Kim Ki-hoon earns $4 million a year in South Korea, where he is known as a rock-star teacher—a combination of words not typically heard in the rest of the world. Mr. Kim has been teaching for over 20 years, all of them in the country's private, after-school tutoring academies, known as hagwons. Unlike most teachers across the globe, he is paid according to the demand for his skills—and he is in high demand.
"The harder I work, the more I make," he says matter of factly. "I like that."
I traveled to South Korea to see what a free market for teaching talent looks like—one stop in a global tour to discover what the U.S. can learn from the world's other education superpowers. Thanks in part to such tutoring services, South Korea has dramatically improved its education system over the past several decades and now routinely outperforms the U.S. Sixty years ago, most South Koreans were illiterate; today, South Korean 15-year-olds rank No. 2 in the world in reading, behind Shanghai. The country now has a 93% high-school graduation rate, compared with 77% in the U.S.
Tutoring services are growing all over the globe, from Ireland to Hong Kong and even in suburban strip malls in California and New Jersey. Sometimes called shadow education systems, they mirror the mainstream system, offering after-hours classes in every subject—for a fee. But nowhere have they achieved the market penetration and sophistication of hagwons in South Korea, where private tutors now outnumber schoolteachers.
Viewed up close, this shadow system is both exciting and troubling. It promotes striving and innovation among students and teachers alike, and it has helped South Korea become an academic superpower. But it also creates a bidding war for education, delivering the best services to the richest families, to say nothing of its psychological toll on students. Under this system, students essentially go to school twice—once during the day and then again at night at the tutoring academies. It is a relentless grind.
The bulk of Mr. Kim's earnings come from the 150,000 kids who watch his lectures online each year. (Most are high-school students looking to boost their scores on South Korea's version of the SAT.) He is a brand name, with all the overhead that such prominence in the market entails. He employs 30 people to help him manage his teaching empire and runs a publishing company to produce his books.
To call this mere tutoring is to understate its scale and sophistication. Megastudy, the online hagwon that Mr. Kim works for, is listed on the South Korean stock exchange. (A Megastudy official confirmed Mr. Kim's annual earnings.) Nearly three of every four South Korean kids participate in the private market. In 2012, their parents spent more than $17 billion on these services. That is more than the $15 billion spent by Americans on videogames that year, according to the NPD Group, a research firm. The South Korean education market is so profitable that it attracts investments from firms like Goldman Sachs, the Carlyle Group and A.I.G.
It was thrilling to meet Mr. Kim—a teacher who earns the kind of money that professional athletes make in the U.S. An American with his ambition and abilities might have to become a banker or a lawyer, but in South Korea, he had become a teacher, and he was rich anyway.
The idea is seductive: Teaching well is hard, so why not make it lucrative? Even if American schools will never make teachers millionaires, there are lessons to be learned from this booming educational bazaar, lessons about how to motivate teachers, how to captivate parents and students and how to adapt to a changing world.
To find rock-star teachers like Mr. Kim, hagwon directors scour the Internet, reading parents' reviews and watching teachers' lectures. Competing hagwons routinely try to poach one another's celebrity tutors. "The really good teachers are hard to retain—and hard to manage. You need to protect their egos," says Lee Chae-yun, who owns a chain of five hagwons in Seoul called Myungin Academy.
The most radical difference between traditional schools and hagwons is that students sign up for specific teachers, so the most respected teachers get the most students. Mr. Kim has about 120 live, in-person students per lecture, but a typical teacher's hagwon classes are much smaller. The Korean private market has reduced education to the one in-school variable that matters most: the teacher.
It is about as close to a pure meritocracy as it can be, and just as ruthless. In hagwons, teachers are free agents. They don't need to be certified. They don't have benefits or even a guaranteed base salary; their pay is based on their performance, and most of them work long hours and earn less than public school teachers.
Performance evaluations are typically based on how many students sign up for their classes, their students' test-score growth and satisfaction surveys given to students and parents. "How passionate is the teacher?" asks one hagwon's student survey—the results of which determine 60% of the instructor's evaluation. "How well-prepared is the teacher?" (In 2010, researchers funded by the Bill & Melinda Gates Foundation found classroom-level surveys like this to be surprisingly reliable and predictive of effective teaching in the U.S., yet the vast majority of our schools still don't use them.)
"Students are the customers," Ms. Lee says. To recruit students, hagwons advertise their results aggressively. They post their graduates' test scores and university acceptance figures online and outside their entrances on giant posters. It was startling to see such openness; in the U.S., despite our fetish for standardized testing, the results remain confusing and hard to interpret for parents.