This digest explores the strategy of paying school administrators based on performance contracts. A performance contract is an agreement between an administrator--typically a superintendent--and the school board that links the administrator's pay to indicators of job performance. Most commonly, performance contracts include bonuses for a job well done and, less often, salary decreases for poor performance. The digest examines which indicators, such as student achievement, should be used to evaluate administrators' performance, and it outlines the pros and cons of linking these indicators to performance. It discusses the reasons behind offering administrators performance contracts when other education employees are not compensated in this way. It details the potential benefits of performance contracts, such as the clarification of goals, the relative ease in dismissing a poorly performing administrator, and the symbolic demonstration of accountability that comes with such contracts. The final section of the digest outlines what critics say about performance contracts, particularly the worry that administrators will not be given the necessary resources to achieve their goals and the concern that if a larger paycheck is needed to motivate a superintendent then the problem may not be solvable through a contract. Contains 10 references. (RJM)