Stephen Hester hailed for decision to give up £1m RBS bonus

But today there were reports Mr Hester – who receives a £1.2m salary – was still in line to receive other multi-million pound awards of shares through long-term performance plans, which could take his total package from the part-nationalised bank to £8m.

Mr Hester’s decision to forgo the £963,000 bonus which the RBS board awarded him last week was made last night while he was on holiday in Switzerland and came after intense media and political pressure, culminating in Labour’s announcement it would force a vote on the bonus in the House of Commons.

Labour leader Ed Miliband said: “Stephen Hester has done the right thing. It is a shame out-of-touch David Cameron did not realise he should also do the right thing.

“Labour was right to seek a parliamentary vote on this so that the people’s voice could be heard, but the debate about fair executive pay and responsible capitalism is only just beginning. We need a government that will tax bankers’ bonuses and bring responsibility to the boardroom.”

Chancellor George Osborne, who had earlier refused to intervene to block the bonus, said: “This is a sensible and welcome decision that enables Stephen Hester to focus on the very important job he has got to do, namely to get back billions of pounds of taxpayers’ money that was put into RBS.”

First Minister Alex Salmond said: “This is a welcome development, but it should never have come to this stage as these circumstances cannot be left to individual decisions. They must be a matter of public policy.

There were dissenting voices from the financial world.

David Buik, a leading City commentator from the international brokers BGC, said Mr Hester had steered RBS to calmer waters after the 2008 banking crisis and would return a £2 billion profit this year compared with a £1.6 billion loss last year. He said: “This is a very sad day for democracy. I think it’s appalling.”

RBS chairman Sir Philip Hampton announced on Saturday he would waive his bonus.