With more rigorous standards and testing at the forefront of educational reform across the nation, the rural school district in this study developed a strategic compensation plan with bonus pay based on student test scores as a teacher success incentive. A causal-comparative study was conducted to examine the effect of teacher merit pay levels on teacher effectiveness and student achievement within a rural school district. The study also considered if there is a difference among the teacher effectiveness levels and student achievement scores and certain moderating variables including content area, years of experience, gender, and education level. One-way ANOVA analysis determined student achievement scores were significantly lower when the teacher did not qualify for a bonus than at any and every other bonus level. Linear regression analyses found significant moderation effects for years of experience, education level, and content area, but not for teacher gender.