ROYAL Bank of Scotland (RBS) chief executive Stephen Hester is in line for a £9.6m pay package if he leads a turnaround of the ailing lender, it emerged yesterday.

RBS won support from UK Financial Investments (UKFI), which controls the Government’s stake of more than 70 per cent, for Mr Hester’s salary and long-term bonus arrangements at a meeting last week.

UKFI is thought to have backed the move because of links to the bank’s share price.

This would have to pass a 70p threshold for the longterm bonus to be paid in full.

The stock is trading at about 37p after hefty share falls in the wake of the Government bailout.

Mr Hester is in line for £1.2m in salary, about £2m in annual non-cash bonus payments, and about £6.4m of long-term share and stock option awards.

But critics said the decision to tie the bonus mainly to the performance of the bank’s shares could encourage risk.

Roger Lawson, of the RBS Shareholders Action Group, said: “It is absolutely outrageous that the Government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level.

“Do they need to pay him this much to make him work harder?”

He said basing a bonus on share price could mean the focus would be put solely on this one measure at the cost of other strategies.

“This just encourages risky behaviour,” he said.

Mr Hester’s pay package was agreed in the same week that his predecessor agreed to a voluntary cut to his controversial pension payments.

Sir Fred Goodwin, vilified as being the man at the helm of RBS when it crashed into public ownership last year, was at the centre of public outrage over the size of his retirement fund.

Last week, he offered to hand back more than £210,000 a year of his pension payout, reducing his payout from £555,000 to £342,500 a year.

Public fury was fanned earlier this year when it was revealed his agreement to step down from the bank as the state came to its rescue effectively doubled his pension pot, leaving him with a £703,000-ayear package – including a £2.7m lump sum.

Graham Goddard, Unite deputy general secretary, said news of Mr Hester’s payout would be met with “absolute disbelief” by finance industry staff.

He said: “It’s nice work if you can get it. Unfortunately, over the last few months, thousands of RBS staff have lost the jobs which gave them just a fraction of Hester’s pay.

“For these workers and their families, the suggestion that the RBS chief executive will be awarded such a bumper pay package will leave a foul taste in their mouths.”

Asked whether the Prime Minister approved of the pay deal, Gordon Brown’s spokesman told reporters at a Westminster briefing: “This is a matter for the RBS board, but in discussions UKFI has been very clear that all rewards must be based on longterm sustainable performance of RBS which rebuilds the position of the company.”