In a breakthrough likely to shift a fierce national debate over how teachers should be paid, Mayor Bloomberg and the city teachers union are moving forward with a plan to base salaries on student performance.

The plan is a major victory for Mr. Bloomberg, who made performance-based pay a top priority when he took over the public schools in 2002.
The creative deal that seems to have satisfied both sides shatters a long-standing stalemate on one of the most divisive issues in education. Pleasing the union, the deal does not force teachers into a direct battle over scores for dollars; the city will hand out $20 million a year in bonus money to schools, not to individual teachers, and test scores will not be the only measure of growth. Attendance rates and teacher surveys are also likely to play a role.

Pleasing the Bloomberg administration, hard data will likely be the biggest factor in determining which schools receive the awards, and the possibility that only the highest-performing teachers will be rewarded has been left open.

Winning schools will get $3,000 a teacher, but how the sum is doled out will be up to the school. So-called compensation committees will come up with the plans for each one.

Perhaps most unusual is that neither side is saying it made any concessions on an issue that has been a sticking point in school districts across the country — with most teachers unions, including the National Education Association, strongly opposing the policy on grounds that it pits teachers against one another and places too much emphasis on standardized tests.

The union president, Randi Weingarten, who has staunchly opposed what she calls individual merit pay, said the plan is unlike any teacher pay schedule in America. She singled out the compensation committees, which will hand power over the policy to two members of the UFT as well as the principal and a person of the principal’s choice, as particularly unique.

“This is transcendent for this city,” Ms. Weingarten said. “This city’s administration has never looked at teachers as co-equal partners at a school-based level. And if you look at this agreement, it has that every step of the way.”

Mr. Bloomberg said he supported the idea of basing bonuses on the performance of all the students in a school as a group, rather than judging each teacher based on how their students performed. “I am a capitalist, and I am in favor of incentives for individual people,” Mr. Bloomberg said. He added that schools, where several teachers can play a role in the education of a single student, pose a compensation challenge unlike that seen in most businesses.

The deal also settles a longstanding dispute over teacher pensions with a decision to reduce penalties for teachers leaving the system after 25 years — if they agree to increase the amount they contribute to the pension fund. Ms. Weingarten indicated that her support for the merit-pay program will depend on the Legislature’s support of that pension change, but with her support and the mayor’s an easy ride seems likely.

Although schools in several states and cities have adopted forms of merit pay — including several New York City charter schools — the issue remains bitterly divisive, and the dispute is now one roadblock to reauthorizing the federal No Child Left Behind law, which includes a federal grant to promote merit pay in districts. Asked whether New York’s plan could provide a model compromise for policymakers in Washington, Ms. Weingarten and the city schools chancellor, Joel Klein, nodded vigorously.

A former education aide to President Clinton who is watching closely the fight in Washington, Andrew Rotherham, said Capitol Hill could learn from New York. “The positions are pretty public and pretty hard,” he said. “Somebody’s going to need a face-saving way out. This could certainly offer one way.”

The plan will be implemented at the 200 city schools with the highest poverty rates this year, with teachers eligible for bonuses as early as next fall if students at their school show improvement versus last year.

Mr. Bloomberg said the number of participating schools will jump to 400 — 30% of all city schools — by the 2008-09 school year, pending an independent evaluation of the first year’s program that was part of the deal with the UFT. Private money will fund the program. The Partnership for New York City, the Broad Foundation, and the Robertson Foundation have made donations so far.