek to keep veteran teachers by providing them with incentives to advance their educational roles. Teaching jobs can be deemed "hard-to-staff" for several reasons. For one, the position may be in a school that presents undesirable working conditions. Second, the subject area or academic background required for the position may be in a field that commands higher pay in non-teaching professions. Finally, the population of students served by the position may require special skills or may be otherwise difficult to teach. Hard-to-staff schools might be most directly identified by human resource data such as unfilled vacancies at the start of the school year and the rate of teacher turnover; however, often proxy measures are used such as poverty rates, school lunch subsidies, crime statistics, and Medicaid enrollment. Incentive pay is provided for teachers willing to work in these hard-to-staff schools even though research suggests that money alone is insufficient to attract and retain them in such schools. Pay for high-need subject areas can be thought of as an attempt to meet the "market demand" for a particular set of skills (e.g., additional pay for teachers with math degrees who could earn more in the private sector). While this can be considered a type of knowledge-based pay system, it fits more in the service-pay category because, unlike pay systems for knowledge and skills (which are generally designed to be consistent from year-to-year), pay systems for high-need subjects areas may shift as the needs of a given school change from year-to-year. The same can be said for those teaching high-need student populations such as students with disabilities and migratory students. Professional development has traditionally been provided to teachers through in-service workshops, conferences and training sessions. Over 90% of teachers participate in some professional development activities in this manner. In many cases, an outside consultant or curriculum expert is brought in on a staff-development day to give teachers a one-time training seminar on a general pedagogic or subject-area topic. Criticism of this model has led to more ongoing and intense professional development activities. One of the new delivery methods for ongoing professional development has been for veteran teachers to take on mentoring roles as "master" teachers. Teachers that assume such expanded responsibilities may be offered additional pay and release time to assist in the development of new teachers. Initiatives like these that provide incentives for teachers to take on advanced roles are often referred to as Career Ladder programs. The teacher compensation reforms discussed above have not been implemented on a widespread basis. Two surveys conducted by the National Education Association (NEA) found that fewer than one in ten teachers receive some form of "performance-based or incentive pay (e.g., merit pay, stipends for teaching in critical shortage areas, incentives for National Board Certification, etc.)." More specifically, the NEA found that 5% of teachers surveyed during the 1995-1996 school year and 8% of those surveyed during the 2000-2001 school year were receiving this type of pay. Data from a more recent survey conducted by the Department of Education suggest that compensation reforms may be spreading. The 2003-2004 Schools and Staffing Survey (SASS) found that 14% of teachers reported receiving a "merit pay bonus [or a] state supplement" to their regular salary. As with educational expenditures in general, the federal government plays a somewhat limited role with respect to teacher compensation. Federal education appropriations have historically accounted for less than 10% of all education spending. In the 2005-2006 school year, a total of $529 billion was spent on public elementary and secondary education; $39 billion (7.4%) of these funds came through ED. That same year, $274 billion of the total was spent on instruction and nearly all ($246 billion) of that amount was used for staff salaries and benefits. A recent ED study found that roughly half of the major sources of federal K-12 education funds are used by schools and districts for instructional staff (e.g., 59% of Title I funds, 63% of Title II funds, and 55% of Title III funds). Even with these large shares of the federal effort going to instructional staff, it is still a very small proportion of all spending on teacher salaries and benefits. With respect to Title I, the ED report concluded that, "In an average-size Title I school of 500 students, Title I resources added a total of 3.5 full-time equivalent (FTE) staff, including 1.9 teachers, 1.2 teacher aides, and 0.4 non-instructional staff." Until recently, the federal role has also been limited in terms of the way in which teachers are compensated. Prior to the creation of the Teacher Incentive Fund (TIF), this role was limited to the inclusion of pay reforms among a list of allowable uses of funds under the two main federal teacher programs. The HEA, Title II-A, Teacher Quality Enhancement Grants program (enacted through the 1998 HEA amendments) authorized participating states to develop "performance-based compensation systems." Although the 2008 amendments to the HEA eliminated the Title II grants to states, the retained Title II partnership grant program contains support for activities that may include "bonus, differential, incentive, or performance pay" for mentor teachers. The ESEA, Title II-A, Improving Teacher Quality State Grants program (enacted through the NCLB amendments of 2001) allows grantees to use these funds for, among many other activities, "merit pay programs" to promote teacher retention. According to a recent study, only 4% of ESEA, Title II-A funds were used for "scholarships, signing bonuses, or other financial incentives, such as differential pay" or "merit pay programs." The establishment of the TIF represents a notable change in the federal stance on teacher compensation. Rather than simply allowing states and districts to use federal funds