PRINCIPALS should be given power to "grade" teachers, sack those who are failing and boost the pay of staff who excel.

An overhaul of the school system is recommended in a schools review by the Victorian Competition and Efficiency Commission.

It finds the existing regime allows teachers to score automatic pay rises regardless of performance, and could be undermining children's learning.

It also reveals $300 million could be saved every year if class sizes were increased to benchmark levels, amid claims smaller classes don't lead to better results.

Fast-tracking pay increases for top teachers and "more closely" linking principal salaries to performance are recommended.

Principals would be scored on their school's student outcomes, level of community satisfaction and budget performance.

They would gain power to sack bad teachers - and more quickly - rather than the Education Department.

Prioritising teachers deemed "excess" to requirements at new schools would end because the protocol is being used to shift under-performers elsewhere.

Commission chair Dr Matthew Butlin said: "Victoria's government schools already have the most local decision-making in Australia and they are delivering good results. But we think improvements in the right areas could help us reach the global top tier."

Under existing arrangements, only teachers with approved experience start on a higher salary.

Everyone gets twice-annual rises under the latest deal, but progression through salary scales is reviewed yearly against set guidelines. The commission suggests these focus more on improving student results, recommending a "graded scale" of performance standards.

Principals would get the power to approve teachers' starting salaries and to accelerate progression. Last year, the department accelerated just nine public teachers.

But Australian Education Union Victorian president Meredith Peace said existing protocols for accelerated pay and dismissal worked well.

"The department is the employer and we think that is appropriate," she said.

Having the maximum allowable class sizes was often impractical and smaller groups gave students more attention, she said.

Victorian Association of State Secondary Principals president Frank Sal backed extra autonomy, as long as expectations were clear and costs weren't shifted to schools.

Cutting principals' administrative burden, greater flexibility of working hours, the use of part-time teachers and exploring use of multi-school boards are also recommended.

wes.hosking@news.com.au

Originally published as Review backs more power to principals