It is to be a reward for the demonstratedly competent but also an incentive for the mediocre to become competent. In some cases, it is put forward as a way of attracting into teaching people who are headed to other, more lucrative fields. Even at its most basic, the concept is all but impossible to manage fairly. Gilbert looked at his stable of reporters and decided that some of them were deserving of added pay. I'm sure limits on how much added pay were built into his budget, but awarding the pay was pretty much his call.
Nobody knows, because nobody told.
But what works in a newsroom couldn't work in a school system. But that system tends to reward the teachers lucky enough to get the brightest students and to punish those who like to work with difficult children. Besides, it's academically unsound, leading to an unhealthy emphasis on teaching testing skills or, worse, teaching to the test. It's like rewarding golfers by analyzing their form rather than by counting their strokes. Imagine being a Cincinnati teacher whose children have made incredible academic progress over the past year but losing out on merit pay to a colleague who, though her children's test scores are undistinguished, aces the 16 skill standards.