Some 200 executives at Lloyds are to get as bonuses one-off payments worth up to 80 percent of their annual salaries, the Lloyds Banking Group said on Friday.
A Lloyds spokesman explained that the British government, which holds a 43-percent stake in the banking group, had approved the bonus package expected to be delivered in three years up to 2012 in shares.
The planned bonus package will amount to 2.4 million pounds (3.95 million U.S. dollars) for the Lloyds Banking Group board alone.
The banking group has explained that the bonuses, negotiated with bank shareholders earlier in the year, would be given for the merger with the struggling HBOS.
A Lloyds spokesman said the bonuses will be dependent on the success of the merger.
HBOS was formed in 2001 by the merger of the Bank of Scotland and Halifax Building Society. It was taken over by Lloyds in January this year
when Prime Minister Gordon Brown waived competition rules to allow the takeover.
The Lloyds bonus package came against the backdrop of a public disquiet about the return of big bonuses to executives of banks which are perceived to need vast public funds to remain afloat and in business.
Lloyds was bailed out by the government in October 2008 with a multi-billion pound handout.
The Lloyds move therefore tipped the government off balance, because in February, the government publicly hardened its position on bank executive bonuses especially with those banks in which it holds shares.
The directors of the Royal Bank of Scotland (RBS), which the government holds an 80-percent stake through the 2008 bail-out, were reportedly ready to resign if they are prevented from paying their bonuses from a pot worth at least 1.5 billion pounds (2.47 billion dollars) they think essential to keep the bank competitive.
Lord Peter Mandelson, British business secretary and a senior member of Brown's cabinet, told a recent BBC interview: "I understand the point of view that RBS directors are expressing.
"They have to remain competitive in the market in recruiting senior executives and that is why it's important that all the banks are equally restrained and RBS is not singled out, but nobody is suggesting that that will happen."
The RBS, Lloyds and Northern Rock were formed by the British government as three new High Street banks from parts of banks it had nationalized in the wake of the financial crisis.
These banks are now fully or partly owned by taxpayers through the government which injected 37 billion pounds (61 billion dollars) of new
money to bail out the RBS and Lloyds alone.