"These new roles will recognise and use talent where it's needed most and will be implemented from next year," Mr Key said.
PPTA President Angela Roberts said she was "cautiously optimistic" and welcomed the extra resourcing to support teachers, as well as greater collaboration between teachers across schools.
She said its ability to work as intended would depend on how it was implemented, but welcomed Mr Key's promise that the profession would be involved in implementing the new roles.
"How this will look when it actually lands in schools is a lot different to a broad policy statement and I'm looking forward to working with the Ministry to help them make sure it lands well in our schools."
She said it provided the potential for good teachers to advance their careers without having to leave the classroom to take up leadership positions.
"It feels like what they have done is not just recognise and reward the great teachers, but once they've recognised those great teachers they will treat them for what they are, which is a great resource, and enable them to support their colleagues."
Principals' Federation President Phil Harding said the announcements were significant for both principals and teachers.
"It's hard for me to say it but I'm pretty damned impressed. It is a huge amount of new money and I have never seen such a transformation of ideas and discussion into policy and money in my life. It has gone from a theoretical discussion about how the system needed to evolve and change just last year to the appropriation of significant resource."
He was hopeful it would work as intended and believed the $50,000 financial incentives for good principals to take on challenging schools were sufficient.
"I'm very confident there are people out there would will choose this career pathway. Most people would say $50,000 is a pretty big financial incentive. But people don't really do it for the money, they do it because they have the capability and they're looking for a challenge."
He said schools and industry groups would now sit down to thrash out the finer details and identify fish hooks to ensure it worked as intended. "It's exactly what the system needs, to enhance collaboration between schools."
Read Mr Key's full speech to the West Auckland Business Club here
The four positions - which will not be put in place at every school - include:
Executive principals will provide leadership across a community of schools, and be paid an additional allowance of $40,000 a year. Each will work with an average of 10 schools.
Change principals will be employed to lift achievement in schools that are struggling. About 20 of these positions will be needed a year, and principals in this role will be given an additional $50,000 a year.
Lead teachers will be "highly capable" school teachers who will act as role models for those in their own school and those in their area. The Government anticipates around 5000 will be needed.
Expert teachers will work with executive principals and include experts in areas like maths and science.
The role will be on a two-year fixed-term basis, and their own school will receive funding to backfill their role for the two days a week they will be working with other schools.
Read more: Paying off debt is Govt's focus - Key
Mr Key told the West Auckland business audience today that New Zealand's education system needed to be improved, and the new changes outlined by the National Government were designed to lift student achievement.
"We want the best teachers and principals to lead a step change in achievement and we are going to pay them more to get it," he said.
Mr Key said details of the new roles still needed to be worked out, and that would be done in consultation with the education profession, including unions.
"Our intent is clear. We want to recognise excellent teachers and principals, keep good teachers in the classroom, and share expertise across schools and amongst teachers."
It is intended all roles will be fully in place by 2017.
Mr Key's address comes after New Zealand's poor performance in OECD league tables published in December, which led to Labour's education spokesman Chris Hipkins saying New Zealand's scores were in "absolute freefall" and widespread debate about the direction of the education system.
It was New Zealand's first big drop in the rankings - from 7th to 13th in reading, 13th to 22nd equal in maths and 7th to 18th in science.
The Programme for International Study Assessment (Pisa) report also showed that the gap between 15-year-old students who are excelling and those who are failing has widened.
Some of today's changes are similar to those used overseas.
Last year Education Minister Hekia Parata hosted the OECD's Andreas Schleicher, who designed the Pisa system, and was told that top-performing countries ensured the most talented school leaders and staff went to the most needy schools.
In Shanghai, which topped the most recent results, vice-principals at successful schools can only become principals if they show they can turn around one of the lowest-performing schools.
Mr Schleicher told the Herald at the time that some New Zealand schools in disadvantaged areas did much better on the Pisa test, and the reasons for that needed to be shared across schools.
Green Party co-leader Metiria Turei said the policy was not well thought out and did nothing to address poverty as a cause of underachievement.
"The key driver of poor achievement is poverty, it is hunger and sickness. It doesn't matter what the best teacher does with that kid - if they are hungry or sick they are not going to learn. Professional development for some isn't going to help the majority of our teachers dealing with kids with great needs."
She said it looked a lot like performance-based pay for a few "cherrypicked" teachers and it was yet to be seen how the teacher unions would deal with that in negotiations.
She said it remained unclear how the selected principals and teachers would find the time to work with other schools and teachers while still tending to their own schools and classes.
"There will be impacts on those schools those teachers already work with because they will be lost for two days a week."
Estimates of new positions at schools:
• 250 executive principals
• 1000 expert teachers
• 5000 lead teachers
• 20 change principals (appointed each year)
• Executive principal - paid additional allowance of $40,000 a year
• Expert teacher - paid additional allowance of $20,000 a year
• Lead teacher - paid additional allowance of $10,000 a year
• Change principal - paid additional allowance of $50,000 a year
