Teachers in the United States are compensated largely on the basis of fixed schedules that reward experience
and credentials. However, there is a growing interest in whether performance-based incentives based
on rigorous teacher evaluations can improve teacher retention and performance. The evidence available
to date has been mixed at best. This study presents novel evidence on this topic based on IMPACT,
the controversial teacher-evaluation system introduced in the District of Columbia Public Schools
by then-Chancellor Michelle Rhee. IMPACT implemented uniquely high-powered incentives linked
to multiple measures of teacher performance (i.e., several structured observational measures as well
as test performance). We present regression-discontinuity (RD) estimates that compare the retention
and performance outcomes among low-performing teachers whose ratings placed them near the threshold
that implied a strong dismissal threat. We also compare outcomes among high-performing teachers
whose rating placed them near a threshold that implied an unusually large financial incentive. Our
RD results indicate that dismissal threats increased the voluntary attrition of low-performing teachers
by 11 percentage points (i.e., more than 50 percent) and improved the performance of teachers who
remained by 0.27 of a teacher-level standard deviation. We also find evidence that financial incentives
further improved the performance of high-performing teachers (effect size = 0.24).