This article discusses what a Tennessee experiment tells about merit pay. Though the dramatic effects that teachers have on student achievement are indisputable, the exact ingredients of effective teaching are anything but settled. Questions about how to value experience, education, certification, and pedagogical skills---the big four of teacher inputs--have created one of the most highly contentious fields of inquiry in education, particularly since they have clear implications for the design of teacher compensation systems. In 2000, public elementary and secondary schools spent roughly $180 billion on teachers' salaries and benefits, about half of their total expenditures. Most of it was distributed according to fixed salary schedules that considered only a teacher's education and years of experience. This system has its origins in the first half of the 20th century and was partly a response to the racial and gender discrimination that existed under more discretionary systems at that time. Critics of merit pay argue that the falloff in such programs was due to the fundamental technical difficulties of accurately identifying effective teachers and rewarding good teaching practices. Proponents of performance-based pay insist that these experiments were too limited in scope and were destined to fail in the face of stiff opposition from teachers and unions. In this article, the authors present two Tennessee merit pay programs: (1) Project STAR (Student Teacher Achievement Ratio); and (2) Career Ladder Evaluation System. (Contains 2 figures.)