Lloyds Banking Group and Royal Bank of Scotland have promised to ban discretionary cash bonuses in return for the further £40 billion bailout announced yesterday.

The Treasury said that the two quasi-nationalised banks would not pay the bonuses to any member of staff earning over £39,000 in relation to their performance this year.

The deal excludes a small number of exceptionally well-paid bankers at RBS who are contractually entitled to guaranteed cash bonuses. One of the bank’s highest-paid employees is Antonio Polverino, head of sales at RBS’s investment bank, who was hired this year on a £7 million guaranteed pay and bonus package.

However, Lord Myners, the City Minister, said yesterday that the deal was a victory for the Government. “We’ve gone further than any major economy in the world,” he insisted. “It is entirely reasonable and proper that public money is there to support the banks and the British economy and not go shooting out the other end in the form of bonuses.”

Eric Daniels, the chief executive of Lloyds, said that the bank planned to hand out bonuses but would do so in shares rather than cash.

“We fully intend to pay bonuses this year,” he explained. “Paying in shares could reward people very handsomely in the medium term.”

Share-based bonuses were “the shape of things to come”, Mr Daniels added. “We have to view risk and reward over time. It is only fair that rewards are somewhat in the same timeline.”

Stephen Hester, the chief executive of RBS who took over the role from his disgraced predecessor Sir Fred Goodwin, said that his bank would continue to pay non-cash bonuses to keep the bank competitive. “That does mean we will be making extensive use of deferred payments and payments in shares,” he said.

“We are aware that we need public support, given our position. However, the surest way for the taxpayer to see value for its support is if RBS is able to have very good people and compete in its markets. We must be competitive or we will not return value to the taxpayer.”

Lord Myners also said yesterday that he would like to see institutional shareholders take a more active role in the governance of the banks they invest in. The insurance companies and pension funds who owned shares in RBS and HBOS were widely criticised for failing to control the banks’ reckless lending.

“Institutional shareholders are content for the Government to press the case. They need to show much more visibility and to be much more challenging than they’ve been in the past,” Lord Myners said.

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