RBS unveil plans to let boss reap £4.8 million in shares

The bank, 84 per cent owned by the taxpayer, published details of the long-term incentive plan in its annual report for 2009.

The new scheme is based on much tougher criteria and subject to a host of clawback measures – but could still pay out a maximum 400 per cent of directors' annual pay in shares.

Mr Hester – who earns 1.2 million in basic salary for the huge task of turning around the ailing bank – waived his bonus for 2009 amid mounting public outrage on bank pay.

But chairman Philip Hampton said as the recovery takes shape Mr Hester would be rewarded "fairly, appropriately and at market levels for achievement against the targets we have published to make the bank safe, successful and valuable again".

The new scheme, which will be voted on at the group's annual meeting on April 28, replaces two previous share incentive plans which paid out shares worth a maximum of 300% and 150% of salary respectively.

Unlike the previous plans, 50% of the payout will be based on the economic profit of the bank and the remainder based on shareholder returns.

The committee will also be able to limit any share payouts retrospectively if the factors on which rewards are based are not borne out by long-term performance.

The annual report said the "primary requirement" for rewards is for the remuneration committee to be satisfied over risk handling.

"From a behavioural perspective, the remuneration committee must also be satisfied that financial results have been achieved without excessive risk," it said.

The bank's remuneration committee held an extra 16 meetings last year in a sign of how pay has rocketed up the agenda.

But it re-echoed its warning that too tight a clampdown on pay would damage the long-term interests of RBS and the taxpayer.

The bank posted a 3.6 billion loss for last year as bad debt and other impairment charges across the group increased to 13.9 billion.