The problem with merit pay is that it then pushes teachers away from wanting to teach those that are hard to teach, and towards kids that are 'easy' to teach. Teachers that teach students with mental handicaps or are also learning English as a second language *along with* the standard school subjects rarely do as well or improve as much as other students. How do you account for that? You did mention that in 3), at least, but it would be very hard to make the system fair.
Then, on the other side of the problem, students that are already "advanced". Those that tend to get in the highest percentile/grade of exams every year. If you base merit pay on score, the lucky teachers have it easy. If you base it on improvement, well, how do improve on being in the 99th percentile? Further, how do you base the merit pay? A standardized test? That's the system that's been proposed (and shot down) in Florida. Which is a horrible system, as, well, standardized tests are rarely good.
Sigh. I mean, I do agree with you, to a large extent. I actually *want* to be a professor. And while I'll be the first to admit I'm not top of my class, I think I could do the job well - Until we get to the politics of the matter. And I've thought a fair amount about fixing K-12 education (partly as an idle thought, partially because my sister does teach ESE/ESOL 4th graders), but it is not an easy problem to figure out a solution to.