By Matt Scuffham and Clare Hutchison
LONDON (Reuters) - Part-nationalized Royal Bank of Scotland (RBS.L) has scrapped plans to seek permission to pay staff bonuses worth double their fixed pay after the government said it would oppose the move.
Loss-making RBS said that UK Financial Investments, which manages Britain's 81 percent stake, told the bank it would vote against the proposal at the lender's annual meeting in June.
"In these circumstances the board expects such a resolution would fail and will therefore not be brought to the AGM," the bank said on Friday.
Britain's finance ministry said it had also made it clear to RBS that it would oppose the plan.
"RBS is heading in the right direction, but it has not yet completed its restructuring and remains a majority publicly-owned bank. So an increase to the bonus cap cannot be justified and the government made clear it would not have supported such a proposal," a Treasury spokesman said on Friday.
However, the Treasury said it would support a similar proposal from state-backed Lloyds Banking Group (LLOY.L). Lloyds has returned to profit and the government has begun selling shares in the bank, leaving it with a 25 percent stake.
RBS in February posted an 8.2 billion pound ($13.78 billion) pretax loss for 2013 due to restructuring costs and misconduct charges.
Under a new European Union rule, which will apply to awards handed out from early 2015, bankers' bonuses can be no higher than fixed pay, or twice that level with shareholder approval.
RBS said all its major UK and European competitors had indicated that they would seek approval to award bonuses of up to 200 percent of salaries, which was "emerging as the sector norm" and something its shareholders had understood as the "best commercial solution" for the bank.
But in its annual report released on Friday, RBS said it had decided not to bring forward such a proposal after UKFI informed the bank of its opposition.
RBS is shrinking its investment bank and selling off its U.S. business Citizens to appease lawmakers who want it to focus on lending to British households and businesses.
The bank said on Friday that the change in strategy had led to an "exodus of talented staff".
RBS said in March it was paying out 576 million pounds in staff bonuses for 2013, down 15 percent on the previous year.
Its annual report, published on Friday, showed RBS paid one unnamed person more than 5.5 million pounds last year and another two were paid more than 4 million. The bank said it paid 75 people 1 million pounds or more in 2013.
Chief Executive Ross McEwan, who took up the role last October, could be paid 5.4 million pounds a year under a new pay plan.
Shares in RBS were up 0.5 percent at 0856 GMT (4.56 a.m. EDT), compared with a 0.9 percent decline in the European banking index (.SX7P). Shares in Lloyds were down 1 percent.
($1 = 0.5953 British Pounds)
(Additional reporting by Steve Slater; Editing by Erica Billingham)