The modern education system is subject to changes, accompanied by the introduction of a number of innovations, because it must adapt to the requirements of a dynamically developing society. Among such innovations is the introduction of an effective contract in the state universities as an innovative mechanism for stimulating the work of scientific and pedagogical workers. The need for criteria-based assessment of the effectiveness of a higher school teacher, depending on the individual results of his work, has actualized the importance of studying the problem of an effective contract model in higher education and identified the research problem: what is the essence of an effective contract as an innovative mechanism for stimulating the work of scientific and pedagogical workers? The purpose of the research is to reveal the essence of an effective contract as an innovative aspect of stimulating the professional activity of a university teacher and its main components. The following research methods were used: analysis, synthesis, description, interpretation, comparison. Systematic and logical approaches were used. The results of the research: 1) the concept of «performance-based contract of employment» in the legal and scientific-pedagogical field has been described; 2) a brief overview of the concept of an performance-based contract of employment abroad and in Russia has been carried out; 3) the principles for developing criteria for professional achievements of teaching staff have been substantiated. Key conclusions: 1) performance-based contract of employment is a balanced decomposition of criteria and performance indicators of the professional activity of a higher school teacher; 2) foreign and domestic concepts of a performance-based contract of employment are largely similar and include a set of interrelated components that reveal all aspects of a teacher’s professional activity: teaching, methodological, scientific,educational and sports; 3) the main principles of criteria-based assessment of scientific and pedagogical workers are: complexity, objectivity, quantitative assessment, adaptability, stimulation and motivation.