Improving principal quality in Arkansas may be a partial solution to the public policy problem of low performing public schools. Just as policymakers in other states are beginning to explore incentive-based compensation policies to improve principal quality, education policymakers in Arkansas should look to these policies as a way to align goals and minimize agency costs. Setting incentives tied to transparent, publicly available performance measures can resolve monitoring difficulties inherent in principal-agent relationships and can improve goal congruence by signaling clearly about policy priorities. Before plowing forward with performance pay reforms for school principals, Arkansas policymakers could make better decisions in light of research about the Arkansas principal labor market. Specifically, understanding whether more effective principals earn larger salaries or get higher increases in pay can inform policymakers about the incentives that currently exist in the principal labor market and can guide their policy reform decisions about how to improve principal quality. The original research in this study indicates that principals in Arkansas are not meaningfully rewarded for superior performance, either through explicit performance bonuses or though earning higher salaries by being hired in better paying principalships. Variation in principal pay is driven by the district and school enrollment, the amount of wealth in a district, a principal's experience, and a principal's degree level. If policymakers would like to focus principal attention on performance, rather than encouraging them simply to earn higher degrees or to seek employment in large, wealthy districts, policymakers should consider instituting performance-based pay. [The dissertation citations contained here are published with the permission of ProQuest LLC. Further reproduction is prohibited without permission. Copies of dissertations may be obtained by Telephone (800) 1-800-521-0600. Web page: http://www.proquest.com/en-US/products/dissertations/individuals.shtml.]