Tuesday, July 29, 2008

Does Money Buy Results?

I subscribe to the electronic newsletters of Education Week, a periodical targeted to teachers and others interested in education. An article this week caught my eye, and I wanted to pass it on to you.

One reason is to once again make the point that although I frequently write about the fact that employee compensation and benefits represent nearly 90% of the cost of running our schools, and it is this cost which is driving the need for additional operating levies every 2-3 years (not the cost of diesel fuel), I do not have a problem with compensating highly effective teachers competitively. But what does 'highly effective' and 'competitively' mean? What does 'compensation' mean?

It means that once you define the qualifications and performance expectations of a teacher, you need to be prepared to create a environment that attracts such teachers. If the qualifications and performance expectations are on par with what private industry expects of an engineer or a lawyer, then you need to create compensation structure and environment will motivate such individuals to seek employment as a teacher.

Note that I didn't just say 'competitive salary.' High performing individuals don't do it just for the money. They also want to be part of a high-performance organization that does interesting stuff. They want to be around inspiring leaders and contribute to efforts bigger than themselves. And they want access to sufficient resources so that their dreams and ambitions can be developed into reality (which for the geeks like me, means getting to play with cool toys). Lastly, they want to work around colleagues who share their passion, intensity, and level of performance.

A charter school in New York City is trying a radical experiment in regard to building its team of teachers. Their attention grabber is that they're going to offer a starting salary of $125,000. Some will say, "oh, that's NYC – it's crazy expensive, and you have to pay everyone more to work there." There is some truth to that. I've done business in NYC for many years, and currently sit on the Board of Directors of a non-profit based there, so I have some knowledge of the differences. In the case of public school teachers, the starting salary for a teacher with only a Bachelor's degree and no experience in Columbus City Schools is $29,313. In the NYC public school system, the starting salary is $45,430. The max salary for a Columbus City School teacher is $72,013 ($85,175 in our district). In New York City schools, it is $100,049.

So even though salaries might generally be higher in NYC, setting the starting salary for teachers at $125,000 is a big deal. It's 2.75 times the starting salary for teachers in NYC public schools, and it's 25% more than the maximum salary.

This charter school is in Washington Heights, a neighborhood at the northern tip of Manhattan (the opposite end from Wall Street, and north of Harlem), occupied primarily by immigrants from the Dominican Republic. It's a tough neighborhood, and the schools aren't known for their quality or performance. So it takes some guts to start a charter school there. "The Equity Project Charter School" (TEP) receives no private funding or funding above the level of any charter school in NYC, so how does it pay the $125,000+ to hire teachers?

First let's look at their three-pronged philosophy:

  • Rigorous Qualifications: Teachers are expected to be subject matter experts with outstanding verbal ability and teaching expertise.
  • Redefined Expectations: TEP teachers "work professional hours" typically from 8am to 6pm, which includes four hours teaching in the classroom, three hours of collaborative prep time, and one hour of observing. One some days they lead their students in school-wide service projects. They teach only one subject to one grade level. During the summer, TEP teachers get a two-week vacation in July and one week in August, but spend the rest of the summer in their Summer Development Institute. Even more radical is a mandatory one year sabbatical each five years. The teachers are not paid during this sabbatical by the way, so you could argue that this makes their $125,000/yr more like $100,000/yr. It's still good money.
  • Revolutionary Compensation: In addition to the $125,000 base salary, TEP teachers can earn annual bonuses, which can be as high as $25,000 in the first year of teaching and it goes up from there.

I think we should also note what is not said: I don't believe the TEP teachers will be unionized, and expect that teachers who fail to continue to live up to these expectations will be shown the door without a lot of complicated administrative procedures. You don't pay a teacher $125,000 and then accept results below your standards.

So where does the money come from to pay this kind of compensation? Here's what they say:

TEP has created a sustainable and conservative financial model that allows the school to compensate its teachers appropriately without relying on outside private funding. It accomplishes this primarily through cost savings that result directly from the tremendous quality and productivity of its teachers. In short, hiring and paying master teachers what they are worth is a cost-effective mechanism for boosting student achievement. TEP does NOT fundraise to support its investment in teacher compensation. This is because a central feature of TEP's mission is to demonstrate that schools can make a radical investment in teacher equity by reallocating existing public funding.

