Royal Bank of Scotland is this week expected to approve a pay package worth up to £9.6m for its chief executive Stephen Hester.The remuneration deal was agreed on Friday by RBS chairman Sir Philip Hampton and its leading shareholders.
One of the groups represented was UK Financial Investments, which manages the 70% stake in RBS held by taxpayers.
The package is made up of £1.2m in pay, up to £2m in non-cash bonuses and up to £6.4m in long-term incentives.
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he long-term incentives will only be payable if share price targets are hit over the next three years.
In February, Mr Hester told the Treasury Committee: "I do think banking pay in some areas of the industry is way too high and needs to come down and I intend us to lead that process."
It is important that the incentives are linked to the share price because the government is keen to sell its shareholding, which was bought at a price of about 50 pence a share.
In early trading on Monday, the shares were trading at 37p a share.
Mr Hester could only get the maximum remuneration if the share price were to hit 70p, which would give the taxpayer a profit of £8bn.
But the payments would not be automatic, with the RBS board having the discretion to claw the money back if directors did not believe the share-price rise had been caused by sensible management decisions.
So his reward might be reduced if the share price was inflated by takeover speculation, for example.
Some of the long-term remuneration will also depend on the RBS share price performing better than those of its competitors.
"It is absolutely outrageous that the government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level," said Roger Lawson of the RBS Shareholders Action Group.
"Do they need to pay him this much to make him work harder?"
For comparison, Eric Daniels, chief executive of Lloyds Banking Group, which is 43% government-owned, will this year receive a base salary of £1.035m.
On top of that he can receive 225% of his base salary in annual incentives and another 200% in long-term incentives, making a maximum value of £5.4m.
Risky lending
The problem, according to BBC business editor Robert Peston, is that Bank of England governor Mervyn King believes banks are still not lending enough money to fuel a recovery.
Lending more money would be risky and might not be compatible with big growth in the RBS share price.
Mr Hester took over as RBS chief executive late last year following the departure of Sir Fred Goodwin.
He had previously been chief executive of British Land and chief operating officer of Abbey National.
In April, RBS announced 9,000 job cuts, having made a loss of £24.1bn in 2008 - the largest loss in UK corporate history.
"Reports that Stephen Hester will be awarded a £9.6m package will be met with absolute disbelief by front line staff in the finance industry," said Graham Goddard, deputy general secretary of the Unite union.
"Staff and customers are sick of seeing senior bankers earn such huge financial awards, when every week hundreds of hardworking and loyal staff are losing their jobs."
source: news.bbc.co
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