The Royal Bank of Scotland has announced that its chief executive Stephen Hester has decided to waive his £1m share bonus.
It comes just hours after the Labour Party said it would force a House of Commons vote calling for Mr Hester to be stripped of his RBS bonus.
Mr Hester had been facing mounting pressure to follow the bank’s chairman, Sir Philip Hampton, and forego the bonus which he was awarded this week.
We need a Government that will tax bankers’ bonuses and bring responsibility to the boardroom.
Labour leader Ed Miliband
Sky News City editor Mark Kleinman said: “My understanding in is that Mr Hester is abroad on holiday at the moment and only made the decision on Sunday night.
“RBS shares are now languishing so much that British taxpayers risk a loss of £10bn on their investment.”
Kleinman added: “Stephen Hester has decided, after days of mounting criticism about his million-pound bonus award, to relinquish that bonus.
“He has decided to waive it and he will not accept the 3.6 million shares that he was granted by the board of directors.
“He has been saying to friends over the last few days that he does not see any reason why he should give up that bonus, but I think the political pressure on him has become intolerable.
“The Labour Party called for a vote in the Commons on the issue and Mr Hester is said by friends of his to be deeply concerned by the fact that he is becoming a pariah of the banking sector, despite the fact that he was parachuted in to help turn RBS around after it was bailed out by British taxpayers in 2008.
“This is clearly an attempt by him to prevent the escalating row over his bonus, distracting him from the job of running RBS, which is one of the biggest corporate turnarounds in the history of the banking sector.”
Shadow business secretary Chuka Umunna, who criticised the payment, said Mr Hester was finally responding to public sentiment.
He told Sky News: “He is responding to public concern and criticism about the level of renegotiation in the bank, in particular in relation to his position.
“For somebody to listen and respond, we of course would not criticise that.”
He added: “Of course, the financial sector should be able to operate properly, but it needs to command the confidence of the British people.”
Sky News chief political correspondent Jon Craig said Mr Hester came under pressure from the Government and Prime Minister David Cameron would be “relieved”.
“He will be relieved because he had been made to look rather foolish and he has been criticised by the Labour Party and by some of the Lib Dems for not do more to prevent this happening,” he said.
According to a near 500-page document released by the Financial Services Authority, RBS required a 2008 £45.5bn rescue after near-collapse came from business errors and light financial regulation during the leadership of Sir Fred Goodwin.
RBS is now 82% owned by the Government and thus under extra scrutiny when it comes to banker remuneration.
Labour leader Ed Miliband said foregoing the bonus was “the right thing”.
Mr Miliband said: “It is a shame that a feeble, out of touch David Cameron did not realise he should do the right thing and stand up for the interests of the British people.
“Labour was right to seek a parliamentary vote on this so that the people’s voice could be heard. But the debate about fair executive pay and responsible capitalism is only just beginning.
“We need a Government that will tax bankers’ bonuses and bring responsibility to the boardroom.”
Chancellor George Osborne also said the decision was “sensible”.
He now hoped Mr Hester could “focus on the very important job he has got to do, namely to get back billions of pounds of taxpayers’ money that was put into RBS”.
Taxpayers’ Alliance spokesman Matthew Sinclair said that both Labour and the current Government had let down the British public over successive years with RBS.
He told Sky News: “The Government needs to ensure the company is being run in the interest of the taxpayer and not its staff.”
Scottish First Minister Alex Salmond said: “This is a welcome development but it should never have come to this stage as these circumstances cannot be left to individual decisions. They must be a matter of public policy.”