Principal Performance
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Social Impact Strategy Leadership Economics Policy Dec 1, 2010

Prin­ci­pal Performance

What if school prin­ci­pals’ pay were tied to job per­for­mance? Turns out, it already is

Based on the research of

Julie Berry Cullen

Michael J. Mazzeo

On a cer­tain lev­el, it makes intu­itive sense that your child’s pub­lic school prin­ci­pal does every­thing with­in her pow­er to improve the stan­dard­ized test scores of her students. 

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Prin­ci­pals are per­son­al­ly invest­ed in your child’s edu­ca­tion, after all. Or at least they should be. But exact­ly how invest­ed they are became a ques­tion that gripped Kel­logg School of Man­age­ment pro­fes­sor Michael Mazzeo after he attend­ed a sem­i­nar by Julie Berry Cullen of the Uni­ver­si­ty of Cal­i­for­nia, San Diego.

Cullen, an expert on the eco­nom­ics of edu­ca­tion, pre­sent­ed research that doc­u­ment­ed dif­fer­ent ways school admin­is­tra­tors try to pull their stu­dents’ test scores up a few per­cent­age points. They may offer more nutri­tious lunch­es on days the tests are giv­en or take dis­ci­pli­nary actions, such as sus­pen­sions, to ensure that poor test-tak­ers are not present on the Big Day.

But why on earth would they do this, Mazzeo won­dered. What’s in it for them?

I had a sneak­ing sus­pi­cion that mon­ey was involved,” recalls Mazzeo, who is a pro­fes­sor of man­age­ment and strat­e­gy. The eco­nom­ics of edu­ca­tion was an entire­ly new field for him; he typ­i­cal­ly stud­ies indus­tri­al orga­ni­za­tion. But he was so intrigued, he dove into the literature.

Even­tu­al­ly, Mazzeo found that his sneak­ing sus­pi­cion about mon­ey was right. While prin­ci­pals do not receive per­for­mance-based pay increas­es when stu­dents improve their stan­dard­ized test scores, Mazzeo and Cullen — who teamed up for the research — found that they do get an implic­it reward.

Tak­ing the Long View
It’s not a direct reward, like a bonus paid to your salary, but a long-term career reward,” Mazzeo explains, because the prin­ci­pals who have had suc­cess­ful schools have a bet­ter chance of get­ting high­er-pay­ing prin­ci­pal jobs in oth­er dis­tricts, or jobs as super­in­ten­dent of schools, that are much high­er paid.”

The pair worked to get this result by pick­ing apart a trea­sure trove of statewide pub­lic school data from Texas that spanned the years from 1987 to 2006. Texas hap­pens to keep real­ly orga­nized, well-detailed records,” Mazzeo says, which made it real­ly easy for us to track cam­pus-lev­el test­ing scores and to cou­ple that with employ­ment and wage infor­ma­tion of prin­ci­pals from the same schools.” 

Texas also dic­tat­ed that stan­dard­ized tests be giv­en through­out the state’s pub­lic school sys­tem, which pro­vid­ed a built-in uni­for­mi­ty to cam­pus scores with­in the dataset. Mazzeo and Cullen were even able to track indi­vid­ual prin­ci­pals as they moved from school to school or dis­trict to district.

When you think about it, prin­ci­pals are real­ly anal­o­gous to C.E.O.s,” Mazzeo says. They set cur­ricu­lum, they hire teachers.”

Mazzeo and Cullen searched for links between improved cam­pus test scores and implic­it pay­offs to prin­ci­pals over time. They linked what Mazzeo calls two dis­parate sets of lit­er­a­ture: one on the eco­nom­ics of edu­ca­tion and the oth­er on the eco­nom­ics of C.E.O. compensation.

When you think about it, prin­ci­pals are real­ly anal­o­gous to C.E.O.s,” Mazzeo says. They set cur­ricu­lum, they hire teachers.”

Prin­ci­pals set the tone for how to imple­ment state- or dis­trict-wide cur­ricu­lum, they moti­vate the teach­ers, and they lead the schools. Mazzeo stud­ied the C.E.O. lit­er­a­ture and real­ized that one weak­ness was that per­for­mance mea­sures typ­i­cal­ly var­ied across firms, mak­ing it dif­fi­cult to link per­for­mance and wage data across the board. 