for incentive pay (as is the case under the ESEA and HEA, Title II programs), the TIF actively seeks out and supports promising pay reform efforts. Though limited in scope, this program establishes a targeted federal role in supporting compensation reforms. Funding has always been one of the major barriers to the development of pay reform. The merit pay reforms of the 1970s and 1980s came in the form of bonuses (instead of salary increases) that did not outlive periodic budget shortfalls. Unlike that previous wave of reforms, current efforts depend heavily on outside financing such as foundation support to supplement funds from state and local budgets. The TIF represents the paramount federal effort to reform teacher compensation. This program was first funded through the FY2006 Labor-HHS-Education Appropriations Act ( P.L. 109-149 ) which provided $261 million for activities authorized under Title V, Part D of the ESEA. A portion of these funds ($99 million) was reserved for activities under Subpart 1 which gives the Secretary general authority to award discretionary grants "to support nationally significant programs to improve the quality of elementary and secondary education." The act stipulates that these $99 million are to be used for five-year grants competitively awarded to local education agencies (including charter schools) or states individually or in partnership with each other or with a non-profit organization. According to the act, the goal of these projects is to "develop and implement performance-based teacher and principal compensation systems in high-need schools." The act further requires that TIF project compensation reforms "must consider gains in student academic achievement as well as classroom evaluations conducted multiple times during each school year" among other factors and provide educators with incentives to take on additional responsibilities and leadership roles. The Secretary is given a 5% set-aside to support the Center for Educator Compensation Reform which raises national awareness about alternative and effective strategies for educator compensation reform and provides technical assistance to TIF grantees. Beginning in 2007, the FY2006 appropriation was used to fund 34 TIF projects; no funds were appropriated for TIF in FY2007. Program funds may be used to pay the costs of developing and implementing performance-based compensation systems for the benefit of teachers and principals in high-need schools. For example, in addition to costs associated with the incentives given to teachers and principals, other project costs could include professional development activities for those teachers in high-need schools, evaluation and analysis tools, project staff salaries at the applicant level, and reasonable travel necessary for project development and implementation. The FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) contained the same authorizing language that was in the FY2006 Appropriations Act and provided $97.3 million to continue funding for all 34 projects. The Omnibus Appropriations Act of 2009 ( P.L. 111-8 ) appropriated $97.3 million to support the 34 continuation awards. These FY2009 funds were supplemented with an additional $200 million under the American Recovery and Reinvestment Act ( P.L. 111-5 ). These additional funds were used to award 60 new TIF grants. The Consolidated Appropriations Act of 2010 ( P.L. 111-117 ) provided $400 million to support 94 continuation awards and 65 new TIF grants. CRS was able to identify four fairly sizable non-federal national-level efforts to reform teacher compensation currently in existence. In keeping with the TIF approach of funding promising pay reforms, each of these four efforts receives financial support from the TIF as well as from private sources. The most prominent of these is the Teacher Advancement Program (TAP). The Teacher Advancement Program (TAP) grew out of the Milken Family Foundation's earlier support for the Milken Educator Awards. TAP was launched in 1999 as a comprehensive strategy to find and reward excellent teachers. In 2005, TAP began operating under the National Institute for Excellence in Teaching (NIET), an independent 501(c)(3) public charity. Under the NIET, TAP currently receives support from over a dozen major foundations as well as through a federal TIF grant. The TAP model of reform has four components: (1) multiple career paths; (2) on-going applied professional growth; (3) instructionally focused accountability; and (4) performance-related compensation. Multiple Career Paths. TAP's multiple career paths allow high quality teachers to pursue a variety of positions, advance professionally, and earn higher salaries without leaving the classroom. If teachers demonstrate consistent success, they have the opportunity to become career, master, or mentor teachers and earn salary increases of up to $15,000. Ongoing Applied Professional Growth. The program allocates time during the instructional day for teachers to meet and collaborate on instructional and curricular issues. These meetings are either group- or individual-focused and often scheduled with a TAP-identified mentor or master teacher. Instructionally-focused Accountability. Instructionally-focused accountability refers to TAP's mechanism for evaluating teachers. In an effort to assess teacher performance appropriately, TAP employs a grading rubric to measure systematically a teacher's content knowledge, instructional methods, and student learning gains. These evaluations are ultimately used to determine a teacher's career ladder advancement within the school. Performance-related Compensation. TAP's performance-related compensation scheme rewards teachers across three dimensions: (1) student performance; (2) increased roles and responsibilities; and (3) classroom teaching performance. High-performing teachers can earn salary increases of up to $4,000 annually. TAP currently operates in more than 125 schools in 9 states and 50 districts. Another 10 states presently are pursuing