The mid-1970s to the mid-1980s was the merit pay decade. It was during these years that a variety of plans developed in school districts across the nation. Merit pay was based on the assumption that rewarding teachers for excellent performance would provide incentives for improved student achievement scores. In Oregon, a number of school districts implemented merit pay programs. In the 1972-73 school year, 11 districts tried alternative pay plans. They were Amity, Bethel, Colton, Coos Bay, Forest Grove, Gresham Elementary, Josephine Co., Medford, Parkrose, Redmond, and Warrenton-Hammond. There were another 10 districts - Elkton, Gresham High, Hillsboro Elementary, Klamath Falls, Lake Oswego, Lincoln Co., North Clackamas, Oregon City, Reynolds, and Springfield - who planned alternative pay plans.

Actual experience with merit pay plans indicated they were generally unsuccessful, both in Oregon and across the nation. Most merit pay plans were based on individual teacher performance which created competition among teachers. Everyone wanted the best students and the limited number of dollars available for bonuses. This practice actually undermined - and almost destroyed - the staff teamwork needed in schools. Teacher unions also complained that evaluations were subjective and not based on objective data. Most plans provided bonuses in addition to the current compensation program, creating financial difficulties when budgets were cut. Because programs were poorly designed and implemented, teachers, administrators and board members were frustrated and were less willing to continue.

By the mid-1980s, most Oregon districts had stopped using merit pay plans and in 1987, the United States House of Representatives Committee on Education and Labor concluded:

"Those who view merit pay as some fast, inexpensive, painless method of solving the nation’s education problems are not realistic. Merit pay is. . .neither inexpensive. . .nor easy to achieve. In some school districts, performance-based pay will result in an improved educational product, and an ability to attract and keep high-quality teachers; in other districts, for a variety of reasons, it may not work. The question the nation must face is not simply how to implement performance-based pay for educators but how we can lift the standards of instruction in the nation."

Today, even though there are still remnants of bonuses given to a few teachers every year, no district in Oregon uses a merit pay plan.

Despite the failure of merit pay systems, the public still expects a connection between educational funding and student achievement. "How much Oregon teachers are paid, and how they are paid, is of increasing public interest, as the pressure to improve student performance bumps against limited public resources for schools" (Oregonian, 9/2/96).