Bankers' pay is too high and needs to be "corrected", the chairman of the Royal Bank of Scotland Sir Philip Hampton has said.
But Sir Philip said that, relative to other bankers, the rewards offered to RBS chief executive Stephen Hester - who last week waived a £1 million bonus after coming under extreme public and political pressure - were not high.
Mr Hester, who took over as chief executive after the Government bailed out the near-bankrupt RBS in 2008, was doing a "great job" in turning the bank around and protecting the taxpayer's 83% investment in the business, he said.
Sir Philip, who himself turned down a £1.4 million bonus earlier this month, confirmed that he had signed off Mr Hester's proposed package of £963,000 worth of RBS shares - which was 60% of the maximum he could have received under a performance-related scheme - and admitted the RBS board "under-estimated" the public outrage which it would provoke.
He denied that he had been swayed by Government pressure to keep the bonus under £1 million and said that it was Hester himself who decided to give up the payout in order to protect his own reputation and that of the bank.
Despite widespread speculation, the RBS board never threatened to resign over the bonus issue, said Sir Philip. Asked whether he now expected Mr Hester to walk away from his job, he acknowledged that intense scrutiny of his bonus had been "challenging" for the chief executive, but described him as "a tough character" who was "dedicated to turning the business round".
Sir Philip told BBC Radio 4's Today programme: "I think if this bank is fully returned to profitability by an able management team, that is very much in the interests of the British taxpayer. Stephen Hester and his team are, I think, doing a great job.
"I recognise absolutely that some of the pay levels are very high, very difficult for people to understand, but by the standards of this market they are not high."
Sir Philip acknowledged public unease about the scale of rewards across the financial sector, saying: "Pay has been high for too long, particularly in the banks, particularly in the investment banks. Shareholders have done pretty badly and employees have done pretty well over the last 10 years.
"That needs to be corrected. It isn't a society or fairness issue, it is a straightforward business issue. Too much of the money is not going to the right place and the shareholder rewards have not been sufficient."