Police pay should be based on skills and performance not length of service, according to a report by think tank the Institute for Public Policy Research.
A warranted officer detected about 10 crimes a year in 2006/7
The proposals come as 15,000 officers prepare to stage a mass march over pay in Westminster on Wednesday.
Officers are currently given an annual pay increase of between 2% and 6% for the first 10 years of service, on top of the agreed national pay rise.
The IPPR says this discourages officers from developing specialist skills.
"This system does not reward expertise and discourages officers from developing much-needed specialist skills, such as tackling violent and gang-related crime," the report said.
"It also fails to reward officers who do the most difficult or dangerous roles, such as emergency response work."
The report - which will be published in full next month - also says that while crime has fallen dramatically since 1997, police performance has not significantly improved in the same period.
Despite an increase in police funding of more than a quarter in real terms since 2001, crime detection has remained flat.
In 2006/07 each warranted officer detected about 10 crimes a year, the same level as in 2001.
Spokesman Guy Lodge said: "We all know that the police do a difficult and challenging job, but no system of pay is fair that rewards people solely on the basis of time served rather than their ability to do the job effectively.
Jacqui Smith's decision to stage a 2.5% pay rise has angered officers
"The current row over pay levels is preventing much-needed debate about how we reward police officers and how we deliver a high-performing police service."
He added: "You could have a system whereby detection levels and those sorts of things are part of a police pay system, but the core message we are trying to put is that... pay should be linked to skills."
Mr Lodge warned, however, that too much concentration on detections or other statistics could run the risk of making the reforms too bureaucratic.
A Home Office spokesman said: "The Home Office together with Acpo and APA are considering the issue of police pay structural reform.
"This work is at a very early stage looking at what the objectives should be for any reform of this nature.
"Superintendents, chief superintendents and chief officer ranks already have pay based on performance as part of their pay arrangements."
But the plans have been criticised by the Police Federation which represents rank-and-file officers.
Its head, Jan Berry, told BBC Radio Five Live's Breakfast programme: "I don't think we should be starting from the reward system.
"I think we should be starting from the other end and looking at what we want our police service to do, what do we value, how should we structure it, how should we be made accountable, what workforce, then look at what rewards we pay them."
Thousands of off-duty officers from across Britain are planning to march on Whitehall in anger at a government decision to overturn a pay award decided by the independent arbitration process.
Home Secretary Jacqui Smith decided to stage a 2.5% pay rise, reducing the value of the rise to 1.9% for the year.
In contrast, the Scottish Government agreed to backdate the 2.5% rise to 1 September, as recommended by the Police Arbitration Tribunal.
The Conservatives want new laws to force governments to get the explicit approval of the House of Commons to overturn any arbitration ruling on police pay.
It would extend it to Armed Forces and the Prison Service - a total of more than 360,000 uniformed personnel.
The police, like the military, are banned by law from striking.
"Whilst it is impossible for any government to give up in totality the right to overrule a pay award in the public sector - simply because there is always the possibility of some unforeseen financial pressures - it is vital to act in good faith on these matters," said shadow home secretary David Davis.
"We believe that this new approach is fair, reasonable and will serve the public interest."