RBS, which previously came under fire for the multimillion pound pension it approved for former CEO Fred Goodwin, said the deal will be linked to performance and is still being finalised by the bank's board.

Under the prospective package that was approved last week by UK Financial Investments, the company set up to handle the government's 70 per cent stake in the lender, Hester will receive a £1.2 million base salary, around £2 million in annual non-cash bonus payments and around £6.4 million of long-term share and stock option awards.

Long-term incentives would be based on a mix of targets and his options would be paid for 2009, but would only be able to be redeemed after three years, the British Press Association reported without citing sources.

The deal is also linked to the bank's share price, with the stock needing to pass a 70 pence threshold for the long-term bonus to be paid in full, PA added.

The stock is currently trading at around 37 pence after hefty share falls earlier this year in the wake of the government bailout.

"We have said consistently it is all linked to performance and will only be paid out if targets are met," RBS said.