In what situations are the following compensation methods most effective:
a) Merit pay?
b) Incentives?
c) Lump sum?
My opinions and experiences may differ from your teacher's and your reading materials.
Merit pay and incentives are effective only when the goals are clear cut, measurable, and depend only on the abilities and efforts of the employee. Neither merit pay nor incentives for teachers is effective because they doesn't take into account conditions beyond the teacher's influence.
A lump sum, in my opinion, is the most effective in situations in which the employee doesn't have complete control of his/her production.