Bonuses paid out to staff at Royal Bank of Scotland are to be capped, the government has announced.
Chancellor Alistair Darling said bonuses at the beleaguered bank, which is 68% owned by the taxpayer, will be cut to £340 million this year and would be paid in the form of shares, rather than cash. He added there would be "no reward for people who have failed".
RBS had initially intended to pay out more than £1 billion in bonuses to staff at its investment banking arm.
Bonuses in the financial world have come under intense scrutiny since the start of the credit crisis, as some feel the banks contributed to the problems by taking excessive risks - which saw traders ultimately rewarded.
Alluding to the contractual obligations of some employees, Darling stated that the bank will pay "the minimum it can with regard to its legal obligations", and promised that the low-paid would be "looked after".
Cash bonuses could now be withdrawn for future years, although the bank is likely to retain the ability to rescind the reward subject to performance.
It is less than a week since the grilling of the current banking chiefs by the Treasury Select Committee, where the issue of bonuses reared its ugly head once more. Bosses at Abbey, Barclays, HSBC, Lloyds Banking Group and RBS were on the defensive over their remuneration schemes, but conceded that bonuses were in part to blame for the current travails of the sector.
However, new RBS chief Stephen Hester did claim that he would maintain some sort of bonus system in order to hire and retain the best staff.
Also last week, a drop in profits at Barlcays saw the bank waive bonuses to its executive directors and it admitted that, "for 2009 and beyond, we are reviewing our compensation policies and practices".