RBS boss's £7.7m pay approved

Royal Bank of Scotland boss Stephen Hester saw his controversial £7.7 million pay package rubberstamped by the Government today as the bank insisted it had to pay staff "fairly".

UK Financial Investments (UKFI), which manages the taxpayer's 83% stake in RBS, gave its support despite a widespread backlash over the deal.

Shareholders were asked to cast their vote on the part-nationalised bank's pay plans at the group's annual meeting in Edinburgh.

The board was grilled by angry shareholders at the AGM, who fired questions and criticism over bonuses and the lack of dividends.

The bank has been embroiled in controversy since it emerged last month that Mr Hester was awarded an additional £4.5 million potential shares windfall on top of his £2 million annual bonus and £1.2 million salary for 2010, which was not originally revealed under the Project Merlin agreement with the Government to rein in pay.

RBS also admitted it paid 323 code staff - those deemed to be in risk-sensitive roles - £375 million last year despite remaining in the red by £1.1 billion in 2010.

RBS chairman Sir Philip Hampton told the AGM it had tried to strike a balance between paying to motivate people and showing restraint.

"We need talented and motivated people and we need to be able to pay them fairly," he said.

"It is important to remember we have to motivate all staff and that only a tiny minority were responsible for the problems RBS encountered, all of whom have now left."

After voting in favour of the remuneration report, UKFI released a statement, which said: "UKFI sees reforms to remuneration practices as vital to RBS' continued recovery and to UKFI's objective of protecting and creating value for the taxpayer as shareholder in the bank.

"RBS has continued to make reforms to its remuneration practices, including through the introduction of a deferred share-based annual bonus for its executive directors and stringent deferral and clawback conditions throughout the bank."

The AGM heard RBS made "significant" changes to the structure of pay in 2009 and continued to develop its remuneration policy since then.

Penny Hughes, chairwoman of the remuneration committee, consulted with UKFI, as well as institutional shareholders and other stakeholders on its pay deals.

The bank was also involved in Project Merlin, which led to commitments by the UK's largest banks on pay, including an agreement to lower aggregate bonus pools in the UK.

In his opening speech, Sir Philip said: "Overall we have tried to strike an appropriate balance between paying people at a level so they are motivated to stay with the bank, and showing restraint to reflect the concerns we have heard."