program implementation in routinely low-performing schools. In the aggregate, there are approximately 3,500 teachers and 56,000 students in TAP schools across the country. Three other national programs exist, but on a much more limited scale compared to TAP. The Institute for Compensation Reform and Student Learning , operated by the Community Training and Assistance Center (CTAC), assists in the implementation of performance pay initiatives in about 16 locations including a TIF-funded project in the Charlotte-Mecklenburg, North Carolina school district. The Partnership for Innovation in Compensation for Charter Schools , coordinated by the Center for Educational Innovation (CEI), received a TIF grant to implement performance pay in 10 charter schools in New York City and also provides support to other charter schools around the country. The Effective Practice Incentive Community , established by New Leaders for New Schools (NLNS), received a TIF grant to implement performance pay in 66 charter schools affiliated with the National Charter School Consortium. NLNS is also partnered with three other TIF grantees in the Memphis, Denver, and District of Columbia school systems. CRS was able to identify seventeen states that currently have teacher compensation reform efforts underway. This section discusses initiatives in three states – Minnesota, Arizona, and Texas – these are among the more prominent efforts underway. An Appendix at the end of this report provides a table which identifies the main components of all of the aforementioned state-level programs. In 2005, the Minnesota legislature approved the Quality Compensation (Q-Comp) program. Q-Comp incorporates both career ladder and traditional professional development for teachers, while compensating teachers according to state approved measures of student achievement. The program was funded at $13 million in FY2006, $76 million in FY2007, and $64 million in FY2008. Under Q-Comp guidelines, 60% of any compensation increase must be based on district professional standards and on classroom-level student achievement gains. School districts wishing to participate in the program must submit a Q-Comp proposal to the state department of education. Districts with approved plans are awarded up to $260 per student to support implementation and sustenance of their compensation plan. The number of participating districts has grown from 22 in 2005-06 to 43 in 2008-09; the state's 15 TAP schools (all located in the Minneapolis school district) receive Q-Comp funds. Since 1993, 28 of Arizona's 200 school districts have participated in the state's Career Ladder Program (which began as a pilot program in 1985). As of 2006, the same 28 districts continued to participate. At that time, these districts enrolled 31% of the state's 865,000 students and employed 40% of the state's 43,000 teachers. Roughly seven in ten of all eligible teachers participate in the program. Arizona Revised Statute 15-918 requires that participating districts must provide for: (1) increasingly higher levels of pupil academic progress as measured by objective criteria; (2) increasingly higher levels of teaching skills; (3) increasingly higher levels of teacher responsibility; (4) professional growth; and (5) equal teacher pay for equal teacher performance. In 2000, Proposition 301 was passed by 53% of Arizona voters. This initiative established the Classroom Site Fund which provides funding, from a dedicated sales tax, for districts to participate in some form of pay-for-performance plan for teachers. Career Ladder districts, as well as districts with other forms of diversified compensation programs in place, already meet this requirement. In FY2007, sales tax collections plus other sources of revenue for this fund totaled more than $400 million. Districts are required to direct 20% of the funds received toward increasing teachers' base pay and another 40% toward performance pay. In 2006, the Texas Legislature enacted the three Educator Excellence Award programs, creating one of the largest state-level performance-related pay program in the nation. For FY2008, these programs were appropriated $340 million including (1) $10 million for the Governor's Educator Excellence Grant, (2) $100 million for the Texas Educator Excellence Grants, and (3) $230 million for a district-level grant yet to be named. Governor's Educator Excellence Grants (GEEG) . Under this program, funds are distributed through formula grants to schools that are in the top third of Texas schools in terms of percentage of economically disadvantaged students. To be eligible, schools must also meet certain performance criteria on the state's pupil assessment, the Texas Assessment of Knowledge and Skills. Approximately 100 schools qualified in 2008 and individual campus-award amounts varied according to student enrollment, ranging from $60,000 to $220,000. GEEG schools are required to use 75% of these funds for direct incentives to full-time teachers based both on improvement in student achievement and on teacher effectiveness in collaborating with colleagues. The other 25% may be spent on (1) direct incentives to other school employees (including principals) who contribute to improved student achievement, (2) professional development, (3) teacher mentoring and induction programs, (4) stipends for participation in after-school programs, (5) signing bonuses for teachers in hard-to-staff subjects, and/or (6) programs to recruit and retain effective teachers. Texas Educator Excellence Grants (TEEG) . The eligibility criteria, purposes, and activities supported under this program are nearly identical to those of the GEEG program; however, schools must be in the top half of Texas schools in terms of percentage of economically disadvantaged students. GEEG grantees are not eligible for TEEG grants. TEEG grantees must reapply annually, while GEEG grants are awarded for a period of three years. For the 2006–07 school year (the most recent data available), 1,163 campuses were eligible for grants