Lloyds Bank chief executive Antonio Horta-Osorio says in an exclusive interview with the BBC that his bonus, worth £1.7m, is aligned with tax payers interests.
The UK bank is 33% owned by the UK government.
The bank has increased its overall pool of bonuses for all staff to £395m, up from £365m the previous year.
Lloyds Bank also reported a pre-tax profit of £415m for the first time since its £20.5bn bailout.
Lloyds made a loss of of £606m in 2012.
In all, 78% of the bonus pool is in the form of shares. Mr Horta-Osorio’s shares cannot be cashed in until 2019.
Antonio Horta-Osorio told the BBC: “I strongly believe you should link compensation with performance and having increased our underlying profits by 140% we thought it was appropriate to increase the bonus pool of the bank by 8%.
“I have also agreed to have additional conditions to my bonus… which is fully paid in shares which aligns my interests with the interests of the tax-payer, so if the strategy we are pursuing proves itself wrong that money can be clawed back.”
Alastair Blair, head of consultancy group Accenture’s UK and Ireland Banking Practice said: “Clearly the shareholders are more comfortable with this – the government approved it. And secondly this bonus won’t be paid for another five years so there’s a lot of water to pass under the bridge”.
Underlying profits in 2013 for the banking group rose 140% from £2.6bn to £6.2bn.
The bank put aside another £1.8m in the fourth quarter of the year to cover compensation to customers for the past mis-selling of Payment Protection Insurance (PPI) plans.
That brings the total provision made last year for PPI compensation to £3.5bn. Since new rules were brought in in 2011 to tighten up the selling of PPI, Lloyds has put aside a total of £9.8bn – more than any other bank – to cover compensation claims or “legacy” issues.
Mr Horta-Osorio said “The legacy issues were much higher than we had anticipated or than the regulator thought then, and we were absolutely committed to cleaning them and doing the right thing for customers…it is not a matter of financials, it is a matter of principal.”
It said it expected to apply to the Prudential Regulatory Authority in the second half of 2014 to restart dividend payments “at a modest level”. Investors have not had a dividend from Lloyds shares since 2008.
UK Financial Investments, which manages the government’s 33% stake, sold a 6% shareholding in the bank last September.
The Chancellor of the Exchequer, George Osborne, has said he wants to sell more shares in the bank to the public before the next election in 2015.
Lloyds rebranded and separated its other retail banking business, TSB, in September and is negotiating with the European Commission to sell it in a public share offering this year.
The bank is registered in Scotland and owns the Bank of Scotland brand. Mr Horta-Osorio said that the vote on Scottish independence was strictly a matter for Scottish people.
“That decision goes far beyond economics” said Mr Horta-Osorio.
“If the final vote is a yes vote, given that there will 18 months before a separation takes place, we believe we have more than enough time to assess the consequences.”
Do you have a story or an article to publish? Please email us to firstname.lastname@example.org.