Gillian Shephard, the Education Secretary, has asked the School Teachers' Review Body to look at ways to attract good teachers to schools in difficult areas.
Also in her remit to John Gardiner, the review body chairman, she asks for a recommendation on whether any increases should be made to teachers' pay and allowances, and if so how much.
He has also been asked to look at how pay discretions can be used to reward individual performance.
She warned that the pay recommendation would have to have regard to the level of education spending set by the Government.
The STRB will be sent the figure when the 1996-97 level has been determined.
The review body will take evidence from local authority associations, teacher unions, governors and other interested parties until September 15.