But he found that by treat­ing Texas’s prin­ci­pals as pseudo-C.E.O.s, he had stan­dard­ized per­for­mance data in the form of the cam­pus-lev­el test scores as well as sol­id data on the prin­ci­pals’ wages. This meant that he and Cullen could look at what hap­pened to prin­ci­pals’ com­pen­sa­tion lev­els one, two, three, and five years after they ratch­eted up the test scores at their campuses.

They found that, while prin­ci­pals’ wages did not increase if they stayed at the same schools, prin­ci­pals from improved schools often got high­er-pay­ing jobs when they became prin­ci­pals in dif­fer­ent dis­tricts or advanced into dis­trict-lev­el admin­is­tra­tive jobs — includ­ing assis­tant or super­in­ten­dent of schools — which paid sig­nif­i­cant­ly more. In 2006 the medi­an wage of a school prin­ci­pal in Texas was $69,872, while the medi­an wage of a dis­trict-lev­el admin­is­tra­tive staffer was $89,916 and a super­in­ten­dent of schools was $91,340 (90th per­centile = $133,910). So for prin­ci­pals who were will­ing to move around, the edu­ca­tion­al career lad­der could be lucra­tive — if they had a record of improv­ing cam­pus-lev­el test scores.

Sticky” Wages
This might sound like a Catch-22 when viewed from the par­ents’ per­spec­tive because you want a high-per­form­ing prin­ci­pal to stick around. Mazzeo says it is a com­mon find­ing in the labor mar­ket lit­er­a­ture that wages are sticky” when a work­er stays with an employ­er, but often increase when they move to a new employer.

Cullen and Mazzeo also found that the reverse was true. Prin­ci­pals who had a record of over­see­ing schools whose test scores dropped were often demot­ed” to become prin­ci­pals of schools in less­er-pay­ing dis­tricts or to admin­is­tra­tive jobs that paid less.

Pri­or to this study, Cullen says that the labor mar­kets of prin­ci­pals were poor­ly stud­ied main­ly because of a lack of lon­gi­tu­di­nal data, or infor­ma­tion that tracks back through time. Some of the results sur­prised her.

I was sur­prised that there is as much cross-dis­trict mobil­i­ty as there is,” she says. Giv­en that it is such a flex­i­ble mar­ket, I find it less sur­pris­ing that effec­tive prin­ci­pals are reward­ed.” She had assumed that the labor mar­kets would also be more inter­nal to each dis­trict, so the fact that com­pe­ti­tion stretched across dis­tricts was also intriguing.

Our find­ings show that the prin­ci­pal labor mar­ket is one mech­a­nism that dis­ci­plines pub­lic schools, pro­vid­ing admin­is­tra­tors with more incen­tive to put forth effort than they oth­er­wise would have,” Cullen says.

Cullen and Mazzeo used a method that com­pared a school’s pre­dict­ed test scores (based on indi­vid­ual stu­dents’ past per­for­mances, sociode­mo­graph­ic data, and oth­er fac­tors) to their actu­al test scores to judge whether prin­ci­pals were per­form­ing well or poor­ly. Their method win­nowed down the vari­ables that sug­gest­ed cer­tain schools were just good or bad, inde­pen­dent of which prin­ci­pals were lead­ing them at the time of the data capture.

Mazzeo says it is not clear from their results that offer­ing high­er wages would cause a prin­ci­pal to per­form bet­ter. Rather, it’s the oppor­tu­ni­ty to do bet­ter some­where else that moti­vates in itself,” he explains. This prof­it motive cre­ates a very com­pet­i­tive labor mar­ket inter­nal­ly and exter­nal­ly with­in schools and districts.”

Relat­ed read­ing on Kel­logg Insight

On the Ori­gin of Schools: The diver­si­ty of Arizona’s char­ter schools

Matric­u­la­tion Mat­ters: Refin­ing the col­lege admis­sions guess­ing game

Featured Faculty

Michael J. Mazzeo

Associate Professor of Strategy, Faculty Director of the Chicago Campus

About the Writer

T. DeLene Beeland is a science writer based in Graham, NC.

About the Research

Cullen, Julie Berry, and Michael Mazzeo. 2010. Implicit Performance Awards: An Empirical Analysis of the Labor Market for Public School Administrators. Working paper, Kellogg School of Management.

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