Given the legal and practical concerns discussed in the previous two sections, there are obvious benefits to finding a district where both the school board and the teaching community are willing to consider significant reform. Merit pay, though common in the private sector, is controversial in Michigan’s public schools, and interest in merit-pay reforms is most likely to occur in districts that feel the greatest pressure to improve or excel.

This leads us to recommend two types of districts. The first is a lower-income district with weak academic results, a declining student population or both. Because the state’s primary means of financing these districts is the per-pupil foundation allowance, districts with declining attendance face a mounting financial pressure to attract new students, even as they lose the money that could help them provide competitive teachers salaries. Drawing new students becomes even more difficult when a district also has poor academic results.

One way out of this quandary is to retain and reward good teachers. A merit-pay bonus could do this, and the program’s uniqueness would act as a form of differential pay that could help attract new teachers to the district. Moreover, a foundation that financed a merit-pay plan in such a district would know it was trying to help the students who need it most.

The district could be either urban or rural. Examples might be the Detroit Public Schools, the Grand Rapids Public Schools or the Fennville Public Schools. The receptiveness of these districts to a partnership with a private foundation to establish a merit-pay bonus program is unknown, however.

A school district and the private foundation could also negotiate whether the plan would include every school in the district or only some. Involving a representative subset of schools would reduce the cost of the program, allow the participating schools to be compared to (similar) nonparticipating schools, and as noted earlier, make the merit-pay plan more likely to qualify as a "pilot program" exempt from mandatory bargaining under state law.

Our second recommendation is the school district known as a charter school. Charter schools face financial challenges that conventional school districts do not. Unlike a conventional public school district, a charter school cannot levy local taxes for operating or capital purposes; its almost exclusive source of income is the state foundation allowance; and its state foundation allowance never exceeds that of the conventional school district in which it is located.[54]

Moreover, charter schools are uniquely positioned to implement merit-pay programs, because they alone are exempt from the Michigan Teachers’ Tenure Act.[55] This exception makes it easier for charter schools to remove or demote veteran teachers who are underperforming, since tenure cannot protect these teachers from prompt dismissal or pay cuts. And as a practical matter, most teachers in Michigan’s charter schools are not unionized (though there is no prohibition on their organizing). This relieves charter schools of the intense pressure to adhere to the single-salary schedule that union negotiators prefer.

Some charter schools may already be paying teachers based on supervisor evaluations or on student performance on standardized tests. A foundation offering to add a merit-based bonus to a charter school’s teacher compensation might not just find itself welcome; it would in fact be leveraging Michigan’s charter school experiment at the point of maximum mechanical advantage. Evidence of success in a charter school merit-pay bonus program would only intensify the pressure on conventional public school districts to follow suit.

There are more than 200 charter schools in Michigan. Over 40 are located in Detroit, and the pending loss of Detroit’s exceptional status as a "first-class" school district will likely increase that number.[56] Foundations should find it easy to locate good candidates or to find a willing "chain" of charter schools, such as the National Heritage Academies or the schools authorized by Bay Mills Community College, which is run by the Bay Mills Indian Community in the Upper Peninsula.