School merit pay is a system that is based on teacher's performance. It rewards the teachers who execute their jobs effectively, depending on the measurable criteria (Thomson & Wood, 2005). The rationale behind the system is the arguments that performance-related pay would result in better educational outcomes. Research has confirmed that in half of the schools practicing the system preformed better than control schools in mathematics and reading (Thomson & Wood, 2005). The main goal of merit-based pay is to attract teachers. It enables schools of lesser socioeconomic class to get qualified teachers. School merit pay programs also help to address the crisis of teacher retention. It is has been demonstrated that school merit pay systems give extra motivation for educators and helps in retaining novice teachers and discouraging them from quitting from the profession after few years (Stronge, Gareis & Little, 2006). Currently the government seems to agree that teacher's performance ought to be determined by additional measures rather than test scores only; for instance, annual evaluations performed by school administrators.
Others have different views of the school merit pay. Geraint & Jill (2004) argues that merit pay is not an efficient method of rewarding teachers because the teacher's output is hard to observe; it is a joint product in which several contributions can be difficult to isolate. Therefore, compensation algorithms that reward only those dimensions of performance for which each teacher's contribution can be measured could create perverse incentives such as teaching to the test, and inducing the teachers not to engage in teamwork. Further they point out that, generally, in most cases where school districts have adopted merit pay system for teachers, they have withdrawn it within five years. There is stiff opposition from teachers unions, and besides, there is no example of a troubled school district that has successfully used merit to pay to improve its performance.
In high-performance countries such as Finland, Korea, Singapore and Japan the merit pay is not solely used to ensure high performance; in fact, they do not use the merit pay system. The academic success of these countries is due to other multiple factors such as highly qualified teachers (most have postgraduate qualifications), culture and diversification of the students and teachers assessment methods. Education and teaching are highly valued and respected aspects of communities. In Asian countries, there is a cultural expectation for students to perform well while, in Finland, the teachers have other methods of motivation such as increased decision-making authority when it comes to school policies and management issues.
The problem areas and critical issues surrounding merit pay are that the system cannot produce the required results alone. It has to be coupled to other factors such as other teacher motivation methods and other intervention measures such as reducing the teacher-student ratio in the classrooms. In comparing the use of merit pay in public and private schools, the general absence of strong, competitive pressures in public education, school administrators may lack the incentives to undertake popular reforms. They also lack the powers and prerogatives enjoyed by managers in business, a circumstance that can make it difficult to implement personnel policies that create resentments among staff. Merit pay is inherently ill-suited to teaching.
One goal to be addressed is to improve the teaching profession and to address the work issues affecting the teachers. This will help improve the motivation and performance of the teachers in the classrooms. Merit pay based on individual performance pits the teachers against each other as they try to outdo each other while they seek the merits. For long-term sustainability, the government needs to work on a wide array of interrelated factors that will help to boost the education and teaching standards.