and award amounts ranged from $40,000 to $295,000. District-Level Grant s . All districts in the state are eligible for funding under this program and they may apply for funds for all campuses or for selected campuses. Districts are required to use at least 60% of funds to directly reward classroom teachers based on improvements in student achievement. The remaining funds may be used: (1) as stipends for mentors or teacher coaches, teachers certified in hard-to-staff subjects, or teachers who hold post-baccalaureate degrees; (2) as awards to principals based on improvements in student achievement; or (3) to implement components of the TAP. Table A-1 (in the Appendix to this report) displays information for all state-level teacher compensation reform programs CRS was able to identify as of December of 2008. These programs were identified through three main sources: (1) the National Center on Performance Incentives (NCPI) based at Vanderbilt University, (2) the U.S. Department of Education, Office of Academic Improvement and Teacher Quality Programs, and (3) the Education Commission for the States, Teacher Quality and Leadership Institute. Detailed information on these programs was collected through a variety of secondary sources, including (1) an extensive review of the academic literature and educational press, (2) a thorough search of the internet for project websites, (3) a review of documentation made available by state education departments, policy centers, associations and commissions, and (4) numerous discussions with experts and practitioners in the field. The table lists the project name for each program in the left-hand column, while the remaining columns provide program information including the method of program funding, the criteria used to award performance incentives, and the extent of district or school eligibility and/or participation. At the present time, CRS has identified 20 teacher compensation reform programs in 17 states. Every program uses student performance as a criteria for rewarding teachers with incentive pay. At least 7 of the 20 programs also base incentive pay on some form of teacher evaluation. As many as eight programs provide additional pay for teachers who move up the career ladder. At least nine offer extra pay to those who teach in high-need schools and/or hard-to-staff subjects. Programs vary in terms of school and district eligibility—some offer incentives to just a few schools or districts, others make all LEAs eligible, still others require all LEAs to participate. Programs also vary in the amount and type of incentive awarded—some offer a school-wide increase of a few hundred dollars per student, others give individual teachers as little as $1,000 or as much as $11,000. At least 10 of the state programs deliver funds for incentive awards through a formula. These programs provide supplemental formula funding (often on a per pupil basis) to schools or districts that apply to be included in the program. Such funding strategies exemplify an alternative to the TIF approach of awarding competitive grants to a select set of promising reform efforts. CRS has identified over 80 teacher compensation reform efforts that exist at the local level in 25 states and the District of Columbia. This section discusses initiatives in three locations—Denver, CO; Guilford County, NC; and Hamilton County, TN—these are among the more prominent local efforts and are profiled to provide a sense of how local efforts are structured. An Appendix at the end of this report provides a table ( Table A-2 ) which identifies the main components of all identified local-level programs. In 1999, the Denver Classroom Teachers Association and the Denver Public Schools reached agreement on an alternative teacher pay plan that linked pay to student achievement and professional evaluations. Following refinement of the pilot model by teachers, principals, administrators, and community members, the Professional Compensation Systems for Teachers (ProComp) was adopted in 2004 by the Board of Education and members of the Denver Classroom Teachers Association. Passage of a 2005 ballot initiative provided $25 million in dedicated tax funds for the program. In 2007, the Denver public school district was awarded a Federal TIF grant. Together, these funds will be used to expand ProComp to nearly 90% of the district's 150 K-12 public schools. The district has also created the ProComp Teacher Compensation Trust; with a balance of $44 million in 2007, the fund is projected to last for many years. ProComp has four components that enable teachers to increase their salary by as much as 18%, including (1) knowledge and skills; (2) professional evaluation; (3) market incentives; and (4) student growth. Teachers may get up to a 9% increase for completing an advanced degree or certification, 2% for professional development, and 3% for a satisfactory evaluation. Student achievement growth, which includes both teacher and school-wide growth awards, can generate up to a 6% increase. Filling a hard-to-staff position or teaching in a hard-to-staff school can each return a 3% salary increase. In 2006, Guilford County Schools launched the Mission Possible program—a comprehensive teacher incentive plan that combines multiple components to keep and attract highly effective teachers and administrators. Twenty high-need schools were initially selected to participate in the program; an additional eight schools were added in 2007 following receipt of a TIF grant. The addition of a $2 million grant from the University of North Carolina system and Action Greensboro to support a math incentive pilot program, called Cumulative Effect, brought the total number of participating schools up to 30 for the 2007-2008 school year. In addition to a variety of teaching supports (including ongoing training and collaboration and reduced class sizes), Mission Possible teachers and administrators receive recruitment incentives and performance incentives. Mission Possible financial incentives are based on