Royal Bank of Scotland PLC (RBS) is proposing a bonus of just under GBP1 million for its chief executive which is in line with the government's thinking on the matter, Sky News' City Editor Mark Kleinman reports Thursday on his blog.

RBS directors have agreed that Stephen Hester should receive a bonus of approximately three million shares which is equivalent to between GBP800,000 and GBP950,000 at the bank's closing price Wednesday, Sky added.

The 83% government-owned bank is being seen as a litmus test for executive remuneration as the row over bumper pay continues to rage between politicians, regulators and the public on one side and industry insiders who think that managers should be incentivized and rewarded for performance.

Prime Minister David Cameron recently said that Hester should receive no more than GBP1 million for 2011, when the bank's stock lost around 50% of its value.

Hester's bonus, which will be paid entirely in RBS stock and be deferred for three years, will be paid on top of his basic pay of GBP1.2 million.

-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; marietta.cauchi@dowjones.com

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