President Obama has proposed merit pay for teachers- the notion that teachers will receive extra pay for outstanding performance such as improved student achievement or teaching in high risk schools. This idea is actually in place in various locations around the country. By and large the teacher unions are opposed to it, and it will be interesting to see what happens now that the President has come out in favor of more pay for higher performance

Merit pay is based on performance and productivity, just like in the industry sector.  Instead of salary schedules that pay according to years of service, teacher salaries would be based on performance.  Teachers could advance on the pay scale faster and not be paid on the same pay scale as a teacher who does not perform as well.  I assume performance would be based on student assessment scores.  Not sure how that would work for teachers who do not teach tested subjects though.