grade levels and subjects that are part of state and national accountability requirements. Teacher performance bonuses are based on student achievement in math and English and range from $2,500 to $4,000. Bonuses are paid the following school year in late November after the NC Department of Public Instruction releases student data. Guilford County Schools conducts a student-teacher linkage verification, and SAS, Inc. generates value-added data for each teacher. In 2001, the Benwood Foundation agreed to spend $5 million over five years and the Chattanooga-based Public Education Foundation added another $2.5 million to establish a performance incentive program in the nine lowest performing schools in the Hamilton County School District. In 2006, the two groups added another $7 million and $1 million, respectively, for another five-year phase to expand, what came to be known as the Benwood Initiative, to 16 additional schools. In addition to several activities to support effective teaching, the program provides salary bonuses of up to $2,000 per teacher based on school-wide improvement in student achievement on the Tennessee Value-Added Assessment System. Principals may receive up to a $10,000 bonus for school-wide student improvement. Teachers may also receive a $5,000 bonus after three years of growth in student achievement. The program also offers recruitment and retention incentives including a forgivable loan that can be used by staff to purchase a home near their schools. Table A-2 (in the Appendix to this report) displays all 82 identified local-level teacher compensation reform programs known to exist as of December of 2008. These programs were identified through the same sources as the state-level programs discussed above. Every program used student performance as a criteria for rewarding teachers with additional compensation and most programs also included a teacher evaluation component. In addition to these incentives, many programs incorporate service-based incentives. Tying teacher compensation to student performance is the one element every performance pay initiative has in common. Although achievement is measured in a wide variety of ways and factored into teachers' pay differently across programs, generally speaking, it is gauged through school-wide improvement in student performance on academic assessments and accounts for at least half of the overall incentive award. Some programs apply value-added modeling (VAM) techniques that link student achievement to teacher performance and provide individual teacher awards based on these data; however, VAM-based incentives are more commonly awarded on a school-wide basis. Roughly three-quarters (59) of the programs complement school-wide awards with individual teacher awards based on traditional teacher evaluation systems. Roughly three-quarters (58) of the programs also incorporate career ladder incentives for teachers and about one-quarter (21) of the programs provide pay incentives to those who agree to serve in high-need schools or teach hard-to-staff subjects. Of the 82 pay reform initiatives, most (72 programs) are influenced by either TIF funding or TAP assistance (or both). TIF funds support 30 of these programs; the smallest of the five-year TIF grants provides $1.6 million for two schools that comprise the Mare Island Technology Academy's "New 3Rs" program in Vallejo, California, while the largest provides $29.2 million for 11 schools participating in "Project EXCELL" in Tucson, Arizona's Amphitheater Unified School District #10. More typical of TIF grantees, the Mission Possible program (discussed above) received an $8 million award. According to Amy Holcombe of Guilford County Schools, this grant doubled the $4 million the district recieved from foundation and local funds. Information on whether this proportion of federal to non-federal funds is typical of TIF grantees is not available; however, grantees are required to meet 75% of their costs through non-federal funds by the final (5 th ) year of the grant. Forty-seven of the 82 local programs included in Table A-2 are affiliated with the TAP program. According to Kristan Van Hook, TAP's Senior Vice President, the funds used to support incentive awards under these programs come from non-TAP sources. Van Hook further indicated that districts working with TAP often use their federal Title II funds to support their performance pay activities. Results from ED's most recent survey on the use of Title II funds suggests that nationally this is a rare occurrence. The Department's report states that among the districts surveyed only, "Four percent of Title II, Part A funds were spent on mechanisms and strategies to help schools recruit and retain highly qualified teachers, principals and specialists in core academic areas, such as scholarships, loan forgiveness, signing bonuses or differential pay for teachers" [emphasis added]. Still, it is quite possible that the small fraction of the nation's 14,000 school districts which are working with TAP may use their Title II funds very differently than the typical district. At the same time, anecdotal evidence collected in this research suggests that, apart from TIF support, a great deal of the funds used to award performance incentives may come from private sources—such as grants and donations received from foundations. As Congress considers education legislation, including bills to reauthorize the ESEA, proposals to leverage federal education spending to reform teacher compensation systems may receive serious attention. The debate over expansion of the federal involvement in this area will likely raise questions about what role the federal government should play in reforming teacher compensation given that most funding for teacher compensation is provided at the local and state levels. Recent legislative action has mostly involved proposals that simply would expand the TIF approach of funding a limited number of promising reform efforts already underway, mainly at the local level. Although bills