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A major problem with the so-called "merit" pay system is that some of the things they otherwise may not do are hardly meritorious--kissing up to the person responsible for raises, not dissenting from policy when it would otherwise be appropriate, not trying to figure out new ways to teach that might not be popular with the upper echelons, not rocking the boat, and more of that sort.
On the other hand, having merit-based raises encourages people to do things they otherwise may not do. People should be rewarded for their efforts. A system that gives the same raise to everyone is a system that promotes laziness. Really, I think it should be a combination of cost of living adjustments, deserved pay equity, and merit.