The chief executive of Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is to see his maximum pay pot slashed under plans being drawn up by its remuneration committee, reflecting directors' conviction that the lender will remain in majority taxpayer ownership for years to come.
Sky News has learnt that RBS has begun consulting with leading City shareholders on proposals to reduce the long-term incentive plan award available to Ross McEwan from £3m to £1.75m from next year.
The move is part of a package of reforms aimed at defusing a potential flashpoint with the Government - which continues to own more than 70% of RBS' shares - as Theresa May, the Prime Minister, pursues measures to clamp down on excessive boardroom pay.
Sources said that under the proposals discussed with shareholders in recent weeks, Mr McEwan's maximum LTIP award would be reduced from 300% of his £1m base salary to 175%.
Mr McEwan's on-target LTIP payout would remain broadly similar to the current level, they added, even as the maximum potential sum is significantly reduced.
The plan will be part of a new pay policy at RBS which will be put to a binding shareholder vote at its annual meeting next spring.
An insider said the revised policy would not be finalised until after RBS' remuneration committee had met in January.
Mr McEwan, who is not eligible for an annual bonus, was paid £3.785m in 2015, comprising his salary, a £1m fixed-share allowance introduced to deal with new European Union pay rules, and a £1.347m share award from 2013 which vested last year.
RBS is under pressure to remain a 'back marker' on pay in the British banking sector, and will be expected to reduce its bonus pool for the eighth successive year when negotiations formally get under way between its directors and UK Financial Investments, which manages the Government's stake in the bank, in the coming weeks.
The bank's ability to pay staff more competitively is expected to be stymied for several more years, particularly after Philip Hammond, the Chancellor, said recently that the scope for the Government to cut its RBS stake will be limited for some time.
RBS will report another thumping loss for 2016 - its ninth consecutive year in the red - with a huge new provision for a settlement with the US Department of Justice over the mis-selling of toxic mortgage-backed securities likely to feature in the numbers.
The Government's recently published green paper on executive pay and corporate governance included a range of ideas aimed at giving shareholders greater powers to curb excessive remuneration, although Mrs May was accused of watering down earlier pledges to give company workers more say over decisions.
The RBS chief executive, who took over in 2013 after George Osborne ousted his predecessor, Stephen Hester, will be required to substantially increase his own holding of RBS shares to at least 400% of his salary, according to people close to the plans.
Mr McEwan will also have to hold onto his RBS shares for at least eight years, they added.
A number of changes are also being proposed to performance measures, while under the plans being led by Sandy Crombie, the chair of RBS' remuneration committee, LTIP awards would pay out in full even if an executive such as Mr McEwan left midway through a share award scheme.
The changes to executive directors' pay, including the reduction of maximum LTIP awards, will also affect the finance director, Ewen Stevenson, who was paid £1.9m last year.
Mr Stevenson will be asked to double his shareholding to 250% of his £800,000 salary, according to insiders.
An RBS spokeswoman said: "No decisions have been taken on pay.
"We are required to review our pay policy for executive directors every three years and are currently consulting on a number of proposals."