Merit-based pay (search), which rewards workers for a job well done, is still a novel idea for teachers in America's schools, but one shining example in Los Angeles has boosted some people's hopes that teachers' salaries will one day be commensurate with their performances in the classroom.

Vaughn Next Century Charter School (search) pays its teachers on a scale tied to annual performance evaluations. According to school principal Yvonne Chen, the system has helped turn the once failing school into an award-winning, blue ribbon center for learning while spending one-third less money per student than most average schools spend.

"At the end of the day, good teachers should make more and this will keep the teachers in their profession. They don't take two or three jobs and also waitress at Denny's or get out of the classroom to be administrators," Chen said. "Everybody should be able to receive extra compensation just like everybody in the real world."

Despite the success of such programs in some of the largest school districts in the nation, performance-based pay is strongly opposed by teachers unions and school administrators who say it's a bad idea for teachers to compete against one another.

"It's an old idea, it's not new, and then again, it's contrary to a school working together and collaboratively," said Jack O'Connell of the California Department of Education (search).

California Gov. Arnold Schwarzenegger (search) is backing a bill that would give the concept of merit pay a fighting chance by allowing individual school districts the power to craft their own plans and standards. Currently, teachers are paid according to seniority.

"We believe in local control. We believe the district itself has to decide how to make their school the best school, how to make the teachers proud to be teachers, how to reward the good teachers and how to get rid of the terrible teachers," said Richard Riordan (search), former Los Angeles mayor and now the state's secretary of education.

Schwarzenegger's supporters say protecting the status quo when so many kids are failing to learn basic skills is reason enough to try something new. They add that a merit-pay system will help save money and garner better teaching talent.

But critics say not only does merit pay become too expensive, the competition it creates in the classroom causes tension and problems among teachers.

"The plan that has been put forward thus far really creates a whole new bureaucracy and is not consistent with our school base accountability plans," O'Connell said. "If you're in competition with one another ... you're not going to be working collaboratively and our entire accountability system is based upon a school site of performance."

In order for merit pay to be permitted statewide, California's constitution would need to be amended. That would require approval by the state Legislature followed by passage by voters on a statewide ballot.

Click in the box near the top of the story for a report by FOX News' Anita Vogel.