Arlington County should cease giving county and school employes automatic pay increases each year and switch to a merit pay system based on employe performance, a special advisory panel has recommended.

The report, prepared by the County Board-appointed compensation review panel, recommends that funds set aside for periodic or "step" pay increases be put in a pool and used for merit increases and that employe benefits programs be studied for potential restructuring as well.

The report was promptly criticized by officials of the Arlington Education Association (AEA), which represents the county's teachers, and the American Federation of State, County and Municipal Employes (AFSCME), which represents many county employes.

They were joined by County School Board Chairman Evelyn Reid Syphax, who said she opposes a merit pay system for teachers.

As the system is envisioned by the panel, according to Robert E. Harrington, chairman of the eight-member panel that was appointed last May, it would probably take two to three years before performance evaluation criteria could be developed for the county's 2,300-plus non-school employes, and slightly longer to develop a similar system for the school system's nearly 1,700 employes.

Currently, there are five ways employes can get raises in Arlington: cost-of-living adjustments, longevity payments, reclassifications to higher-paying jobs, a few scarce merit increases and the annual step increases in jobs.

"We haven't interjected ourselves into the total amount the County Board should appropriate for salaries," Harrington said. "What we're saying is, 'If you've got it, this is the way we think you should spend it.' "

County Board members' reactions were generally cautious, with only Walter L. Frankland Jr. (R), who requested the study, saying outright that he favors a merit pay system.AEA leaders have vehemently fought a merit pay system, arguing there is no satisfactory way of judging teaching ability