I like the sound of this, and I bet many of the people in our community do too. The orthodox approach to public school education in our country is not working so well, and I think part of the problem is that the public is objecting to what they perceive to be the decoupling of compensation and performance. The orthodox approach ties compensation to longevity. The TEP approach rewards performance, and in doing so will attract strong performers who not only want to be paid well, but also work with and for other strong performers who achieve extraordinary results.

I wish them great success.


  1. What a marvelous concept! Hats off to them. However, to do that in a school district using the "normal" current system, you would have to break the union or get them to go along with it. And THAT is never going to happen. And that is a shame.

  2. No but credit cards seem to be buying lots of food and drink in HCSD

  3. Paul,

    I'm going to sound offensive here, but I can think of no other route to the truth.

    Karl Marx was (inter alia) straight from the Classical School of Economics -- he was, in many ways, the next logical step. Marx built a system using a key fallacy from David Ricardo; the labor theory of value. In a round-about way, you are employing that very same fallacy here.

    Value is established by the consumer, not by qualifications, expectations, and compensation. Is any kindergarten teacher worth $125K per year? Who would know? Only the consumer -- parents paying out of their own pockets -- can make that decision.

    You have experience in business. Just think if I came to you with this proposal: The firm should enter market X. In order to do so, the firm must hire employees who meet high standards, and the firm must pay them top dollar. I then say that with this level of skills, the firm will a priori reap a huge profit.

    You'd call me mad. You would state that expenditures do not equal profits. In other words, the value of labor does not lead to the value of the product.

    Instead, you would ask me what I assumed the cost were for entering market X. You would then ask me what the income would be; and, hence, the profit. If my plan showed a loss, you would show me the door.

    Just because education is run by government doesn't mean that we can forget the truths of the market.

    And, in a world of scarcity, should kindergarten teachers be paid more than physicists? If you are a Trotskyite, the answer is yes. Employing Einstein in a kindergarten classroom would naturally lead to 20 New Soviet Men -- er, top physicists -- every year.

    Your companies never employed CPA's in the lunchroom to make certain that each cash register balanced to the penny each day. That would be a net loss.

    Value is established by the consumer. I earn what I earn because the consumer drives my company to perform. My company does not perform simply because I am paid a salary. The Soviets lived that for years.

    And, even if you set performance standards based on federal and/or state tests, the results would not show anything more than compliance to the arbitrary set of standards. The Soviets were known for demanding results and, at times, getting results. The central planners would demand a certain level of output, such as 1000 tons of nails. The factory would comply by producing a small number of large, heavy nails that no one could use. The factory met the standard yet produced nothing of value.

    Government education, no matter the flavor of Glasnost, can never make rational economic decisions. Mises proved that over 80 years ago. Yet, against all truth, some still dream as if life were otherwise.

    Offensive? Probably. But certain fallacies need to be addressed straight on.

  4. Jim:

    Methinks thou dost accuse me falsely sir.

    I have written a number of times about my preference for a free-market approach to schooling (this is a good summary). My views are not quite to the extreme of saying that it's every parent's right to decide if their kids should be schooled, and what the minimum standards should be, mainly because I still believe equal opportunty needs to be extended to protect children with bad parents.

    I'm just saying that the current paradigm of public schools is designed for the benefit of people in the business of public education, and not in the best interest of the kids or the nation.

    It is important to engage in radical thinking, but it's nearly impossible to change the status quo except in the face of extreme pain. A Friedman-style voucher system might have a chance in a few years, but not quite yet.

    Nor do I think a Friedman system is the end game. As a next step, I would change school funding over to a system more like food stamps - meaning that in most cases, people would pay for their kids schooling right out of their own pocket - directly, not via taxes. That would pretty much cure the apathy.

    So I applaud the folks trying this experience in NYC because they're attempting it within existing constructs. How do they know $125,000 is the right number? They don't, but they have to start somewhere.

    If they don't get any applicants, maybe they have to raise the compensation somehow. On the other hand, if they get thousands of qualified applicants, maybe they shot too high. Someone has to put a number of the table first, and I think in this case it had to be the school.


  5. Paul,

    But my district (Olentangy) has a starting salary of mid $30K and it gets thousands of applicants for any opening. Yet, salaries continue to go higher and higher.

