RBS denies it will pay out bumper bonuses

The Royal Bank of Scotland yesterday denied reports that senior staff could be set to earn millions of pounds each in end-of-year bonuses.

The bank, which received a £37bn taxpayer-funded bailout in October last year, said the claim that it was to pay as much as £5m to some senior individuals was "totally without foundation". RBS also rejected claims that staff in its investment banking arm are each set to receive average handouts of £240,000. It argues that it has not yet decided on bonus levels, and has yet to report its third-quarter earnings.

The reports have nevertheless ignited debate about remuneration for employees of RBS – a bank which only survived thanks to state handouts. Any bonuses are likely to run into acute criticism, amid rising unemployment and with many small companies going bankrupt, often because banks have been unwilling to provide credit.

RBS has argued that its bonus pool will have to be signed off by UK Financial Investments, the company through which the Government manages its 70 per cent stake. RBS has also stressed that remuneration will be structured over three years, and "claw-back" clauses will allow it to reclaim money from any employees who later underperform.

However, RBS's chief executive, Stephen Hester, knows he faces a problem in balancing the opinions of a seething public with the bank's need to attract talent. Last week, one third of its wealth management staff in Singapore walked out amid fears that their bonuses would be lower than expected. "One of the most difficult issues we face is balancing our need to attract, retain and reward talented staff, while making reforms to pay in a way that recognises the reality of the position we are in and how society views our sector," an RBS spokesman said yesterday.

One of its biggest rivals, Barclays, which has not received direct state aid, is set to announce huge bonuses. Goldman Sachs, the US investment bank which employs 5,500 people in London, will pay an average bonus of £500,000 this year, after announcing huge profits last week; some individuals may receive as much as £30m each.

Mr Hester's own pay package has also attracted anger. He is set to earn as much as £9.7m in a mixture of cash, shares and options, but has agreed to defer much of it. Last week, he admitted that even his parents think he is overpaid. Bumper City bonuses have become possible again as the banks have raked in huge fees from restructuring deals, as well as from buoyant credit and equity markets. One solution, thought to have the support of several Cabinet ministers, would be to impose a one-off windfall tax on bank profits.

Separately, the City regulator, the Financial Services Authority, will launch a crackdown on irresponsible mortgage lending later today. Lenders are likely to be asked to use "affordability checks" to gauge borrowers' ability to pay.