Step 0: Talk to/with existing faculty. How do they view their teaching skill, it's relative importance, motivation to do better, what do they think would improve their own teaching and/or the teaching of others? I would hope the actual people on the ground know a thing or two more than some random fool on the internet (such as myself).
Step 0b: Probably prioritize what people actually think at your institution over what I'll say below. Further, educated people are generally incredibly resistant to having random diktats imposed on them (and professors who are renowned for valuing their positions autonomy all the more so), so you'll need people to buy into things and embrace things. That takes some great implementation skill, diplomacy, and care - good advice followed poorly is rarely a boon. But with that said...
Step 1: Clearly, effectively communicate what is valued in the department/institution - to existing faculty, students, prospective faculty, and the world at large.
Step 2: Actually value those things - don't just pay them lip-service. Are meaningful teaching awards given? Are special posts/chairs given for teaching excellence, with funding and reduced other-than-teaching workloads optionally reduced? Can a person be a great teacher and a not-so-good researcher and expect to be respected and have job security comparable to a star researcher who can barely teach at all? Research/grants are often tied to equipment, labs, funding for students/assistants/projects - must teaching be solely it's own reward at your institution?
Step 3: Measure what's important. Is a respected teaching-quality rating system in place to poll students before/during/after courses, program entrance/graduation, etc? How do you know who is doing a great job and who's doing a bad one? Do people even know if they are doing a good job? Does everyone else know who's doing great things? Is student success/learning solely the responsibility of individual faculty to determine and measure - as though assessment were somehow trivial and easy to do - and thus one class/semester/teacher cannot be meaningfully compared or evaluated? Tight feedback loops are necessary for flow experiences and improvement - tighten the loop.
Step 4: Provide mechanisms for improvement. Feedback from students, constructive advice/encouragement/criticism from senior faculty - especially previously identified great teachers, funding for workshops/conferences specifically about education/pedagogy/teaching, bringing in outside faculty/speakers to speak and hold workshops, etc. Teaching is a skill, just like researching - it must be learned. As some people have very little teaching experience (sometimes having won fellowships that exempted them from teaching), it is generally unwise to just cross your fingers and pray people figure it out on their own.
Step 5: At the end of a semester/year, appraise the situation. What is going well, and what isn't? Make a plan to do better next year, implement the plan, and follow up again next semester/year. Do it again. And again. And again. There are no real shortcuts, just consistent hard work performed by many, repeatedly, over a stretch of time.
Step 6: Align decisions at ever greater (and lesser) levels to match what is truly valued. Student selection, graduate program admittance, postdoc positions, faculty hiring, tenure decisions - if teaching isn't important to the department/institution, it is strange to expect it to be treated as though it were actually important none the less. This doesn't necessarily have to mean everyone must be amazing teachers or else - just that it must be a factor that really does matter and holds value.
Warning: Anything that hints of punishment, job insecurity, lack of respect, or unpleasantness will lead to both intentional and unintentional gaming/sabotage/resistance to any process of improvement or assessment. Trust is valuable, hard to build, and incredibly easy to lose.
In the end, some people are naturally motivated and take it upon themselves to be better and better teachers. For those people you likely need only give them what they need and don't step on them or get in their way. But social systems are powerful, and can rob people of their desire and motivation just as they can encourage the better angels of our nature and inspire us. It must then be decided what system you have now, and what are you willing to and able to do about it?