I continue to struggle with this one.
I agree with Martindoc and I'm sure it would make for a much better, more enthused and focused instructors than some (not by anymeans all) of the instructors one sees in schools who clearly have that "God I'm going to be an airline captain and I'm only here becasue I have to be don't mess with me I am already pissed off" attitude. If we accept that most flying school owner are not making a fortune and are more likley lossing one, the only other variable in the equation has to be hire rates both for the aircraft and the instructor.
Again if you accept that there are costs to employong anyone, even on a pay as you fly basis, some of the instructor element has to go to the operator to cover those costs, and of course they also want to try and make a profit. (No business, not even a flying school is there to provide employement, or even necessarily train people, its main objective is make a profit for the shareholders, don't forget that). So if you take this into account what rate should be added to the basic self hire rate to give a good enough additional revenue to the operator to enable them to pay the higher salareries. If someone can come up with something workable that will not just turn customers away, I am sure it will be used.
Some suggestions from you instructors out there would be more contructive than just saying I want more money.
Also bear this in mind, Wannabes and Private Flying forums are full of people trying to get flying as cheaply as possible. No doubt most of you as instructors have spent time hunting around for the cheapest possible flying to build hours or whatever. This seems contary to the desire now to up the overall cost of flying now that you are looking to make money.