Executives and staff of the Financial Services Authority (FSA), the chief City regulator, are in line for up to £33 million of bonuses and pay top-ups this year.

The FSA, which has been severely criticised for not doing enough to anticipate the banking crisis, said that it needed to introduce a new reward strategy to improve the performance of its 2,800 employees.

Plans for potentially bigger bonuses and a new pay top-up scheme — described by the FSA as “a talent management initiative” — come just 24 hours after Sir James Crosby, its deputy chairman, resigned amid allegations that when he ran HBOS he sacked a senior whistleblower who was worried that the bank took excessive risks.

The FSA is raising staff bonuses from a maximum of 12.5 per cent of pay to 15percent, which would require it to pay out up to £23 million this year. It is also earmarking an extra £10 million to give pay rises to staff whose pay was “out of kilter” with market rates.

The plans for higher pay were revealed as the FSA announced proposals for a £117 million increase in its budget to improve regulation and bank supervision.

Bonuses for the top three FSA officials, including Hector Sants, the chief executive, are to be decided next month by the FSA board remuneration committee.

In 2007-08, Mr Sants was paid £662,000, including a £114,000 bonus.

Any final decision on payments depends on the approval of the chairman of the FSA board remuneration committee — a post now vacant in the wake of Sir James's departure.

Mr Sants defended the pay top-ups last night, saying that the FSA needed to tackle “significant salary anomalies” for its accountants, management consultants and risk analysts — jobs for which market pay rates had not sunk in the wake of the credit crunch. “

The salaries we offer must be comparable with the external market for relevant financial services skills,” he said.

The bonuses were “not in the same quantum” as bonuses paid in investment banks, Mr Sants said. “In the last 12 months, our staff have done a very good job in extremely tough circumstances,” he said.

The FSA is aiming to raise the extra money through big increases in fees it charges most authorised institutions, from high-street banks to financial advisers. Including payments for the Financial Services Compensation Scheme, the depositor lifeboat, total fees and levies will rise from the current year's £364 million to £1.07 billion in 2009-10.

The FSA is pushing City firms to introduce more deferred elements into bonuses and to pay them in shares. Its own bonuses will be paid in cash straight away.

Clive Briault, the senior FSA official ousted in the wake of the Northern Rock debacle with a £612,000 pay-off, had only just received a £30,000 “performance-related” bonus.

The FSA is also planning to lift base pay by an average of 3.3 per cent this year, but announced plans yesterday to shut its final-salary pension scheme.

About 600 staff, mainly those brought across from the Bank of England when the FSA was given responsibility for bank supervision, are in the scheme.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax