The Hudson Institute presented a very interesting seminar last month on incentives that should make local officials rethink the way they reward educators. An intriguing study by Gustavo Manso, professor of finance at MIT s Sloan School of Management, found that employees on fixed wages and even standard pay-for-performance schemes do not produce the most creative solutions to problems encountered in the workplace. Of course, it s not surprising that people on fixed wages (and guaranteed pensions) don t have any incentive to work harder or smarter. The surprise here is that people who are paid extra on the basis of their performance (merit pay) are the most risk -aversive of the bunch. Prof. Manso attributes this to their fear of being fired if a new idea backfires. As it turns out, pay for performance may actually stifle innovation. The most creative ideas came from a third group working under an exploration contract, which included built-in protection from early failure, but with the promise of a future reward if they were successful. This third group was much more likely to systematically explore various options and come up with innovative new ideas. Manso pointed out that that his study has implications for the funding of scientific research. For example, instead of three-year NIH grants that reward quick results, the Howard Hughes Medical Institute offers longer-term investigative projects that incorporate a tolerance for early failure. The results so far, Manso says, are very encouraging. Prof. Robert Baum, associate professor of entrepreneurship at the University of Maryland s Robert H. Smith School of Business, also said that it s very important to select and retain people who have earned the right to be innovators – who tend to be playful but impatient dreamers obsessed with their subject, risk-takers willing to experiment with endless variations. However, our public education system does not nurture dreamers and risk-takers. If anything, the overly bureaucratic, one-size-fits-all system rewards students and educators who follow the rules, not those who color outside the lines – even though the latter group is much more likely to come up creative solutions for our nation s problems. One more argument for charter schools that give experienced master teachers – who have earned the right to innovate – the necessary freedom to experiment with innovative new curriculums, especially with at-risk students who are already well below grade level. With a big fat bonus if they succeed.
