This paper discusses the concept of performance-based pay, or merit pay, for teachers as a way to encourage better teaching. It begins with a general discussion of the issue of performance-based pay, which on the surface seems simple, but in practice is very complex. It continues with a discussion of whether the achievement to be assessed is based on the teachers knowledge and skills or on the academic achievement of students. It explains that some of the plans being developed focus on teacher competency while others are based on student achievement. Then follows a discussion of whether additional pay based on student achievement is an incentive or a disincentive based on the nature of the incentives. The paper concludes with a call to move quickly and realistically to deal with the complexities of state or local school district performance-based compensation plans. Included are a table describing a performance-pay plan used in Douglas, Colorado, and 10 references. (WFA)