The market is going to fix all the problems, reduce teachers to minimum wage, there are still enough people who have no education but would be willing to teach your kids for minimum wage.
If you can't find any, then look to Mexico, they should have some, think of all the tax dollars you can save!

More seriously, I think it's a delicate subject and whether the teachers are doing well is very much up to anyone's interpretation of what makes a good teacher. If you pay too badly, then you will most likely run out of teacher, similarly to what I just said above, just not as extreme. The measure taken to get more then will be to lower the entry requirements, you can easily see what that leads to.
Merit-based pay just means the clever teachers who know that they're not supervised 24/7 will give the students hints as to what to expect in exams, everybody will love them but the students won't have learned a lot. I've had a teacher who asked us to grade ourselves, I think everybody got exactly that grade, it wasn't the most important course and his pay didn't depend on it but now imagine that it would...
Before that last crisis the banks had merit-based pay, which is why all the employees gave loans to people who didn't deserve them, just to get bonuses and benefits, right?
That's not to say it can't be useful, but one has to think of all the consequences this can have, you can't just claim it's a universal problem-solver.