    Regarding protecting children from bad parents ... That is soon to include the parent who errantly puts a Twinkie in her child's lunchbox. Seriously. Just wait.

    Either you trust the parent or you trust the bureaucrat and his associated do-gooders and minions.

    Either you trust the parent or the counselor who has no real connection to the child.

    And, this is not a false either-or argument as current trends prove.

    But, back to the real issue: You cannot pretend to have a market. Either you have a market -- even if hampered by government -- or you don't.

    Charters and voucher simply play market, they are not market -- not even hampered markets.

    And, you never answered the important questions: What makes anyone believe that a kindergarten teacher or a HS math teacher is worth $125K + bonus? And, who believes that it is better for a highly qualified resource to be in a classroom instead of working in the private sector ($150K is going to move resources from the private sector into education)?

    Of course government -- and charters as a sub of government -- can spend the money to chase the resources. But, expect nothing to improve. It will just be another chasing after the wind.

  6. Jim:

    Of course the obvious thing is that Olentangy isn't Washington Heights in NYC, but if you read my last response to you, I said I didn't know if $125,000 was the right number - they just had to start somewhere and see what happens. They aren't motivated to pay more than they need to - they would rather pay less and hire more teachers. This number is just what they think they need to get highly qualified and motivated teachers to take this unprecedented deal. I'm sure if they get a pile of valid resumes, they'll lower the salary number.

    Nor should you use your Twinkie example to trivialize the tragedy of kids born into single-parent crackhead households where the parent(s) don't care two licks about their kids. I can get pretty radical about what we should do to prevent the conception of kids into such environments, but once the kid is here, if the head of household doesn't give responsible care, then someone needs to step in to protect the kid. Hopefully the State is the refuge of last resort (after family, faith-based organizations, etc), but we can't let these kids suffer from neglect - not in America.

    Please don't make economics a black and white thing - it's always going to be shades of gray, influenced by the desires of society. If are advocating anarchy, then we're never going to see eye-to-eye. I want us to err on the side of less regulation, not more, but there can't be none.

    The problem at the national level is the same as at the State or City or School District level - ignorance and apathy. Democracy doesn't work if you let the big dollar special interests drown out your voice.


  7. Paul,

    Is the issue Big Dollars or Big Votes? Seems that democracy has become one giant wealth transfer from wealth producers (the voting minority) to tax consumers (the voting majority). Tocqueville was correct in his concerns around democracy and equality.

    I'll let your radical preconception issue pass save to say that all children are gifts from God -- I'm certain we agree on that.

    Economics is black and white -- it's a science for heaven's sake. Looking for gray in economics is like looking for gray in algebra.

    What you call economics is actually politics (or social policy) -- a different beast altogether.

    Finally, a related issue that I am blogging on myself: senior citizen's levies. We have allowed government to take over the role of the family. No wonder there are so many dysfunctional families when government is the safety net.

    The Bible (via Paul) calls on Christians to take care of their own family members. 1Ti 5:8 But if any provideth not for his own, and specially his own household, he hath denied the faith, and is worse than an unbeliever. Harsh stuff! Yet, today, many refuse to provide for their parents. Instead of honoring their mother and father (commandment), these folks push their parents on the state and their neighbors qua taxpayers. Hmmm.

    As I work my way through Jeremiah, I read the prophesied results of putting another god (government) before God. Remember, God takes care of everything.

    If instead of God, we rely on government, look out.

    So, it is up to us -- the Church -- to take care of children in need. If all else fails, pray. But do not rely on government as your failsafe. It will fail you as sure as Baal failed the Israelites.

  8. Jim:

    I think we agree on many things, and differ mainly in the method and pace in which to make the transition from our over-governed condition to one of profound personal liberty.

    In particular, I am an advocate for education not because it makes our workers more competitive (lower per-unit labor costs make our workers more competitive), but rather because a democratic republic doesn't work well without citizens who are educated.

    But education isn't enough - the citizens also have to be involved. Liberty is taken away in small steps, under the radar of folks too self-absorbed to see that when great power is yielded to the government, but left unchecked by the people - we cease having a government of/by/for The People.


  9. I think you may overestimate the impact leadership and colleagues have on the teacher experience and underestimate the actual kids in question.

    My take, though I'm guessing here, is that good teachers are myopically focussed on the kids the way lovers are focussed on each other.