Failing trust leaders will have annual pay rises docked under the tough new measures aimed at improving NHS performance and driving progress on cutting waiting lists.

Bonuses of up to 10% will also be on offer for top performers under the new ‘carrot and stick' approach.

Under the plans, leadership vacancies in badly performing areas coming with a temporary pay increase of 15%, worth up to £45,000. 

Pay bands for senior managers will also be refreshed to attract and retain effective leaders within the NHS.

At the same time, failing chief executives could see up to £15,000 docked from their salaries if they run into debt or fail to deliver improvements. This is in addition to any existing processes to tackle poor performance, where persistently failing managers could be sacked if they do not turn things around.

In addition, the overhaul also establishes stricter accountability for very senior managers, demanding greater financial rigour across all NHS trusts and ICBs.  

Health and social care secretary, Wes 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.'

Sir Jim Mackey, NHS England chief executive, added: ‘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.'

Today's guidelines will also include strict rules for NHS bosses, who will be expected to spend budgets wisely and ensuring trusts are not going into debt. The government wants to see trusts deliver more efficiency, ensuring patients get more for taxpayers' money being invested.

The government is also bringing together pay structures for senior managers at ICBs and NHS trusts to boost consistency and align standards.

Any trust or ICB that fails to comply with the new guidelines will be required to publicly justify its decision in its annual report under a strict "comply or explain" approach.

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Matthew Taylor, chief executive of the NHS Confederation, said it is positive that there are plans to incentivise CEOs and senior managers to take on the most difficult jobs, but expressed concern that some of the measures could be seen as ‘punishing' NHS leaders.

He added: ‘The challenges facing NHS organisations can sometimes be due to historic or systemic issues rather than poor leadership. We must also be cautious when implementing new or existing policies around withholding pay if CEOs are deemed to fall short performance-wise, to ensure we do not undermine new incentives to encourage high-performing leaders to take up roles in struggling organisations.'

Isabel Lawicka, director of policy and strategy, NHS Providers, said it is right that NHS trust leaders are held accountable for delivery and that where there are issues regarding performance, that these are addressed.

She said: ‘There is a risk, however, that withholding trust leaders' pay rises could lead to unintended consequences. At a time when health leaders should be working together to deliver the NHS' huge transformation agenda, the focus should be on supporting, retaining and recruiting talented leaders.

'There are some positives in today's announcement. Salary increases for leaders who take up jobs in the most challenged trusts are welcome and long overdue. Plans to give leaders the breathing space they need to turn around performance in challenged trusts are also welcome. This is more vital than ever as the government looks to launch and implement the 10-year health plan.

'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.'