The effective schools research has repeatedly concluded that effective schools are characterized by effective administrators. The desire, then, of local school boards to improve administrator performance has emerged, based upon the assumption that as building principal performance improves, so does teacher performance, and ultimately, student performance. Merit pay has received a great deal of attention in education recently as a means to motivate administrators towards improved performance. Merit pay is supported by the "physical-economic" school of thought which believes that individuals are "economically motivated". In contrast, the "work itself" or "job satisfaction" school of thought believes that individuals are best motivated by factors which affect job meaningfulness. Merit pay is viewed as a "hygiene" factor which may decrease job "dissatisfaction" but does not necessarily result in increased motivation. This dissertation compared the "physical-economic" concept of altered compensation rates or merit pay, to the "job satisfaction" or "work itself" concept of increased job meaningfulness as a means to motivate principals towards improved performance. When given a list of incentives, principals were asked to choose between merit pay and other type incentives. Of the 312 principals surveyed, 244 responded for a 78% return rate with the following results: 28% preference for merit pay at the 5% level; 47% preference for merit pay at the 10% level; 63% preference for merit pay at the 15% level; and, 68% preference at the 20% level. Frequencies tallied and percents derived indicated a consistent preference for merit pay at the 15% and 20% levels irrespective of demographics. These results would seem to indicate that "work meaningfulness" incentives are desirable to principals, but when paired against ever increasing levels of "potential monetary compensation", they lose their attractiveness. Even though merit pay received a popular response from the principals surveyed at the higher levels offered, merit pay's track record is so poor as to suggest that better measurement methods need to be devised before such a program is initiated. According to the literature reviewed, it is doubtful that such an objective and equitable means of measurement is feasible without interfering in a principal's daily routine, thus reducing the principal's effectiveness.

The lack of evidence on reforms, such as determinants of principal salary, points to data and research deficiencies to be addressed in order to learn more about their effects and make sound public policies. The purpose of the study was to examine district and community determinants of principals’ salaries using a spatial econometric framework. The findings have implications for education policy development related to pay for contribution, rather than pay based on tenure, experience, or district wealth. The quantitative study used a spatial regression approach to model school, district, and community factors as determinants of Texas high school principal’s salary. Principal salaries are viewed from several lenses in this study by considering effective outcomes of pay defined by actual salaries and market considerations for pay as defined by community, organizational and human capital variables. Literature from the private sector as well as from the public school setting was used as a theoretical underpinning for the hypotheses set forth in this study. The findings provide empirical insights regarding how principal salaries are determined. The study found a statistically significant spatial autocorrelation relationship at p<.05 confirming geographic locations is a robust influence on principal salaries. After controlling for the spatial autocorrelation the study also found experience, gender, district wealth, and campus size significantly influence principal salaries. However, there was no statistically significant relationship between principal salary and student achievement. .

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The purpose of the study was to examine district, campus, and community determinants of principal’s salaries using a spatial econometric framework. Among the district variables business tax (p = 0.001), property tax (p < .01), and the Herfindahl Index (measure of competition) were statistically significant indicators of principal salaries. The results suggest that more affluent districts tend to pay principals higher salaries, which was expected. Regarding campus characteristics, the percent of economically disadvantaged was not a statistically sound indicator (p = 0.468), but campus enrollment was significant (p = <.01). Interestingly as the percentage of economically disadvantaged students increased, the principal salary decreased. In contrast, as student enrollment increases the salary of principals increases, suggesting that principals of larger campuses earn higher salaries. Interestingly, student achievement was not a statistically significant predictor of principals’ salary given that pay for performance in Texas is at the forefront of political debate. Among the variables examined at the community level, only the percentage of homes owner occupied (p = 0.002) was found to be a statistically significant indicator of principal salary (p = .002). The lack of evidence on reforms, such as determinants of principal salary, points to data and research deficiencies to be addressed in order to learn more about their effects and make sound public policies. The paper utilized a spatial regression approach to examine the determinants of principal salary using data from the local, state, and national data sources. Principal salaries are viewed from several lenses in this study by considering effective outcomes of pay defined by actual salaries and market considerations for pay as defined by community, organizational, and human capital variables. Literature from the private sector as well as from the public school setting was used as a theoretical underpinning for the hypotheses set forth in this study. Because of the chosen research approach, the research results may lack generalizability. Therefore, researchers are encouraged to test the proposed propositions further. The paper includes implications for educational policy development related to pay for contribution, rather than pay based on tenure, experience, or district wealth. The research also fulfils an identified policy need to study how principal salaries are determined.