In a speech to the Council of Chief State School Officers in Louisville, Ky., the Microsoft (MSFT) founder argued that teacher seniority is costly, yet it has only a modest effect on student achievement.
"The pay increases that teachers get for years of service account for 10% of total school expenditures," he said. "On a budget of $500 billion, that means $50 billion is paid out every year for something that has little correlation with student achievement."
Gates also questioned the practice of paying higher salaries to teachers with advanced degrees, because a teacher's level of education has little bearing on student achievement.
Instead, Gates urged state education officials to restructure the nation's public education budgets based on excellence.
"What if we introduced a new element in the pay structure that builds on the excellence we already see in the system?" he asked. "What if we identified the most effective teachers and offered them extra pay for taking on more students, or teaching kids who are behind, or teaching in the toughest schools?"
Gates also suggested that increasing class sizes could help save money, suggesting that it wouldn't negatively impact students if the increases were offset by technological innovations that enable educators to customize their teaching to each student's needs.