The case of ‘payment-by-results’: re-examining the effects of an incentive programme in nineteenth-century English schools

Abstract

Performance-based management is a recurring and controversial strategy for education reform. This paper examines a nineteenth-century English experiment in paying schools by results and uses concepts from personnel and behavioural economics to understand its decline. Like many recent education reforms, payment-by-results sought to bring schools and teachers under the ‘laws of supply and demand’. The unintended outcomes of the policy, which ultimately led to its end, included narrowing of the curriculum, cheating and manipulation by schoolteachers and managers, and increased risk and uncertainty in the teaching profession. The paper begins by exploring the role of economics principles in the drafting of the policy. It continues to explore how the programme unravelled, with special attention to issues of perverse incentives, teacher motivation, risk, and uncertainty. Building on recent studies of analogous modern experiments in performance-based management, this paper finds important parallels to current policy concerns. The lessons learned address the fundamental relationship between incentives and teacher motivation and the role of economic theory in education policy.

Keywords:

• performance-related pay
• incentives
• behavioural economics
• economics of education
• education policy

Acknowledgements

I am grateful to Barry Eichengreen, Janelle Scott, Joshua Roebke, and the members of the U.C. Berkeley Neoliberalism in Education Policy Research Group for reading earlier drafts of this paper. The editors and anonymous referees also provided invaluable feedback.

Notes

Some scholars have claimed that the system of payment-by-results ended in 1897 (Rapple 1994), but by 1890 there was little left of the system Lowe had introduced. Testing was reduced to a sample, and one grant was awarded (rather than individual grants for each subject – reading, writing, and arithmetic) at the discretion of the inspector. Furthermore, discipline and organisation now counted in awarding the grant to schools. The end of formal annual examination by the inspectors occurred in 1895, and by 1897, the payment-by-results system officially ended (Rapple 1994).

Education Commission (1861). Also referred to as the ‘Newcastle Report’. See p. 274 for quote.

Minute of the Right Honourable The Lords of the Committee of the Privy Council on Education Establishing a Revised Code of Regulations. 29 July, 1861 (1862).

Minute of the Right Honourable The Lords of the Committee of the Privy Council on Education Establishing a Revised Code of Regulations. 29 July, 1861 (1862).

In the mid-1870s and early 1880s, there were several reports that discussed technical and science education for the purpose of both general education and training. The Samuelson Report (1884) argues for the expansion of technical education for industry, noting England's deficiencies in this area, compared with other European countries (cited in Maclure 1965).

The relationship between education and economic growth is somewhat contested even today (Spence 1973, Cohn and Geske 1990, Betts 1998, Wolf 1998).

Economists would not develop a full theory of incentives until much later, but eighteenth- and nineteenth-century economists understood the basic idea, as outlined by Laffont and Martimort (2001).

Annual Report of the Committee of Council on Education (1865–1866). See p. xiii for quote.

The Cross Report collected oral testimony from 151 witnesses and gathered statistics on the population, supply of schools, attendance, and the government grant. A questionnaire was sent to ‘typical localities’ with questions for teachers, school managers, and school boards (Nelson 1987, p. 174).

Royal Commission on Elementary Education and Cross, R.A., 1888. Vol. 2, sec. 13,691–13,693.

Royal Commission on Elementary Education and Cross, R.A., 1888. Vol. 2, sec. 13,697–13,699.

Royal Commission on Elementary Education and Cross, R.A., 1888. Vol. 4, p. 82.

Royal Commission on Elementary Education and Cross, R.A., 1888. Vol. 4, p. 82.

Royal Commission on Elementary Education and Cross, R.A., 1888. Sec. 13,867.

Royal Commission on Elementary Education and Cross, R.A., 1888. Sec. 13,906.

Royal Commission on Elementary Education and Cross, R.A., 1888. Sec. 13,889.

Royal Commission on Elementary Education and Cross, R.A., 1888. Sec. 13,831.

Hansard's Parliamentary Debates, 1869. See p. 1205 for quote.