The Quick and the Ed has a good summary about the economic principles, including incentives that go into designing a compensation system for teachers. The summary does a good job, but fails to account for one big mover--what is the market, i.e. the voters, willing to bear in terms of salaries.
But what the story does reflect is the tension between old-school union ideas of compensation and the package put together with teachers (as opposed to union officials or negotiators) providing imput.
That is why the political maneuvering in pay negotiations is far more important than the actual terms of the negotiation itself. Threatening a strike when thousands of Democratic activists are in town (many of them teachers or union supporters) makes the possiblity of a strike more palatable for the Denver teachers and less so for the city.
However, the City can pull an ace out of their hat--the voters--which supported the ProComp plan to the tune of cedeing $25 million to make it work. The City should not shy away from breaking out the big gun of public opinion.
This is where too many cities and school systems lose. They don't play the big guns. ProComp was negotiated and endorsed by the union, the school system and the voters. The City should just call the union on it and actually dare them to strike and shut the schools down.
The primary effect of the strike will be to put the union into the position of having to admit that their primary goal is protecting teachers. There is nothing wrong with this position, but the unions often couch their spin in terms of "good for the students." Striking is good for the teachers, not the students and such a position is clearly exposed when teachers strike.
Of course, you will also see a number of teachers cross the picket lines and the size of the line crossing contingent surely indicates the relative strength of the union.