North Carolina has operated one of the country's largest pay-for-performance teacher-bonus programs since the late 1990s. New research shows that a North Carolina-style incentive-pay program has the potential to improve student learning by encouraging teachers to exert more effort on the job. The North Carolina model avoids three pitfalls associated with implementing individual-level pay-for-performance plans: the problem of grades and subjects without standardized tests, the problem of teachers fighting for the best students, and statistical noise in test scores. The program also enjoys broad political support, including from the state teachers union. Education reformers worldwide should understand how performance pay can improve student learning. This paper describes the lessons that can be gleaned from North Carolina's teacher bonus program. (Contains 3 figures and 3 notes.)