Bank bosses face curb on pay and bonuses in return for state bail-out

The Prime Minister and the Chancellor made it clear that directors and senior executives will be expected to accept far less lavish pay packages in return for the Government bail-out.

Boardroom pay in the banks has exploded in recent years as their profits have swelled. The four banks seen as most likely to make use of taxpayer funds — HBOS, Barclays, Lloyds TSB and Royal Bank of Scotland — paid their directors more than £64 million last year.

The best-paid chief executive was RBS's Sir Fred Goodwin, who earned £4.19 million. Initial reports that Sir Fred and RBS chairman Sir Tom McKillop would be forced to stand down as part of a deal with the Government were swiftly denied. Sir Fred has been heavily criticised for buying Dutch bank ABN last year as the credit crunch began to unfold.

Although the Government has no legal power to impose pay ceilings, it will have massive leverage over any bank that has the taxpayer as a major shareholder. The Government will also want to be reassured that traders are no longer rewarded with huge bonuses for taking massive risks.

At a press conference this morning the Prime Minister said: "We're insisting in the individual negotiations with the banks that we have to be satisfied with executive remuneration."

Long-standing critics of the high levels of bank pay immediately welcomed the Government's move, but said it should go further and sack the bosses who got their banks into the mess.

Paul Kenny, general secretary of the GMB, said: "Business as usual is now over for the City elite who organised this disaster. They will have to get used to living on normal incomes and paying their taxes now that the taxpayer is propping them up and calling the tune as a result."

John McDonnell, Labour MP for Hayes and Harlington, said: "Yet again, the taxpayer is being asked to pay for the mistakes of the bankers with next to nothing in return. The Government should nationalise to stabilise the banks and must place conditions: including representation on the boards, no repossession of homes and a pay cap for bank directors with an end of bonus binges.

"Without these conditions the bail-out is nothing but a subsidy by the taxpayer to the very people who have brought our economy to the brink of collapse."

Dave Prentis, general secretary of public sector union Unison, said: "Tough times demand tough decisions, but any intervention to secure the banking system should not merely bail out those who have caused this crisis in the first place.

"The Government must include more regulation, more control and more accountability to ensure that irresponsible behaviour is not repeated or rewarded."