This paper discusses some of the issues behind the current debate on merit pay for teachers. A brief history is presented of performance-based compensation systems. The difficulties in arriving at a consensus on a valid definition of merit pay are pointed out, and examples are presented of various merit plans, such as master teaching plans, career ladder programs, or systems for teacher ranking. Arguments for and against merit pay plans are considered, focusing on the two major issues of the validity of using money as a motivator, and complaints against evaluation processes. Counterproposals offered by critics of merit pay are outlined and include such suggestions as across-the-board pay increases for all teachers, improvement of the work environment, and public recognition for doing good work. Reasons for success and failure of merit pay plans are analyzed and a brief overview of the status of current performanced-based programs is presented. A description and comparison is given of three merit pay plans at the state level (Tennessee, Florida, and California) and three at the local level (Los Angeles, Houston, and Charlotte-Mecklenburg). Appendixes provide information on the effects of single salary and merit pay in achievement of educational goals, and the current status of merit pay programs in selected school systems. (JD)