The Act Party wants to give principals the power to award high-performing teachers potentially thousands of dollars for their work.
The $250 million fund would be divvied up annually, giving schools roughly $5000 for every full-time teacher it employs.
Act leader David Seymour said the school's principal would then award that money to high-performing teachers or use it to attract those who teach hard to staff subjects.
Schools would need to develop criteria to help guide its principal on how to allocate the money, Seymour said.
"It's a way of making sure that good teaching and teaching excellence is rewarded ... in the way that it would be in most sectors of the economy.
"The fact that the best and the worst teacher in New Zealand are paid the same and the only way they can be paid more is to serve time, I don't think is in the best interests of New Zealand's children or the future of our country," he said.
When asked if the reward fund could create conflict within a school, Seymour said similar schemes operated in every other part of the economy.
"When people say 'education's so different, this can't work', really? Look at the rest of the economy. Most people accept that people get paid differently in a workplace according to the policies of the workplace and I don't think education is that much different."
The New Zealand education sector's "dirty secret" is that its policy is driven by unions that want one contract for every teacher, Seymour added.
"Because they are so politically organised, they've been able to dominate education policy for decades. The Act Party says it's more important that we have the flexibility to get the right teacher in front of the right classroom at the right time and the ... fund is something that will do that."
The party also proposed new standards teachers would have to meet when renewing their practising certificates.
Seymour said Act would ensure primary and intermediate teachers undertake professional development in maths, science and technology, and English, as well as te reo me ngā tikanga.
"These would include minimum standards, for example all teachers should work towards NCEA level 2 maths at a minimum. It's difficult to be inspired to excellence by someone who themselves failed Year 12."
Seymour unveiled the policies at the Act Party's Annual Conference - Honest Conversations - in Auckland.
It is the party's first conference since its best-ever election result.
Act received 7.6 percent of the vote in the 2020 election - which meant after six years as the party's sole MP, Seymour was joined by nine new MPs.
Act members also met this morning for their annual general meeting, where they re-elected Tim Jago as the party's president.