Taking a majority stake in Royal Bank of Scotland presented the Government with a unique opportunity to break the vicious spiral that has pushed up boardroom and banker pay to ridiculous levels. It fluffed it.

The package proposed for Stephen Hester may be well structured but size is important, and £9.6 million, the maximum he could receive if all the targets are hit, is a very large sum of money.

This sits uneasily with ministers’ attacks on the greed of bankers, which they suggest is one of the prime causes of the financial crisis.

To the ordinary bank customer, there is no other word to explain why anyone who, like Mr Hester, is already rich, should want or need £9.6 million to do a good job.

That is how it will look, even though there is good reason to think that Mr Hester is not in fact greedy. If he were, he would presumably have remained a senior banker at CSFB, where his financial prospects were better than in any British boardroom job. Yet he opted to become finance director of Abbey National and then chief executive of British Land.

It is hard to believe he accepted the job as chief executive of RBS for the money. He will have known that politics would make it difficult for the board to pay him as much as he might get at another company, let alone in the City. Surely he did it for the status, the challenge and, it is just possible, the chance to do a really important job and make a difference to one of Britain’s biggest companies and, indeed, to the country itself.

There may be some bankers who cannot get out of bed without the promise of a bonus. But it is very hard to believe that Mr Hester needs the agreed package to incentivise him to do a good job, just as it is hard to believe that the Prime Minister needs more than a £200,000 salary (plus some expenses) to incentivise him to do a good job. So why did the board decide and UKFI agree that Mr Hester needed such a big package?

People close to the process say that if Mr Hester meets the most ambitious share price target of 70p, the taxpayer will make so much money that £9.6 million will look completely trivial. And it would be a very small price to pay to ensure that he does not leave for a fatter paycheck somewhere else.

That is what all boards say. They admit that pay is out of control but they cannot afford to make a stand. They have a duty to their shareholders.

Who could make a stand? The Government. Moreover, the Government has another good reason to be very careful about the incentives offered to Mr Hester. It is arguably more important to the taxpayer that RBS steps up lending to help Britain out of the recession than that the RBS share price tops 70p. But doing the minimum new lending might help to get the share price up to 70p.

Of course, the company does have other shareholders to think of. Those shareholders represented by the Association of British Insurers are concerned that the package is too focused on the short-term share price and too little on the bank’s long-term health.

But we are assured that the package meets all the new guidelines on remuneration as laid out by the Financial Services Authority. In which case, the public may well conclude that the guidelines are wrong.

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