Lloyds Banking Group stripped 13 executives of some of their bonuses for 2010 today in the wake of the scandal over payment protection insurance.
Former chief executive Eric Daniels will lose 40% or £580,000 of his £1.45 million award, while four other current and former directors will have to forgo sums of up to £262,500. A further eight executives, below board level, will be stripped of 5% of their bonus awards, the state-backed bank added.
Amid pressure from politicians and the Financial Services Authority, it will be the first time a bank has used a claw-back option on executive pay packages since the financial crisis.
The impact of the mis-selling scandal, which involved the sale of insurance alongside loans to cover repayments if borrowers fell ill or lost their jobs, cost the bank £3.2 billion in 2011, prompting today's claw back move.
Lloyds said its bonus pool and individual awards for 2010 performance would have been lower had last April's High Court victory for consumers in securing rights to PPI compensation been known about at the time.
It added that the bonus pool for 2011 will include a further reduction to take into account the company's PPI compensation bill, which is expected to drive a loss of £3.5 billion when the company reports results on Friday.
Lloyds added: "The board wishes to emphasise that its decision is based entirely on the principle of accountability and in no way on culpability of wrong-doing by the individuals concerned."
Royal Bank of Scotland, which is 83%-owned by the taxpayer and will announce full-year figures on Thursday, has also been hit by the PPI scandal and will be under pressure to make similar claw-back provisions.
The other Lloyds former and current board directors who have seen a 25% cut in their 2010 bonus are outgoing finance director Tim Tookey, the head of wholesale banking Truett Tate, former retail banking boss Helen Weir and ex-insurance head Archie Kane.
The mis-selling scandal blew up in 2008 after the consumer group Which? estimated one in three customers had bought worthless insurance.
RBS is expected to reveal losses of up to £2 billion alongside the £3.5 billion for Lloyds because of PPI compensation costs, analysts have said.
Lloyds, which is 41% owned by the taxpayer, received £20 billion from the Government, while RBS, which is 83% state-owned, received £45 billion.
While there has been some recovery in the share price in the last couple of months, both banks are close to 50% lower than they were a year ago, amounting to a paper loss of more than £30 billion for the Government.
Lloyds has managed to avoid the bonus row so far after boss Antonio Horta-Osorio waived his annual payout due to a leave of absence.