There is not enough systematic evaluation of the quality of learning and teaching on vocational courses, Mr Donaldson added.
The inspectors say very few schools gather evidence on what pupils who have been on vocational courses do when they leave school.
"It was therefore difficult to evaluate the contribution of vocational education to successful transitions to work," the HMIE report states.
Although the report has examples of good practice and praises schools for being more sophisticated in the way they choose pupils for vocational courses, Mr Donaldson said: "Only a few schools promote vocational education as potentially appropriate for all levels of pupil ability. Poor selection procedures in too many schools lead to high drop-out rates from vocational courses."
The inspectors found that the pupils undertaking vocational courses were "skewed towards the lower end of the attainment range and there was insufficient encouragement to more able pupils to select vocational education where appropriate".
The report also points to the need for pupils who have taken vocational courses in S3 and S4 to be able to progress them into S5 and S6. The inspectors found that opportunities to do so are poor.
The ground that has to be made up will be chastening for ministers who are committed to a major expansion in school-college links to provide an alternative curriculum for 14 to 16-year-olds.
The inspectors say less than 3 per cent of the year group in S3 and S4 are following full-time courses in local colleges.
In general, the inspectors found that pupils were poorly prepared for the vocational courses they had chosen in S3, and they call on schools and colleges to communicate more effectively with pupils on what they are likely to find when they go to college. This will require teachers and lecturers to become better informed about each other's sectors. The sharing of teaching duties is one suggestion from the inspectors.
Colleges are also warned to construct work for pupils more carefully, having found that the amount of time spent on theory was more than pupils expected and which therefore demotivated them.
The inspectorate's report urges Scottish local education authorities to take the lead in planning vocational education for pupils and in collaborating with others to deliver it.
The report continues: "School managers should ensure that the inclusion of vocational courses within the school curriculum has a rationale which is based on the potential for educational gain for all pupils.
"This rationale should influence such aspects as option column placements and timetabling, and ensure a broadly balanced curriculum for all pupils."
Pupils did find that their vocational experience had been a good preparation for employment in giving them a clearer idea of the qualities that were expected of them, such as self-discipline, good timekeeping, the ability to work in a team and good communication skills.