It’s early morning and the children of well-heeled Fulham, London, are emerging from their elegant townhouses. In caps, blazers and box-pleated uniforms, they walk solemnly towards Parsons Green underground station and the King’s Road, heading for their private schools.

Along Peterborough Road towards the Thames and Wandsworth Bridge, the scene changes. Bijoux residences give way to local authority housing, blocks of flats and endless walkways, and the children streaming out of these are heading for Hurlingham and Chelsea school.

This 11-16 comprehensive is lit up and buzzing; pupils and staff are everywhere, preparing for kick-off in an hour’s time. Nothing unusual there. Except it’s 7.10am.

Hurlingham and Chelsea has introduced a continental school day, just one of the changes that have transformed the school. Only five years ago it was failing, with falling rolls and just 370 pupils. Now it is over-subscribed, with 900 children, and a new maths centre is about to be built. Last year, the chief inspector of schools, Chris Woodhead, named Hurlingham and Chelsea one of the 41 most improved schools in the country.

There have been many, many changes since Michael Murphy became head in 1994, but perhaps the biggest and most controversial has been the introduction of performance-related pay.

From day one of this, his first headship, Mr Murphy has been pushing the limits of existing pay structures as far as they will go to reward the bright, the effective and the committed.

“Good performance,” he says, “is rewarded directly through promotion and therefore pay... The culture is one that expects and rewards effective operators. And if somebody is good enough, they are old enough. There is a culture of ambition here, a culture of enlightened self-interest.”

Critics argue that performance-related pay is a crude system of payment by exam results, and it is true that over the past five years the number of children gaining five GCSE passes has risen from 6 per cent to 18 per cent of the school population - and Mr Murphy has set everyone’s sights on 25 per cent this year.

Hurlingham and Chelsea is never going to be high up any league table other than one that takes account of value-added criteria. But adding value is precisely the school’s focus. “Teacher performance is clearly related to improving learning,” says Mr Murphy. “I don’t expect miracle workers, but everything we do here has to impact positively on the kids. It’s not about crude performance criteria, it’s about a very sophisticated and complex system of people monitoring.”

As part of this strategy, senior managers are constantly in and out of the classroom, and staff dedicate an enormous amount of time to gathering data on pupil attainment at national curriculum levels both within and across subjects.

Success has not been gained by changing the nature of the intake. The school serves a pocket of deprivation surrounded by some of the most desirable streets in London. The King’s Road is a 10-minute walk away. The London Oratory, the selective foundation school attended by the Prime Minister’s two sons, is nearby.

But Mr Murphy’s school is hardly a threat to the local independent sector. Hurlingham and Chelsea is growing because more deprived pupils are enrolling, not fewer. Sixty-seven per cent of pupils are entitled to free school meals, 46 per cent are from ethnic minority backgrounds, 30 per cent have special needs, 20 per cent have English as a second language, and 85 per cent come from single-parent families.

“Education is a life chance,” says Mr Murphy, “and we are only too aware that these pupils only get one crack at that chance. We aim to make them feel safe, appreciated and focused. We are saying: ‘You are not a street kid, you are as good as any child who goes to private school.’ Whatever goes for the London Oratory goes for us.”

The earlier, continental start was introduced to fit in an hour at the end of each day devoted to study support and “curriculum enrichment”. These extra sessions - there are about 70 on offer - include sports, extra GCSEs such as media studies and politics, the Duke of Edinburgh awards scheme, drama, music, language and science clubs, a Shakespeare club (the most popular last year), revision and coursework support, homework clubs and a fast-track learning group. Pupils have to attend at least two sessions a week, and non-attendance is treated as truancy.

Staff teach these extra sessions for no extra pay, and most welcome them as an integral part of their professional development and the new culture of achievement. Pupils appreciate the fact that staff are spending extra time with them, and talk openly about the fact that “study enrichment puts you ahead” and “helps you get your SATs and GCSEs”. Some plan “to go on to college”. Such comments would not have been heard five years ago.

Hammersmith and Fulham is a small authority with just eight secondary schools (including the Oratory). Back in the 1980s, Hurlingham and Chelsea gained the worst exam results in the whole of the Inner London Education Authority for three consecutive years. According to a poll in the London Evening Standard in 1986, it was one of the 10 least popular schools in the capital (just two of those schools remain open). Only 52 families had made it their first preference on application.

Ten years on, it is being put forward as a beacon school by Hammersmith and Fulham, which itself is applying to become a beacon local education authority.

When Michael Murphy became head the school had just gone through “the OFSTED inspection from hell” which had revealed “serious weaknesses”. He didn’t waste any time. Of the 26 teaching staff, only three remain. Four or five were placed on capability procedures for poor attendance, six or seven were placed on competence procedures, and the rest resigned.

“It wasn’t easy,” says Mr Murphy, who, as an education officer for the London Borough of Redbridge, helped to implement local management of schools in the late Eighties. “But if you have your eye on the real reason for being here, which is to raise pupil achievement, then you have to have the resolve to take things through to their logical conclusion.” He says teachers were “confused” about their role and tended to tackle problems from “the social work angle”, concentrating on deprivation rather than achievement. They had “the classic characteristics of a despondent staff working in a failing school. They were cynical and worn out.”

To attract fresh blood, Mr Murphy offered salaries for key jobs two scale points above the going rate. As pupil numbers began to rise and the school’s reputation improved, Hurlingham and Chelsea began to attract quality staff.

Vanessa Ogden applied a year ago to become head of religious education. Recognising her as “a class act with other jobs in the pipeline”, Mr Murphy offered her the higher post of head of humanities - a position made available by another promotion. She was attracted by the extent to which teachers seemed to analyse their practice. “This is a deeply reflective institution,” she says. “We are constantly thinking about the best way to engage pupils.”

