Teachers will no longer receive increases based on length of service - but instead there will be a stronger link to performance, says the profession's pay review body.
The School Teachers' Review Body says pay increases in England and Wales should be based on annual appraisals.
Education Secretary Michael Gove welcomed the "greater flexibility".
The idea has been attacked by teachers' unions, with one saying it would be "a disaster for children's education".
But head teachers' leader Russell Hobby said it was a "reasonable balance" and welcomed the rejection of regional pay.
The pay deal will mean that there will no longer be annual pay rises based on years of service - but instead rises will depend on performance.
As happens already with senior staff, this progression through the pay scale will depend on annual appraisals.
Pay as you learn
The intention is to make it easier for heads to recruit and reward the most talented staff and to respond more flexibly to local needs.
But there will also be attention given to what has not changed - and the national pay framework remains, despite suggestions that there should be regional or local pay levels, or else giving full flexibility to individual schools.
Academies are allowed flexibility over pay - but in practice many rely upon the national pay scales.
In backing the overall changes, Russell Hobby, leader of the National Association of Head Teachers, highlighted what would not be changing.
"The association is pleased that the disastrous proposals for regional pay are off the table. Attempting to pay teachers by their postcodes rather than for the quality of their work would have entrenched inequality in disadvantaged areas," he said.
"Some deregulation of pay is bound to be controversial in the current climate but a reasonable balance has been struck.
"Progression on the basis of good performance is a sensible principle, if hard to implement, and is certainly the norm in most sectors. We feel this is sufficient to reward performance, without more radical and divisive elements like bonuses."
Mr Hobby also welcomed the retention of an overall framework of national pay scales.
"Heads want flexibility but they have no wish to spend undue time with their governing bodies calculating grades and salaries when they should be focused on teaching and learning," he said.
But unions representing classroom teachers have condemned the planned change.
Mary Bousted, general secretary of the Association of Teachers and Lecturers (ATL), said they would be "a disaster for children's education".
"This is likely to have a hugely detrimental impact on children's education with teachers in key subjects such as maths, physics and IT who have highly marketable skills leaving teaching and graduates with these skills, and other sought-after skills, not going into teaching," she said.
"Michael Gove has shown his total disregard for teachers in pushing through a permanent pay freeze for most of them. Hard-up schools will undoubtedly decide to deny pay rises to teachers, to help balance their budgets now they won't have to implement any pay recommendations."
Chris Keates, the head of the NASUWT union said the recommendations "would leave behind the wreckage of a national pay framework".
"These proposals place virtually unlimited discretion on teachers' pay in the hands of head teachers at a time when unfairness and discrimination are already rife," she said.
Brian Lightman, leader of the Association of School and College Leaders (ASCL), emphasised the lack of enthusiasm for localised pay negotiations.
"Schools and college leaders have been very clear in their wish to retain a national system of pay and conditions for teachers," said Mr Lightman.
"In a recent survey of 900 ASCL member only 6% showed any appetite for deregulation of pay and conditions. We still await the detail of these proposals but a move to local bargaining has the potential to cause massive destabilisation."
The changes are against a background of pressure on public sector pay - with teachers to receive a 1% increase in 2013-14 and 2014-15.
Mr Gove said: "These recommendations will make teaching a more attractive career and a more rewarding job. They will give schools greater flexibility to respond to specific conditions and reward their best teachers.
"It is vital that teachers can be paid more without having to leave the classroom. This will be particularly important to schools in the most disadvantaged areas as it will empower them to attract and recruit the best teachers."