This booklet examines the premises, practicalities, history, and politics of merit pay for teachers. A discussion of the current context of the merit-pay debate focuses on the claims made for merit-pay programs and the assumptions behind the proposals. Following an analysis of similarities and contrasts among merit-pay plans, the author gives special consideration to the issues in selecting outstanding teachers: performance criteria, quotas per district, temporary or permanent awards, and the problems of evaluation. With the history of merit-pay debate as a background, arguments for and against the concept are then summarized. Since arguments for merit pay are often drawn from the analogy with business, a review of the use of merit pay in business and government concentrates on the government's degree of success in adapting merit-pay principles to the public sector. The characteristics of a school are then compared to those of businesses, where merit pay has been successful. Finally, the author projects the political prospects of merit pay and assesses its worth in school reform. (JW)