Mr Murphy welcomes the Government’s proposals on performance-related pay, which he says will mean a more flexible system and make it easier to reward good teachers. At present, all he can do is match pay with extra responsibilities and tasks. He has found the money to do this because the school has been growing rapidly; he has had a high turnover of staff; and because he has employed a large number of newly qualified teachers, who now make up one third of the staff. Young, ambitious teachers are expected to work hard and to move on after four or five years. Some have become advanced skills teachers, and some NQTs are being encouraged to apply for the Government’s proposed fast-track scheme, which will move teachers through the classroom scale in five instead of seven years.

There are no union representatives at Hurlingham and Chelsea because no one wants the job. Mr Murphy, once an activist in the National Union of Teachers himself, says all negotiations on pay and conditions in the school have been open, clear and were seen to be fair. Any doubts could have been raised with local officials, who were kept aware of what was going on.

“As an activist I was only ever concerned that managers should be fair,” says Mr Murphy, “and that is what we seek to be here.”

He dismisses criticism that performance-related pay is divisive. What is really divisive, he believes, is when two teachers in the same school, one little more than satisfactory, the other hard-working and effective, are both paid the same: “That, in my opinion, is outrageous.”

However, Mr Murphy realises that his strategy, restricted by the current pay scheme, will be in some difficulty once pupil numbers stabilise. The Government’s reforms therefore cannot come too soon for this headteacher. It is no accident that David Blunkett chose to launch the Green Paper, “Meeting the Challenge of Change”, from Michael Murphy’s school.

WHAT IS PERFORMANCE RELATED PAY

* Teachers with the maximum nine points on the present salary scale - which is worth just over pound;23,000 a year - could apply to pass a performance threshold.

* If successful, they would receive an initial pay increase of up to pound;2,000 a year.

* They could then be given additional performance points of pound;800-pound;1,000 to a maximum of pound;30,000.

* With additional management allowances a teacher with maximum responsibility and performance points would earn more than pound;35,000 a year and an advanced skills teacher pound;40,000-plus.

* The main threshold criteria are: pupil performance; use of subject and specialist knowledge; planning, teaching and assessment; and professional effectiveness THE MATHS TEACHER

Craig Griffiths (left), 27, an engineering graduate, began his working life as a water engineer until he decided to study for a PGCE, with the aim of becoming a maths teacher.

Ambitious and looking for a challenge, he sought out a London school after teaching for a year in Crewe.

He applied for a job at Hurlingham and Chelsea precisely because it served a deprived catchment and was radically improving.

Now in his second year at Hurlingham, he has already been made responsible for assessment in his department and he is expecting to be given further promotion soon. The school management, he says, has given him many opportunities to further his career.

He welcomes the chance to gain rewards in promotion and pay through hard and effective work, and believes there is an upbeat atmosphere in the school. “Everybody comes to work with a smile on their face,” he says.

* THE EX-BANKER

Ruth Holden (near right) is in her third year at Hurlingham and Chelsea, which she joined as an NQT after seven years with the Hong Kong and Shanghai bank (HSBC) and the Sumitomo bank in the City. She is now a head of year, teaches English and business studies and shares responsibility for accelerated learning. She feels at home, she says, in an environment where good performance is rewarded with rapid promotion and pay.

Ms Holden, 26, joined HSBC as an administrative assistant at 16, but her abilities were soon spotted. She took A-levels and then a part-time degree in her spare time, and was rewarded by being fast-tracked through the bank’s graduate management training scheme.

At HSBC, she managed a Middle East team involved in buying property and giving investment advice to private clients. She then moved to the Sumitomo as a senior manager.

She took a “vast” drop in salary to enter teaching, but has no regrets. “I didn’t want an office job for the rest of my life,” she says, “and I knew by the time I finished my teacher training that this was the career for me.”

Ruth Holden has since been offered other jobs in banking, but though the financial rewards would be great, her ambitions are now in teaching. What she wants, eventually, is a headship.

She appreciates the “very professional set-up” at Hurlingham and Chelsea, which enables her to make rapid gains in both position and salary, and she is full of praise and admiration for the management style.

She is, she says, used to an environment where the staff is closely monitored, but she praises the open-door policy of the head and his senior team, which contributes to a culture of trust and co-operation.

“I had experienced open-door management,” she says, “but nothing like this.

“People say the public sector should look to the private sector, but I say people should come here and see the excitement of working in a well-managed, successful school.”

THE EX-PE TEACHER

Cliff Willson (above right), the school’s inclusions officer, is 48 years old and was head of PE and games under the old regime.

He fully supports the current management, which he feels has given him real professional opportunities. Exclusions have fallen dramatically in the last five years - 18 out of 370 pupils were permanently excluded in the first year of Michael Murphy’s headship, compared with nine out of more than 800 last year.

Permanent exclusions have fallen from 44 per cent to 13 per cent, and Mr Willson is currently setting up an on-site unit to cater for students in danger of being permanently excluded. His job is to maintain contact with families and all outside agencies involved with troublesome and troubled pupils in order to leave other staff free to concentrate on the academic life of pupils.

He praises a system which rewards effective and committed teachers, however young.

“I wish I had been under a system like this when I was young,” he says. “It cannot be right that somebody can coast along and be on the same wage as somebody else who might be doing three more hours a day.

“I feel like I’ve been given a new lease of life. Colleagues have nicknamed me Lazarus. I used to get the Sunday night blues, but no more. I love to get up and come to work. I have become ambitious again.”