Lloyds Banking Group is considering withholding up to half of the £1.45 million bonus awarded to former chief executive Eric Daniels for his last year in charge, it has been reported.
The part-nationalised bank is being forced to take the action after incurring a bill of more than £3 billion over the mis-selling of controversial payment protection insurance (PPI).
It announced in May that it was setting aside up to £3.2 billion to cover the cost of compensating people mis-sold the policies after deciding to withdraw from any further legal action on the issue.
Reports said that between one third and one half of Mr Daniels' bonus may be clawed back. Other senior executives are also said to be affected.
It is thought to be the first time that a major UK bank has considered withholding a bonus awarded to a board-level executive.
The 2010 bonuses are reportedly deferred in the form of shares that are not handed out until at least March 2013.
A Lloyds Banking Group spokeswoman said only: "As part of an ongoing process the implications on compensation are being considered by the remuneration committee and will be determined by the board in due course, in line with the FSA (Financial Services Authority) code on compensation."