In his State of the State address, Gov. Arnold Schwarzenegger proposed that "teacher employment be tied to performance, not just showing up." Teacher unions may scoff, but the concept is working at charter schools such as Vaughn Elementary.

Nearly 15 years ago, Vaughn Elementary School was one of the worst in the Los Angeles Unified School District. It is located in Pacoima, an extremely high poverty area of the San Fernando Valley that is riddled with high crime rates and gang activities.

Today, Vaughn Next Century Learning Center is a public charter school with about 1,200 students -- nearly all of whom qualify for free and reduced lunches and are English learners. Its student scores have surged upward. Classroom size has gone down, while teacher pay has gone up. Better yet, no additional taxpayer dollars were used in the process.

One of the factors that helped to turn Vaughn around is a teacher-compensation plan that offers higher pay for school performance awards and includes knowledge- and skills-based factors. A performance- or merit-based system allows good teachers to reach higher salary levels earlier in their careers, helping to retain successful teachers.

At Vaughn, good teachers have not only stayed but have seen their pay increase. Teachers at Vaughn who score at least three out of four on a performance review can earn an additional $5,500. A master's degree in education earns $2,000, and a national board certification an additional $4,000.

When students at the school exceed learning-improvement goals in reading and math, all teachers can earn $2,000. Altogether, a teacher could potentially earn more than $13,000 extra. Vaughn uses its freedom as a charter school to operate more efficiently so that good teachers can be paid more.

Charter schools are deregulated public schools with greater freedom to craft salary plans that include merit factors. Implementing a performance-based system in California will not be without some transitional difficulties. Phasing in reforms could help ease the changes.

In Denver, current teachers will have the option of joining a newly designed system that rewards teachers for increasing student achievement and earning good evaluations. New teachers hired in 2006 will be required to join. California will also need a value-added model of testing that measures growth in student performance before it can accurately hold any teacher accountable. Such a model will be an essential tool to reward good teachers and weed out bad ones.

Most teachers instinctively recognize that some teachers are better than others. A study by Public Agenda found that nearly six in 10 teachers say that there are a few teachers in their building who fail to do a good job. Without financial incentives for good performance, teachers failing to educate students share the same pay as the Teacher of the Year. Tying the salary system to schoolwide performance is a good start, but in the end individual teacher pay must be tied, at least in part, to student progress.

With the No Child Left Behind Act focusing attention on low-performing schools, districts will need to offer incentives for teachers to work at these schools -- schools that good teachers with seniority tend to avoid. Six out of 10 teachers favor giving financial incentives to teachers who teach difficult classes with hard-to-reach students.

For years, California lawmakers have failed to realize that simply raising teacher pay across the board won't help us get more good teachers. That strategy, favored by teacher unions, gives the same higher pay to good and bad teachers alike and has not raised student achievement.

Two days before the governor's speech, a new Rand study revealed that California schools have declined steadily over the last 30 years and are now the worst in the nation, below schools in Louisiana and Mississippi, when demographic profiles are taken into account. That is why the governor was right to declare that "we must financially reward good teachers and expel those who are not."