The move was announced last night after Labour made clear it would force a Commons vote on the bonus, which amounts to a £963,000 shares-only payment.
Chancellor George Osborne welcomed the decision and called for Hester (pictured) to continue in his role.
He says: “This is a sensible and welcome decision that enables Stephen Hester to focus on the very important job he has to do, namely to get back millions of pounds of taxpayers money that was put into RBS.”
Although the Government owns 83 per cent of RBS, the bank remains a public company run by an independent board of directors. Ministers have called on Hester to forgo his bonus, while Prime Minister David Cameron has also come under pressure to address Hester’s bonus.
Labour leader Ed Miliband says Hester has “done the right thing” but attacked Cameron’s handling of the issue, according to the Telegraph.
RBS chairman Sir Philip Hampton had already announced he would waive his payout. Hampton was set to receive 5.17 million RBS shares in February but told the bank’s remuneration committee it would “not be appropriate” to take a £1.4m payout.