Betsy, a history teacher, discusses Barack Obama's endorsement of merit pay for teachers and the problems she foresees in coming up with a fair solution. She makes some valid points but I believe the situation can be overcome through a multiprong approach.
Instead of basing all of a merit raise on testing I would split it into a number of areas each of which has a certain weight: (this is very rough)
1. Pre and post tests would be given for each subject. These would then be evaluated for student improvement.
2. All teachers who had students performing at or above grade level on standardized tests would receive credit for those students.
3. Student evaluations
4. Peer evaluations
5. Administrator evaluations
6. Professional certifications achieved (or working towrds in the case of multi-year certifications)
7. Professional awards
8. Involvement (i.e. after school tutoring or coaching a team)
9. Innovation
Assign scores to each of these areas then an overall score and rank each teacher. Assign the raises based on that.
Education
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