The Government will try to lure NHS managers to poor performing areas with a temporary pay increase of up to £45,000 under new plans.
Meanwhile, failing chiefs could have their salaries docked by up to £15,000.
The so-called “carrot and stick reforms” will aim to reward leaders slashing waiting times and improving services for patients.
Health Secretary Wes Streeting said bonuses and pay rises will be a “reward and not a right”.
Under the measures, bonuses of up to 10% will be on offer for top performers, with vacancies in poor performing areas coming with a temporary uplift of 15%, worth up to £45,000.
Pay bands for senior managers will also be overhauled to attract and retain staff.
Chief executives that fail to deliver improvements or rack up debt could also have up to £15,000 docked from their pay packet.
The figure is based on last year’s 5% pay rise and the highest current salary of a trust chief executive under the new framework, which is £299,250.
Mr Streeting said: “Some of the best businesses and most effective organisations across Britain and the world reward their top talent so they can keep on delivering.
“There’s no reason why we shouldn’t do the same in our NHS.
“We will reward leaders who are cutting waiting times and making sure patients get better services.
“But bonuses and pay rises will be a reward and not a right – because I’m determined that every penny we invest through our Plan for Change is money well spent.
“Our carrot and stick reforms will boost productivity, tackle underperformance and drive up standards for patients.”
NHS England chief executive Sir Jim Mackey said linking pay to operational performance happens in “almost every other sector” and should also happen in the health service.
“If we are to consistently reach the standards of care the public rightly expect, it is clear that we need to reward those who are delivering for patients,” he said.
“An important element of driving improvements must be strengthening the link between pay and operational performance at a very senior level – this happens in almost every other sector and there is no reason for the NHS to shy away from it, particularly when we rely on money that comes directly from taxpayers’ pockets.
“We will be working together with local leaders to improve transparency and ensure progress is recognised, while offering sufficient flexibility to attract talented candidates to the most challenging roles and organisations.”
The plans come after Mr Streeting pledged to sack failing NHS managers, telling trust leaders in November that there “will be no more rewards for failure”.
Isabel Lawicka, director of policy and strategy, NHS Providers, said pay is an “important enabler” for the NHS to “attract and retain talented leaders”.
However, she warned there is a risk that withholding pay rises “could lead to unintended consequences”.
“As ever, the devil will be in the detail. Today’s announcement raises a number of questions including how these complex new pay arrangements will be implemented, the decision to link financial turnover to pay and the crucial role of trust boards in this process,” Ms Lawicka said.
Patricia Marquis, executive director for the Royal College of Nursing England, added: “Attracting talent to the NHS is important, but no NHS boss could succeed without us. We are the largest workforce in the health service and deliver the vast majority of care for patients.
“Talk of bonuses for hospital chiefs higher than a nurse’s annual salary will leave a sour taste in the mouths of nursing staff. We are still waiting for a pay award that should have arrived six weeks ago.
“Bonuses for the top while cutting nurse numbers is reckless and offensive. This culture was bad for finance and it is not the answer for the NHS.”
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