Retired after 39 years of teaching, I was one who received merit pay the few times it has been done. I had high parent and student raves, a gain in test scores and I attended workshops.
But merit pay hasn't worked each time the state has tried it.
Reasons? Most secondary courses don't have end-of-level tests. Also, at times, state test scores, unaccountably, don't reflect brilliant teaching. Some teachers are good at "razzle-dazzle" while others are quiet yet demanding. Each worker in any field is a mix of strengths and weaknesses.
Finally, to make a principal the final judge of merit pay is to seriously damage workplace morale and to assume that all principals are objective and unbiased.
What to do with the rare "bad" teacher? District experts should work with him on his deficiencies until he's a master teacher. If their brilliant teaching does not change him, perhaps it must be admitted that complex human factors make education a very inexact science.