In order for teacher compensation to serve as an incentive that reinforces broader organizational goals, the norms of the compensation structure must be aligned with the norms of the school organization. The first section of this paper presents a brief overview of changes in teacher compensation from 1820 to 1950. It describes how such changes have followed changes in the education system, and how organizational changes in the education system have tended to follow and reflect change in the broader society and economy. The next section describes changes in school organization over the past 50 years and discusses how compensation systems could have but did not change to reflect those evolutions. The following section describes more recent changes in the broader economy and workplace, including alterations in pay systems, and discusses how the current education reform movement parallels these external forces for change. The next section describes the implications of several education reform strategies for compensation, including systemic reform, the restructured New York City schools described by Linda Darling Hammond, and the high-performing school organizations discussed by Susan Albers Mohrman. The redesign of teacher compensation, however, must consider the following issues: the nature of skill blocks and the type of assessment system; the relationship of the pay system to certification and tenure requirements; the question of internal or external assessments; the design of performance awards; the sequence of performance and recognition; the implementation process; the relationship with decentralization and school-based management initiatives; the impact on administrator pay; and contextual variables. (LMI)