Australian teachers should be ranked on a performance basis and paid accordingly, the Business Council of Australia (BCA) says.
Under the proposed scheme teachers would be certified by an independent national agency and paid up to $130,000 a year if they reached "Leading Teacher" status.
That's 2.5 times the current starting salary for public teachers.
In its Teaching Talent paper released on Monday, the business council says increasing salaries is the key to improving teaching quality.
"While salary may not be the strongest reason teachers choose to enter the profession our research shows it is a key reason many talented people decide to avoid teaching," BCA's education taskforce chairman Hutch Ranck said in a statement.
The paper found teachers reach the top of existing government incremental scales "very quickly" and the high point is only 1.47 times the starting salary.
People were put off by "archaic, lock-step salary structures which peak too early and pay systems that don't encourage or reward professional learning", it said.
The BCA said a national certification agency would judge teachers "by the quality of opportunities for student learning" they provided rather than years of service or standardised testing of pupils.
The system would be voluntary and open to both public and private school teachers.
"Registered Teachers" could expect to become "Accomplished Teachers" after about 10 years in the profession and then move on to become "Leading Teachers" responsible for managing colleagues.
The Australian Education Union (AEU) has given the scheme in-principle support.
But president Angelo Gavrielatos said governments first need to ensure all teachers were paid competitive professional salaries to ensure there were enough qualified teachers for classrooms across Australia.
"Beyond that we are certainly prepared to enter negotiations to establish a system that would further recognise and reward teachers," Mr Gavrielatos said.
The system would have to be voluntary and see teachers assessed against a valid set of standards, he said.
Opposition education spokesman Tony Smith said the BCA report highlighted the need for the Rudd government to confront the states and improve teaching quality.
"The state governments' refusal to act to improve teacher quality in Australia has reached crisis point and now threatens to damage our future prosperity," Mr Smith said in a statement.
Meanwhile, federal Education Minister Julia Gillard says higher salaries should be considered as part of a new strategy to attract and retain teachers.
"I certainly agree we've got a problem with attracting the best and brightest to go teaching and we've got a problem with retaining senior teachers in front of classrooms," Ms Gillard told ABC radio.
"To fix that problem requires us to have policies all the way through and how to inspire people to go teaching through how to better reward teachers (and) better value teacher excellence and keep the best teachers in front of classrooms.
"The government's already working in this area. We've entered an historic agreement with state and territory governments to work together on improving teacher quality and we will deliver agreed new policies by December this year."
Pressed on whether improvements meant higher pay, Ms Gillard said: "We certainly need to be looking at ways of valuing teacher excellence and I think everybody would be concerned that the evidence shows a lot of teachers leave teaching mid-career.
"We need to work through all of the factors that feed into that."
