In comments prepared for Friday's Council of Chief State School Officers in Louisville, Ky., Gates said restructuring pay systems is like "kicking a beehive," The New York Times reported.
"Rebuild the budget based on excellence," Gates said.
Teacher unions say teachers should receive pay increases based on tenure and higher education.
"We know that experience makes a difference in student achievement -- teachers get better," said Bill Raabe, director of collective bargaining at the National Education Association, the largest teachers' union. "And additional training, too, whether it's a master's degree or some other way a teacher has improved her content knowledge, we think it ought to be compensated."
Public education faces critical funding shortages because of the recession, and educational funding should be looked at from a different perspective, the Times said.
Education Secretary Arne Duncan said school officials should use the funding crisis to "leverage transformational change in the education system."
The Times report said state and local school districts will have to make painful budget cuts because of the recession, and because the $100 billion in stimulus funding the federal government pumped into the system since early 2009 is running out.
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