Crew on British cruise holidays who are paid a basic salary of as little as 75p an hour face having extra tips from passengers withheld unless they hit performance targets.

The boss of P&O Cruises said the move was part of a package to "make crew more responsive" and offer protection as tips dry up in the economic downturn.

At the bottom end of the scale, a junior waiter on a ship sailing out of Southampton now earns a basic salary of £250 a month, for shifts lasting a minimum of 11 hours, seven days a week, with a possible £150 extra in bonuses. According to documents seen by the Guardian, this is "a significantly increased basic salary".

David Dingle, CEO of Carnival UK, in charge of P&O cruise lines, said the crew were "much happier" and the new arrangement was a win-win for passengers, staff and P&O. He said many crew took home over £1,000 a month, but tougher times meant that "sadly, our customers were reluctant to pay the recommended level of tipping".

Cash tips are being phased out in favour of electronic tips automatically added to passengers' bills, which pay for the potential performance bonus. As passengers could opt out of paying, Dingle said, the firm was "taking the risk out" by paying bonuses if targets were met. "We've handled it fairly and decently and made sure their pay is being protected," he said.

Bonuses will be held back in part if customers' feedback ratings do not exceed targets, some of which stand at 96%. Cabin stewards whose attitude was ranked below 92% by customers will forfeit an entire bonus payment worth approximately 15% of their basic salary.

Crew have been warned P&O's funding of the scheme "is dependent on the passengers paying their auto gratuities".

Passengers on the P&O Oriana ship that recently returned to Southampton said members of the mainly Indian crew – the restaurant staff and cabin stewards – seemed upset by the deal.

One passenger, Rob Bygrave, of Sherborne, Dorset, said it was an "absolute scandal". He said one crew member told him "grown men were in tears" at a meeting towards the end of a 97-day world cruise where they were notified of the new arrangements.

P&O, which celebrates its 175th anniversary this year, is part of the Carnival Corporation, which also owns Princess Cruises, whose Star Princess allegedly failed to pick up two dying fishermen, and Costa Cruises, owner of the Concordia that sank with the loss of 32 lives in January.

Dingle said: "You've got staff from eastern Europe in restaurants in Britain – why? Because it's great money. Yes, the minimum wage is more than we pay, but this is a global industry, Our businesses have to remain competitive.

"Let's not forget the level of take-home pay for our staff, the vast majority of whom come from India. Look at hotels in Goa. The earning ability is greater on our ships.

"We have a manning office in Mumbai. There are queues out on to the street. It clearly is of value to these people."

The officers on P&O cruise ships are European, mainly from Britain, Italy and Croatia, and the service staff are mostly drawn from India and the Philippines. Dingle said work permit issues could prevent Indian staff from rising through the ranks, but added: "I'm sure in future we'll be employing Indian officers."

P&O's pay scale is understood to be standard for the industry. The company told Oriana workers that Carnival was "committed to providing our service staff with a salary package that is in line with other cruise companies".

The TUC general secretary, Brendan Barber, said: "Holidaymakers will be horrified to learn that some of the seafarers on their cruise ships are paid so little. It's high time the disgraceful practice of allowing the shipping industry to pay poverty wages to workers who don't live in the UK was stopped. Exploitative rates of pay for those working on British ships have no place in a modern society."

More than 750,000 passengers took a cruise out of British ports last year, an increase of 100,000 on the previous year, and a million Britons flew abroad for a cruise. The industry's revenues rose to more than £2.4bn, with the price of an average cruise of around 10 nights going up to £1,434.