Home Secretary Theresa May warned reductions were "unavoidable" amid efforts to minimise frontline job losses, putting her on a collision course with rank-and-file officers across England and Wales who say any cuts would damage morale.
The Winsor review, which comes as the Association of Chief Police Officers (Acpo) said 28,000 police jobs could be lost as a result of the Government's 20% budget cuts, outlined more than £1 billion of savings that could be made.
Most of this would be reinvested to give officers working night shifts and unsocial hours an extra 10% of their hourly basic pay, but the taxpayer could still save £485 million over three years, Mr Winsor said.
Some officers could earn an extra £1,500 to £2,000, while the biggest losers would see their pay fall by between £3,000 and £4,000, he said.
Police are "comparatively well paid", Mr Winsor added, earning 10% to 15% higher than some other emergency workers and up to 60% higher than the average local earnings in regions such as Wales and the North East.
The system is in need of reform to recognise the "hardest jobs done in the most demanding circumstances", he said.
Only 57% of officers regularly work unsocial hours, and it is those who should be rewarded, he said.
All chief officer and superintendent bonuses should be suspended and £1,212 competence-related threshold payments should be scrapped, along with "discredited" special priority payments of up to £5,000, Mr Winsor said.
But he said there was no need to introduce compulsory redundancies for police officers who have served less than 30 years.
A new expertise and professional accreditation allowance of £1,200 should be introduced for most detectives, firearms, public order and neighbourhood policing teams.
In his 323-page review, Mr Winsor said: "In short, some skilled police officers working unsocial shifts in response roles will receive up to approximately £2,000 more in cash terms per year than at present, whereas those in what are sometimes called middle and back-office roles will not receive any additional pay and may experience a reduction of up to £3,000 in their allowances.
"These recommendations will allow the police to provide a more efficient, economical and effective service to the public while providing officers and staff with a fairer deal.
"People should be paid for what they do and how well they do it and the service needs modern management tools to operate with the greatest efficiency and economy in a time of considerable national financial pressure and restraint."
Around 244,000 people are employed by the 43 forces across England and Wales, including 143,000 officers and 101,000 civilians.
Three-quarters of the annual police budget, £11 billion, goes on pay, and Mrs May told forces that must change.
Mrs May said: "Changes to pay and conditions have to be part of efforts to protect police jobs, keep officers on the streets and cut crime.
"But this isn't just about money - it's about reform of our police service.
"To fight crime, we need a modern and flexible workforce that helps chief constables manage their resources, maximise officer time and improve the service to the public."
Earlier, in a confidential memo for ministers published in The Guardian, Acpo estimated that 12,000 police officers and 16,000 civilian staff jobs would go over the next four years.
The projected cuts represent a fall of about 12% in overall staff numbers over four years, an 8% cut in officer numbers with one in six civilian staff losing their jobs, Acpo said.
The estimate is based on the actual cuts decided by the majority of police authorities, along with projections to cover those who have not yet settled on a final figure.
Police budgets will be cut by 20% over the next four years, but the impact on each force will come down to how reliant they are on Government money, with urban areas being hit the hardest.
The West Midlands force, which gets 86.4% of its funding from central government, faces an 18% cut while Surrey, which gets only half its money from government with the rest being raised locally, faces cuts of 10%.
Earlier this week, an analysis by the Policy Exchange think-tank showed officers racked up more than £1 million a day in overtime over the past 10 years.
Acpo said overtime was needed to enable forces "to respond flexibly to any event or crime at any time whether it be a flood, a major murder investigation or public order incident".
Today's review will be followed on Thursday by a review of public sector pensions by former Labour minister Lord Hutton, in which police could be asked to make increased contributions of hundreds of pounds a year.
For police staff, the time-and-a-half and double-time overtime rates for weekends should be scrapped, Mr Winsor said.
He went on: "People should be paid for what they do and how well they do it.
"This will primarily benefit frontline public-facing roles and operational specialists."
He said the current system which rewards "time in the rank rather than hard work, skills and the hard demands of the job" was in need of reform.
"Overall, the people who stand to benefit most from this are the frontline police officers doing the hardest jobs, getting cold and wet out in the streets in the middle of the night, who are doing the jobs that most need to be done for the protection of the public," he said.
"In a time of national financial restraint, all aspects of the economy need to be examined.
"Most police officers and police staff would accept that it's better to see reform than to sustain job losses."
Chief Constable Peter Fahy, the Acpo lead on workforce development, said the review would "lay lasting foundations for the police service".
"There are hugely difficult decisions to be taken in forces across the country but the majority of the police service are realistic that sacrifices will have to be made," he said.
The Police Superintendents' Association said Mr Winsor's recommendations would "impact upon the police service for many years to come" and amount to "a double hit for many officers".
Derek Barnett, the association's president, said: "It is inevitable in any such review that there will be some winners and losers.
"We need to recognise that police officers, along with other public servants, are facing a two-year pay freeze and a steep increase in pension contributions that will significantly reduce the take-home pay of all police officers.
"This will amount to a double hit for many officers."
Peter Smyth, chairman of the Metropolitan Police Federation, said: "Whichever way it is dressed up, Mr Winsor has produced a formula for slashing police pay.
"When officers have deciphered the report's opaque language and realise the reality of the massive cuts to the police pay budget, they will be dismayed and very angry."
He warned that any plans to pay officers depending on how well they perform "must unavoidably create a mushrooming of bureaucratic work in the back office".
And he said that, as civilian staff jobs are cut, more and more officers "will be obliged to replace them in the much-denigrated 'back office"'.
Shadow home secretary Yvette Cooper said: "This is a detailed review which needs proper consideration.
"But it is already clear that this won't stop the 28,000 police job cuts that chief constables have announced today, as a result of the 20% police budget cuts.
"Everyone will support sensible reforms but it's important the Government works with the police on reform rather that picking a fight with the police as they tried to do last week.
"The Government is cutting too far too fast and hitting the police budget hard, ultimately it is local communities that will pay the price."