Using data from previous comprehensive studies of incentive pay plans, this report draws conclusions about assessing and implementing various incentive pay plans. Following a brief history of incentive pay plans from 1908 to 1983, an analysis of accumulated research is provided that shows the reasons why incentive pay plans for teachers have failed in the past. The rationale of present basic salary plans is then examined, including their reliance on academic training and years of experience. With this background information, the definitive question of incentive pay--how to determine which are the superior teachers--is approached from three evaluative frameworks. The performance evaluation approach--observing the teacher's input to students--links the salary scale to standards of teacher performance; a second approach, focusing on professional competence, uses academic preparation and experience as indicators of effectiveness; finally, the educational productivity approach measures student achievement as the criterion for teacher promotion. From the three models, the author synthesizes the features necessary in an effective incentive pay plan. (JW)