Skill-based pay, sometimes called specialty-based or market-based pay, refers to higher salaries or bonuses for employees with scarce skills or special training. Payment linked to job skills are taken for granted in the private sector, general government, and universities. It is, however, rare in public education, where compensation is based almost entirely on seniority. For example, union contracts in Pennsylvania public schools typically require districts to pay all teachers equally, once seniority and degree levels have been taken into account. For example, a district may be contacted by numerous qualified applicants (often several dozens in a medium-sized district) for vacancies in elementary education or physical education but receive few or no applications from candidates for vacancies in high school physics or French. Even so, districts rarely have the option of offering skill-based pay in the latter subjects. Skill-based pay should not be confused with merit pay, which based compensation at least in part on assessment of teacher or school performance.
Arguments for skill-based pay include the following:
- Employers need to be able to pay premium rates to attract good teachers, especially in the relative handful of specialties where public schools actually compete with the private sector for talent.
- Math, science and foreign languages require taking more difficult college courses than most other subjects. The knowledge that seniority-based salary schedules impose a ceiling on the earnings of teachers who have mastered these subjects lowers incentives for students to major in these subjects, further reducing the pool of qualified young teachers.
- The realization that public education offers no financial rewards for the mastery of difficult disciplines creates an incentive for students who do major in those disciplines to seek employment in other fields outside of teaching.
- Inability to offer skill-based pay distorts public understanding of labor markets in education. Political leaders, schools of education and teacher unions can exploit public concern that schools have difficulty in recruiting some kinds of teachers (e.g., math teachers) as evidence of a widespread "teacher shortage" that requires higher salaries across the board or increased subsidies for general teacher training.
Arguments against skill-based pay include the following:
- Elementary school teachers (e.g., grades K-5) are least likely to qualify for elementary education, but they are responsible for promoting children's cognitive and emotional development during critically important years. Paying more for teachers in scarcer specialties like high school chemistry will lead to lower salaries for other teachers whose work is equally important.
- To a greater extent than in true in private business or in universities, the success of public schools depends on faculty collegiality. Skill-based pay will tend to reduce collegiality and lower teacher morale, adversely affecting the quality of education for the majority of students.
- School boards are likely to pressure administrators to offer higher pay in areas that appeal to affluent parents, such as foreign languages that are not widely taught, siphoning resources away from courses that all students must take.