Perhaps no policy is undergoing as much ferment just now as merit pay for teachers. Although there is wide agreement that merit pay is a good idea, no one has any real notion of how to make it work effectively.

Teachers unions have long resisted the idea of merit pay (now often called performance pay), but that era is coming to an end. Given the push toward greater school accountability, it's not surprising that a great deal of merit pay experimentation is taking place. Texas Governor Rick Perry has launched an ambitious merit pay proposal, starting with a $10 million pilot project in 2005 and winning legislative approval last year for a $360 million effort. Starting this school year, Florida has created a $147.5 million program, while individual districts from small cities to Denver and Chicago are trying it out as well.

Because merit pay is new in practice, if not in theory, lots of different models are being tested. The most common approach is to reward teachers when student test scores go up. Others give bonuses based not just on student numbers but on more detailed managerial assessments made by principals or superintendents. Some systems give extra money to teachers who teach in particularly challenging schools (sometimes referred to as "combat pay") or for teaching subjects in demand, such as math and science.

No one seems certain about the right approach for making sure teachers are doing an exceptional job--or even whether it makes sense to reward individual teachers, as opposed to entire staffs at schools where gains are being made.

Gayle Fallon, president of the Houston Federation of Teachers, complains her district's formula for measuring and comparing performance on tests is too convoluted. "No one could show me any correlation between these incentive plans and increased student learning," she says. "If I don't understand what I have to do to get the money, how are you going to incent me?"

But Fallon, like many union officials, no longer objects to merit pay in principle. She likes the model being promoted by the Milken Family Foundation. Working with districts in 14 states, Milken helps them tailor both individual teacher and schoolwide bonuses to a flexible set of classroom performance criteria. The increased pay, in turn, is offered in conjunction with teacher improvement plans that encompass broader professional development.

Even longtime supporters of merit pay acknowledge that, because it's been so rarely tried, the right set of incentives is going to be tough to find. As long as the myriad programs are being evaluated properly, though, they are optimistic that a winning solution will emerge over the next few years.

Assuming teachers are comfortable with the resulting plans, that will be a real breakthrough in a profession where pay structures have hardly changed in decades, despite adjustments in both education and the wider labor market. The most important thing, merit pay proponents say, is creating a marketplace in which new teachers believe their best work will be recognized and compensated.

"Rewarding performance sends a signal that this is a profession that values excellence," says Andrew Rotherham, of the think tank Education Sector. But, he says, "anyone who tells you they know what really works is full of it."