to expand TIF funding were not passed in the 109 th Congress and the 110 th Congress kept program funding level, the 111 th Congress tripled TIF appropriations for FY2009. Meanwhile, the program authority continues to provide only minimal guidance as to how these funds should be used. In recent sessions, Congress has considered alternative approaches that would have begun to alter or expand federal support for teacher incentives and compensation reform. During the last two Congresses, debate over this issue occurred both within efforts to amend the TIF and also around broader legislative activities. This section will discuss these recent congressional actions including two bills that were introduced to reauthorize the HEA and would also have amended the TIF program authority; two bills that would have established a new program, for so-called Innovation Districts , in which performance incentives for teachers were to play a major role; and several hearings in which a broader debate over the federal role in teacher compensation reform occurred. Following a review of recent congressional action is a discussion of some of the issues that may be raised as the process for reauthorizing the ESEA continues to unfold. During the 109 th Congress, three bills were introduced to amend or increase funding for the TIF. Two of the bills simply would have increased funding, while the third bill ( H.R. 609 ) would have moved TIF authority from Title V-D of the ESEA to Title II-D of the HEA. The latter bill also further specified eligible entities and program activities, and would have required new non-federal matching funds as well as a program evaluation. During the 110 th Congress, this HEA reauthorization bill was reintroduced as H.R. 3746 and retained the TIF provisions; however, action on the bill stopped with committee referral. The HEA was eventually reauthorized by the Higher Education Opportunity Act (HEOA, P.L. 110-315 ); neither the HEOA nor the House and Senate-passed bills ( H.R. 4137 and S. 1642 ) contained the TIF provisions of the earlier reauthorization proposals. Three other TIF-related bills were introduced during the 110 th Congress. The Teacher Incentive Fund Act ( H.R. 1761 ) would have clarified and expanded the program's provisions, similar to the H.R. 3746 , and would have codified TIF authority in ESEA, Title II, Part C; the same provisions were included in a bill introduced in the Senate ( S. 1775 ). Action on both of these bills stopped with committee referral. Finally, the 110 th Congress reauthorized TIF through the FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) using the same authorizing language that was initially passed in the FY2006 appropriations act. The FY2006 authorizing language was again used to appropriate funds for TIF under the American Recovery and Reinvestment Act ( P.L. 111-5 ), the Omnibus Appropriations Act of 2009 ( P.L. 111-8 ), and the Consolidated Appropriations Act of 2010, ( P.L. 111-117 ). Apart from the TIF bills just discussed, few bills related to teacher performance pay have been introduced in Congress. One notable exception was the Innovation Districts for School Improvement Act (introduced in the 109 th Congress as S. 2441 and reintroduced in the 110 th as S. 114 ) that would have required participating districts to establish metrics to evaluate teacher effectiveness and, "develop a differentiated pay scale to provide incentives for effective teaching, teaching specific subject areas, and teaching in specific schools, including hard-to-staff schools." The bills' provisions regarding these incentives were more specific than either the existing TIF language or the bills to amend the TIF, particularly with regard to district cooperation with teachers, union representatives, and the community. Another bill, the Teacher Excellence for All Children (TEACH) Act (introduced in the 109 th Congress as H.R. 2835 and S. 1218 and reintroduced in the 110 th as H.R. 2204 and S. 1339 ) would have required participating districts to award "premium pay" to those teaching "shortage" subjects in high-need schools and deemed exemplary "based on strong learning gains for students." Neither the Innovation Districts bill nor TEACH Act legislation moved beyond committee referral; although some non-performance pay provisions in the TEACH Act were enacted through the HEA reauthorization bill ( P.L. 110-315 ). Early in the 110 th Congress, both the House and Senate held hearings on the quality of K-12 teaching in which issues related to teacher incentives and performance pay figured prominently. Intended as early steps in the ESEA reauthorization process, testimony at these hearings often raised issues regarding compensation reform and several members asked specific questions about performance pay and other incentives. On March 6, 2007, the Health, Education, Labor, and Pensions Committee held a hearing entitled, "NCLB Reauthorization: Strategies for Attracting, Supporting and Retaining High Quality Educators" (S. Hrg. 110-154). On May 11, 2007, the Education and Labor Committee held a hearing entitled, "ESEA Reauthorization: Boosting Quality in the Teaching Profession" (Serial No. 110-34). The overarching sentiment among the education experts tapped for these panels was in favor of providing incentives to promote teacher quality. Several spoke in support of the pay incentive components of TIF and TAP; some comments were in response to committee members questions about the issue and several mentioned the need to use a variety of evaluation methods in addition to measures of student performance. One witness on the Senate panel submitted additional material following the hearing in which she argued against the use of value-added modeling for measuring the performance of individual teachers. In September 2007, the majority and minority leadership of the Education and Labor Committee released a discussion draft of proposed legislation to reauthorize the ESEA. Title II of the draft proposed the establishment of a discretionary grant