The former head of National & Provincial building society is to oversee a restructuring announced last month by Ron Sandler, who replaced Derek Wanless as chief executive after Bank of Scotland launched a hostile pounds 21bn bid.
Institutional investors have already raised their eyebrows at the package agreed with Mr Sandler, which pays a basic salary of pounds 450,000, a minimum bonus of pounds 112,500, a further potential bonus of over pounds 300,000 and share options.
Mr Lyons' package does not have to be disclosed as he will not be a main board director, but it is understood to be pounds 350,000 plus a guaranteed bonus of around pounds 100,000 and up to pounds 250,000 more as a discretionary bonus. He will also be eligible for share options.
Mr Lyons already receives a pounds 350,000-a-year pension from his previous employers. He was chief executive of N&P, leaving when it was taken over by Abbey National and receiving a pounds 1.2m pay-off. He then moved to NPI. The mutual insurer was purchased by AMP of Australia last year.
His arrival at NatWest comes at a crucial time for the bank. Many institutional investors say they will reject the Bank of Scotland offer. But, it is expected that Royal Bank of Scotland will launch a counter offer.