The pay-off, which excludes any pension entitlements, is bound to fuel the corporate governance debate about rewarding directors for failure. Since Mr Lovell joined as finance director in 1993 Costain has run up losses totalling pounds 323m and seen the value of its shares collapse from over 400p to just 46p, the price at which they have been suspended since last month pending another clarification of the company's financial position.
On Tuesday Costain said it was "appropriate" for Mr Lovell to resign as chief executive after announcing the sale for pounds 52m of its US coal and London property interests. The news came as Costain issued yet another profits warning.
Mr Lovell said he had agreed to stay on until a successor has been appointed. He is entitled to the compensation package under the terms of a two-year rolling contract. Last year he was paid an annual salary of pounds 180,000.
Mr Lovell angered shareholders in the summer when he warned that Costain would have to go into receivership unless they accepted a pounds 73m rescue refinancing that left Intria, a Malaysian building group, with a 40 per cent stake.