Incentives can be too powerful Here’s even more proof that incentives can be powerful motivators—perhaps too powerful. Atlanta Public Schools reward teachers, principals, and administrators for improved performance on tests. Georgia is one of ten states, for example, that use test scores as the primary way to evaluate teacher performance. Sometimes these rewards can be as high as $25,000 bonus for high-performing teachers. For administrators the reward can be higher school budgets or, on the negative end, lower budgets or school closings. The impact of this strong pay-performance linkage has been increased reports of widespread cheating. In Georgia, 178 teachers and prin- cipals were named—82 of whom confessed—in a cheating conspiracy that involved erasing of wrong answers given by students on standardized competency tests, and replacing them with the correct answers. It seems the award-winning gains by Atlanta students during the past ten years were achieved by widespread teacher cheating with administrator/principal support. Not to single out Georgia, other states report examples of academic cheating by teachers. Several states report incidents of teachers, when given freedom to grade their own students’ exams, who succumbed to performance and monetary pressures by grading incorrectly. So linking pay to performance and making the possible pay increases substantial leads to unethical behavior. You read about non-academic examples in this chapter (think Enron, for example), so the problem doesn’t rest in any one industry. Powerful incentives can cause undesired be- haviors. Suggest ways to solve this problem, using something you know a great deal about, academic performance. Question 1: How would you design a pay-performance system that uses powerful in- centives to motivate behavior, yet keep the behavior from diverting into the unethical? Hint: You want to keep the powerful incentive effect of pay. So don’t recommend eliminating incentive pay or reducing the size of the incentive component. What’s left? And how do you insure ethical behavior?


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