The Financial Services Authority (FSA) - the City watchdog - has said an increasing number of poor performers are being identified within the organisation.
The FSA has faced criticism from the industry over the quality of its staff and its ability to retain good people.
However, FSA chief executive John Tiner hit back at critics in his annual report statement. "I often hear that the FSA is unable to hold on to its people. That is a myth. Our turnover rate in 2004-2005 is about 10%, up on the previous year but well below the average of the industry we regulate."
The FSA said in its annual report that a "sharpened" performance management programme had led to an increased number of staff whose performance was rated as "not meeting the standards expected".
Tiner said FSA staff had "responded positively" to programmes designed to improve its effectiveness and service to regulated firms.
The average salary at the regulator is now £56,000 while 190 people earned more than £100,000 and 100 have been offered retention bonuses. Pension packages have also been increased.
In June, the FSA appointed Kathleen Reeves in the newly created position of HR director. She joined after two years with Direct Line Insurance.