(Reprinted from HKCER Letters, Vol. 53, November 1998)


For-Profit School Firm Offers Teachers Stock

Y.C. Richard Wong


In the July 1992 issue of the HKCER Letters we reported how private business in the U.S. took the initiative to revitalize American education.  The Edison Project started as a partnership of Whittle Communications, Time Warner, Phillips Electronics and Associated Newspapers embarked on a plan to design completely different schools, ran them at lower costs than public schools, charged a moderate tuition, and made substantial profits.  The partnership successfully recruited Benno C. Schmidt Jr. who resigned as President of Yale University in order to lead the effort to design and build the national private schools system in the United States.

The Edison Project, the brainchild of entrepreneur Christopher Whittle, initially promised to build a huge national chain of private schools devoted to raising achievement through longer hours, more use of computers and other changes in standard school practice.  By the time it opened its first four schools in 1995, it had switched to negotiating contracts with public school districts to run individual schools for an established fee and make money by being more efficient than the public school bureaucracy.  The company grew to 12 schools in 1996, 25 last year and 51 in 1998.  It serves more than 24,000 students in 26 communities and has indicated it hopes to have 75 schools by the fall of 1999.

Recently this New York-based company operating announced a huge leap for capitalism in the classroom -- stock options for teachers.  It was promising options to the 90 staff members of Reeves Elementary School in Miami, where the teacher's union has embraced the plan, and would do the same for any other Edison school, including the Friendship House charter school in Southeast Washington.

Experts on the small but aggressive for-profit school industry said it was the first time they knew of any company offering teachers a financial share in their enterprise.  For the moment, Edison executives acknowledged, the promise is worth less than an apple from a friendly student.  The company has yet to sell stock to the public, but executives indicated it would do so in the next two or three years.

This is the first time in the history of American education that teachers have become direct economic stakeholders in the public schools where they work.  It is the first time the teachers will have an opportunity to benefit financially from the success of their schools.  Teachers as a group do not go into education to get wealthy, but like all professionals, it is a positive thing to encourage good performance with compensation.

Under the option plan endorsed by Edison, the Dade teachers union and the Miami-Dade County Public Schools, all full-time personnel at Reeves will be able to buy shares at a set price after Edison stock goes public.   The options would vest over five years, meaning a teacher could buy 20 percent of his or her allotted shares each year during that period.  The options would be in addition to current salaries, usually higher than local teachers' salaries because of the longer school day and year, and normal increases.

The company set a limit on the total value of options - calculated as the set price multiplied by the number of shares -- each staff member could buy.  The maximum for principals would be $10,500, for lead teachers $5,400, for regular teachers $3,000 and for other staff $1,000. As with other stock options, if the value of the Edison stock climbed far above the set price teachers paid for it, they could realize a healthy profit whenever they decided to sell.

Edison has spent millions of dollars designing a comprehensive school model that its executives feel will produce significant increases in test scores and prove irresistible to school districts.  It includes a wide-ranging curriculum, computers on every teacher's desk and in the home of every student in grade 3 and up, an extended school day and year and innovative staffing plans, including teams of teachers working with the same students over several years.

Sandra Feldman, president of the American Federation of Teachers, of which the Dade teachers union is a part, welcomed the stock option plan.  "This is an innovative approach to teacher compensation that did not come in exchange for scaling back teachers' salaries and benefits," she said.  "It was done in partnership with the union.   It should be interesting to see how it turns out."

Edison has raised $161 million in private capital to support its research and development and expand its national system of schools.   It is now operating schools in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Michigan, Minnesota, North Carolina, New Jersey, Texas and the District.

The Edison School in Southeast Washington opened for the first time this September as a charter school under a D.C. law that establishes independent public schools free of much of the usual bureaucratic red tape.   The school has 1,350 students from preschool to fifth grade, operating in the old Chamberlain School building.

Whittle, whose most successful educational venture so far has been the Channel One news and commercial program for secondary schools, said:  "Until now, education has been one of the few sectors in the U.S. economy where the people doing the front-line work were not in a position to reap rewards from the enterprise's success, which in the case of schools is improved student performance."

This article is based on a report in the Washington Post, Thursday, October 22, 1998.


| Index | Research Projects | HKCER Letters |
| Speaker Program / Conference | Index of Economic Freedom |
The Hong Kong Centre for Economic Research
School of Economics and Finance
The University of Hong Kong
Phone: (852) 2547-8313 Fax: (852) 2548-6319
email: hkcer@econ.hku.hk