Money should be set aside from school budgets to reward excellent teachers, according to evidence submitted to the pay review body by the Office for Standards in Education.
Its evidence, based on a survey of schools and a database of inspections,found that primaries, in particular, blame tight budgets for preventing them from rewarding teachers for their performance. OFSTED found that while teachers are rewarded for extra responsibilities, few receive more money for excellence or as part of a recruitment drive.
OFSTED said that some local authorities discouraged schools from using recruitment and retention points. It quoted one primary which wanted to use a recruitment point to encourage the appointment of an information technology co-ordinator but was dissuaded by its education authority on the grounds that it would "set a precedent".
The report is part of the School Teachers' Review Body's evidence for next year's pay round. But the process has been overshadowed by the Government's Green Paper on the modernisation of the teaching profession, expected this term. A Government source said it would have to persuade teachers to accept performance-related pay.
OFSTED saw little evidence that schools were using PRP. However, one school has set pupil achievement as a basis for a two-year fixed appointment to the senior management team, and one head of department was given pupil achievement as an additional responsibility.
The report particularly highlighted the need to reward staff involved in combating social exclusion: "Efforts should be taken to identify and then provide for and reward teachers who are skilled in personal and social and educational work."
When OFSTED enquired about how schools motivated staff, it found none of the schools used pay or promotion as a means of doing this.
In some schools a deputy or other member of staff worked on career development with individual staff. But "in many the promotion prospects were slim and there was no explicit attempt by the head or the deputies to motivate staff or to reward good practice in the classroom". The only prospect of advancement was through the retirement of older colleagues.
The report also found that in two-thirds of the schools visited, governing bodies had increased the salary of the head andor deputy above the level of the national pay award. However, OFSTED found two-thirds of the schools did not comply with the circular for determining their pay.
It said only one school had successfully set performance indicators for the headteacher as required by the circular and within the defined timetable.
The evidence also sounded a warning for the development of vocational education. It said with the imminent onset of Part One GNVQ, it is concerned about the supply of sufficiently-qualified teachers to take over certain subject areas.