Caroline Milburn has a piece in the Age on merit pay, drawing on some recent research by yours truly.
A possible principle for adaptive systems is that it desirable if the choice point is put at the lowest possible practical level and involves the most number of system components. Using that principle you could put the decision on whether merit pay was used at the school level. Give the school P&C and headmaster the decision role. Let teachers move to a different school if they do not like the decision for their school. The central system can give guidance and assistance in administration for efficiency reasons. The policy then becomes to allow schools the choice. Teachers are given the choice of moving so we now have a system that can adapt. There will be some schools and some teachers that prefer one method or the other and the system will tend to the one that gives the best results particularly if we give meaningful choice to parents on where they send their children.
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