This document is a synthesis of the current literature on performance-based incentive systems for teachers and administrators. Section one provides an introduction to the reform movement and to performance-based pay initiatives; a definition of terms; a brief discussion of funding sources; a discussion of compensation strategies; a description of the theoretical basis for conceptions of the work of teaching; and a discussion of the organizational context in which all incentive plans must function. The second section offers a brief historical perspective on the current situation and a discussion of teachers' salaries and the "benefits package" associated with teaching; it also offers a review of the conditions that make a teaching career less attractive to those who have the option to choose another profession. In section three, a discussion is presented on the theoretical and practical issues concerning performance evaluation. The section deals with: product- and prcess-oriented evaluation and the issues of reliability and validity of both; rater bias and the selection and training of evaluators; the use of student-achievement measures; and the effects of performance evaluations on minority teachers. Section four presents problems experienced in previous programs; four major incentive strategies and assumptions on which each is based; a set of steps for planning and implementing a performance-based incentive plan; and a brief review of some of the legal issues involved in such plans. The final section presents a summary of experiences, and the lessons learned from those experiences in a number of districts and states that are involved in the implementation of some form of incentive plan. Eight pages of references are appended. (JD)