THE chairman of Royal Bank of Scotland (RBS), Sir Philip Hampton, is sounding out investors about a new long-term pay deal for the group’s chief executive and finance director.

Hampton has presented a proposal to investors to reward his chief executive, Stephen Hester, if he succeeds in turning the bank round. A similar package will be offered to the new finance director who will replace Guy Whittaker.

Any pay deal will have to be approved by UK Financial Investments (UKFI), the body through which the government owns its stakes in British banks. UKFI owns 70% of RBS.

The performance package will hinge on long-term performance and will be largely paid in shares.

A RBS source declined to reveal the terms of the deal. He said: “We are six months into a five-year exceptional turn-around plan. Let’s not get too excited about share awards that are hypothetical until and unless the plan succeeds.

Stephen Hester has the only ‘no rewards for failure’ contract in the UK banking sector.”

The quarterly performance figures produced by RBS last week showed how much has already been achieved by Hester during his short tenure at the bank.

Hester, however, played down any hopes of a quick turn-around. Losses from bad loans for the first three months of 2009 quadrupled to £2.9 billion.

Hester, who is currently being paid £1.2m a year, said: “We’re facing substantial recession in all the countries in which we would operate and we see no green shoots in our credit exposure.”

RBS is still in talks with the government to put £325 billion of assets into its insurance scheme. This is proving to be a complex negotiation that requires consent from the EU. Hester is hopeful it could be completed by July.

The bank has earmarked part of its international operations for sale, including businesses in Romania, Slovakia and Latin America.

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