New Zealand's National Party proposes moving towards the larger class - better teachers combination; they're trying to draw in better teachers with merit pay. Says Leigh:
Here's hoping New Zealand's implementation winds up being on the successful side. Bill Kaye-Blake notes, probably rightly, that the amount of money available as merit pay will have to be reasonably large.
Update: Note that Andrew Leigh, quoted above, is not only a top-notch economist, he's also an Australian Labor MP. It's well worth reading his whole article on merit pay.