Merit pay for teachers is often proposed as a compensation system that will enable public schools to motivate teachers to pursue organizational goals. Yet the promise of merit pay is dimmed by knowledge of its history: most attempts to implement merit pay for public school teachers over the last 75 years have failed. The first part of this paper uses microeconomics to explain the failures of most merit pay plans, and to show that merit pay, even taken on its own terms, does not provide a solution to the problem of how to motivate teachers. The second part investigates why merit pay survives in a very few school districts. The analysis is based on interviews with teachers and adminstrators in six school districts with enduring merit pay plans. The interviews indicate that in these exceptional districts, merit pay contributes to solving problems quite different from the problem of motivating teachers. These problems include (1) how to support good teachers who differ in their relative needs for income and free time; (2) how to encourage meaningful dialogue between teachers and administrators on issues such as instructional evaluation, and (3) how to build community support for schools. References are included. (TE)