program (similar to the TEACH Act proposal) which would have awarded "premium pay" to "exemplary teachers" serving in high-need schools. The draft required that LEAs, in collaboration with local teacher organizations, develop a system to identify "exemplary teachers" that must be (1) based on strong learning gains for students; (2) based on classroom observation and feedback at least four times annually; (3) conducted by multiple sources, including master teachers and principals; and (4) evaluated against research-validated rubrics that use planning, instructional, and learning environment standards to measure teaching performance. The Committee held an all-day, six-panel hearing on September 10, 2007, for comments on the discussion draft. The "Teaching and School Leadership" panel included representatives from the Nation's two largest teacher unions – the National Education Association (NEA) and the American Federation of Teachers (AFT). Both representatives spoke out strongly against the premium pay provisions. In his prepared statement, Reg Weaver, President of the NEA, stated his organization's position plainly, "The NEA opposes federal requirements for a pay system that mandates teacher pay based on student performance or student test scores." The AFT opposition was less blunt; Vice-President, Antonia Cortese, expressed concern about the proposal's "top-down" approach which "jeopardizes buy-in" from teachers. Other members of the panel spoke favorably of the proposal's potential to remedy inequities in the distribution of quality teachers. Specifically, both Kati Haycock, President of the Education Trust, and Kristan Van Hook, of the National Institute for Excellence in Teaching, praised the use of premium pay to encourage teachers to work in hard-to-staff schools and career ladders to reward professional advancement. Ms. Van Hook discussed her support for performance pay at great length; emphasizing the importance of implementing such incentives as part of a "comprehensive approach, such as that that is taken in the bill before you today." Should the 112 th Congress consider compensation reform and teacher incentive pay proposals, it will inevitably be thinking about whether to stay the course with TIF. As it stands, the program is very broadly defined and has been implemented at the local level in varying ways. Should the federal role in this area continue to be a supporter of local pay reform experimentation and provider of seed money to encourage financial commitments from local, state, and other sources for these reforms? In light of recent appropriations and accompanying non-federal matching requirement, it appears this view may hold sway in future deliberations. If TIF remains an experimental approach to finding out what works, Congress may consider how long and in how many settings to continue to support this type of effort. Alternatively, Congress may consider whether the federal role should be expanded beyond TIF. Should this role be greater than funding a limited set of reform efforts designed to meet a few broadly defined objectives? If the federal role is to expand, Congress may need to consider (or set up a process to consider) what elements of teacher compensation reform can or should be written into federal law. Recently considered legislation and testimony before the authorizing committees (mentioned in the previous section) provide some potential avenues for development and also point to potential areas of difficulty. Competency-based and service-based incentives appear to have much support, but some may feel they don't do enough to reward performance. On the other hand, performance-based incentives may be too controversial and may be difficult to enact on a large scale and in a manner that would achieve intended goals. Another element of the debate over pay reforms may occur around what level of the educational system these reforms are best applied. That is, either under TIF or through a different program, Congress may consider whether it wants federal involvement in this area to focus on state reforms or local reforms. Programs reviewed in the previous section of this report show reforms occurring at both levels in numerous locations throughout the country. Should future federal policy development encourage states to be more involved in compensation reform or instead provide direct support to local efforts? Scaling up federal support for TIF may be easier to implement at the local level, while an expanded federal role that includes more specified program activities may be better suited to the state level. The debate over local versus state reform may also involve proposals to amend the ESEA Title II-A state formula grant program. Currently, most of these funds go through state education agencies to local school districts and are mainly used for class size reduction and professional development; however, "merit pay" is also included in the program's authorized activities. Congress could consider placing greater priority on addressing compensation reform through ESEA Title II-A by strengthening current language (Sections 2113 and 2123). Performance measurement may be the most hotly contested issue in the compensation reform debate. Current federal law governing TIF requires that teacher performance be based on student achievement and teacher evaluation, but does not provide any detail as to how this should occur. Traditional teacher evaluation has been common for decades, while, performance evaluation tied to student achievement is a more recent development. Significant improvements have been made in the effort to connect student achievement to teacher performance, particularly in certain subjects like math. Still, the research in this area provides reason for Congress to give serious thought to issues such as the use of value-added methods for high-stakes decision-making for individual teachers. One reason these methods are hard to apply to individual teachers is that, to produce reliable results, the statistical modeling employed