RBS upheaval: New Royal Bank of Scotland boss warns of tough time ahead

THE new boss of Royal Bank of Scotland has been awarded a £1.2 salary and a batch of shares worth £6.7m - but warned that the company will have to "cut its cloth".

Stephen Hester is to be paid 50 per cent more than he was on in his previous role as boss of property firm British Land.

And he has also been awarded a share package worth more than £6 million for succeeding outgoing chief executive Sir Fred Goodwin.

It has also emerged that Sir Fred is to stay in his post until January in order to help Mr Hester settle into his new role.

The three-month stay of execution, based on Sir Fred's current salary, is likely to earn him £325,000.

Despite the windfalls, Mr Hester said that the bank, which has been rescued in a £20bn state-backed bail-out, will have to "cut our cloth" on staff numbers and business activities.

Mr Hester, who is being awarded the 10.4m of RBS shares to buy him out of British Land schemes, said he would be in a better position to be clear on any job cuts by the time RBS reports its annual results next February.

He also indicated that he felt RBS had extended itself too much in its acquisition strategy.

He said: "It's very hard for me to make judgements on the past... but I think, going forward, it's true that the amount of financial leverage that we have, part of which came from the ABN Amro, needs to be reduced."

He added: "The bank over-extended itself and got caught up in a bull market culture."

Outgoing HBOS chief executive Andy Hornby was also under fire today as it emerged he is to has been offered a £60,000 a month consultancy contract with Lloyds TSB.

SNP Central Scotland MSP Alex Neil said: "If this is true, it stinks to the high heavens. Hornby is the chief negotiator for HBOS shareholders in the proposed takeover by Lloyds TSB. Yet apparently he has been offered a £60,000 a month consultancy contract by Lloyds TSB.

"How can HBOS shareholders be sure that Hornby will try to get them the best deal in the takeover talks if he is getting paid such a huge sweetener by Lloyds TSB?"

Meanwhile, independent Lothians MSP Margo MacDonald today said HBOS dirctors are failing in their duty to shareholders by not exploring options other than the Lloyds TSB bid.