Pay for Percentile

We propose 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. Education authorities can employ separate no-stakes assessment systems to track trends in scaled measures of student achievement. (JEL I21, I28, J33, J45)