requires large amounts of data. For example, an elementary school teacher with an average class size of 15 students assessed twice a year would produce too few data points on which to reliably estimate teacher effects apart from non-teacher effects. The problems associated with measuring individual teacher performance explain much of why school-wide incentives are the dominant mode for delivering performance rewards. Simply put, measuring a school's performance is easier than measuring an individual teacher's performance. Critics of school-wide awards point out that they fail to incentivize individual effort and defeat the purpose of compensation reform. The counter-argument holds that school-wide awards encourage cooperation and collegiality which are critical to the success of broad-based, systemic reform. Congress may wish to consider the extent to which school and individual performance goals can or should be collectively targeted by pay incentive programs. Data systems for both student achievement and teacher performance have greatly improved in recent years; however, these systems have by no means reached universal or consistent application. In addition to the many technical obstacles that remain when it comes to compiling the data many feel are needed to measure and reward teacher performance, there are also political barriers to linking teacher and student records; some states have moved to prohibit this practice. Congress should be award of the data limitations and obstacles and may want to consider basing performance incentives on data elements and linkages that can be expected to be consistently available. CRS has constructed inventories of state and local programs, which are presented below. It is important to emphasize that these inventories are not comprehensive. Ideally, compiling complete inventories of all pay incentive programs would involve a proactive, investigative approach such as surveying all school districts or conducting a nationwide sample of school personnel. Given the limitations on our resources, however, CRS has collected information through somewhat less systematic methods based on secondary sources. These methods include (1) an extensive review of the academic literature and educational press, (2) a thorough search of the Internet for project websites, (3) a review of documentation made available by state education departments, policy centers, associations, and commissions, and (4) numerous discussions with experts and practitioners in the field. These inventories are provided to offer a sense of the landscape of programs in operation in states and localities. CRS believes this is useful in conveying basic information about the structure of programs and the range of characteristics programs feature. The inventories are not all-inclusive, and CRS can not be certain about the extent to which they reflect the actual universe of programs. On the following pages, Table A-1 contains the inventory of state-level incentive pay reforms and Table A-2 contains the inventory of local-level reforms.

Summary: Congress has historically recognized the importance of teacher quality in improving the academic performance of elementary and secondary school students; however, federal policy has only recently begun to address the impact of teacher compensation systems on both quality and performance. Growing concern about the dominant feature of these systems—the single salary schedule—has led to a variety of compensation reform efforts around the country. These efforts include pay-for-performance incentives that attempt to align teacher compensation more closely with student achievement, as well as other reforms that link increased pay to improved teacher competency or to service in hard-to-staff positions. Congress provided significant support to several existing compensation reform efforts by enacting the Teacher Incentive Fund (TIF) through the Labor-HHS-Education Appropriations Act of 2006 (P.L. 109-149). The concise passage that provides program authority for TIF states that funds are intended to "develop and implement performance-based teacher and principal compensation systems in high-need schools." Little additional guidance has been provided with respect to how these reforms are to be implemented. Subsequent congressional action to extend the TIF has left the authorizing language largely unchanged. Prior to the TIF, federal education policy had not significantly addressed the nature of teacher compensation. Nevertheless, significant amounts of funding from several federal programs support the salaries of specific kinds of teachers, including teachers and paraprofessionals serving educationally disadvantaged students, newly hired teachers, and special education teachers. As Congress moves to reauthorize the Elementary and Secondary Education Act (ESEA), proposals to leverage federal education spending to reform teacher compensation systems may receive serious consideration. Beyond recent increases in TIF appropriations through the American Recovery and Reinvestment Act (P.L. 111-5) and the Omnibus Appropriations Act of 2009 (P.L. 111-8), Congress may also consider altering and expanding the federal role in this area. Some proposals that would make changes to the federal effort in this area received attention in recent congressional sessions. These include a discussion draft for ESEA reauthorization circulated by the leadership of the House Education and Labor Committee as well as legislation to create Innovation Districts as part of the Obama Administration's education agenda. This report is intended to discuss a variety of issues that relate to compensation reform and the proposals Congress may consider during ESEA reauthorization. The report provides background on the teacher pay system, discusses the basic elements of compensation reform, and describes several reform efforts that are currently underway around the country. The report concludes with a discussion of recent legislative action and issues for ESEA reauthorization.