Credit Suisse bosses have cut their bonuses by 40% in the hope of avoiding an embarrassing protest by shareholders and politicians at the bank’s annual meeting.

The bank’s executives, led by chief executive Tidjane Thiam, had proposed paying themselves bonuses totalling 78m Swiss francs (£62m) even though the Swiss bank lost SFr2.7bn last year and has been fined $5.3bn (£4.2bn) by the US authorities for its role in the subprime mortgage crisis.

Institutional investors and Swiss politicians had publicly criticised the bumper payouts – including a total of SFr12m for Thiam - and vowed to vote against the awards at the bank’s AGM later this month.

The bank, which had defended the planned bonuses as recently as Thursday, announced it was reducing the awards early on Friday morning. “I hope that this decision will alleviate some of the concerns expressed by some shareholders and will allow the executive team to continue to focus on the task at hand,” Thiam said in a letter to investors published on the bank’s website. “My highest priority is to see through the turnaround of Credit Suisse which is under way.”

Facebook Twitter Pinterest Tidjane Thiam, CEO of Credit Suisse. Photograph: Ennio Leanza/AP

Thiam conceded that the “financial impact” of the toxic mortgage settlement with the US Department of Justice was “not appropriately reflected in the compensation of current management”.

Thiam told Swiss newspaper Finanz und Wirtschaft last month that “making today’s management pay for [the mis-selling of toxic mortgage securities] wouldn’t be a good incentive”.

Three shareholder advisory services, including the influential Institutional Shareholder Service (ISS), had urged shareholders to vote down the pay awards. “Despite a second consecutive net loss, variable remuneration levels for the executive board remained high, including a SFr4.17m short-term incentive for the CEO,” said ISS, which advises more than 1,700 of the world’s biggest investors.

Shareholder votes on executive pay are binding in Switzerland. If Credit Suisse had lost the vote, it would have been the first major veto since the so-called “fat cat law” came into force four years ago and would serve as a major embarrassment for the bank.

Thomas Minder, a Swiss politician who has led a revolt against excessive executive pay in the country, said the scale of proposed bonuses being offered by a loss-making company were a “mortal sin”.

“If corporate governance is correct and the company has worked well and has a good annual result, then yes, some of [the profits] should be distributed,” said Minder, who led a 2013 referendum resulting in the implementation of the binding shareholder vote on executive pay. “But if it worked badly, like Credit Suisse, then, dear me, nothing can be allowed to be paid out.”

Minder told Reuters: “If there’s no money in the coffers, then there are no bonuses for top management or employees. That is a mortal sin.”

Facebook Twitter Pinterest Thomas Minder. Photograph: Ruben Sprich/Reuters

Thiam, who was previously boss of insurance giant Prudential, said: “Our decision [to cut the bonus pool] reflects the total confidence we have in the progress we are making. Although that progress is not yet reflected in our share price, I am confident that our strategy and our disciplined execution will in due course create value for you, our shareholders.”

Credit Suisse’s shares have lost more than 11% of their value over the past year.

Excessive boardroom pay has moved up the British political agenda since the financial crisis of 2008. Last year, the prime minister, Theresa May, stated an ambition to crack down on poor corporate governance in the UK.

May had called for annual binding shareholder votes on executive pay to end the “irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses” and to help “make our economy work for everyone”.

However, a government green paper on corporate governance reform published in November backed away from a binding shareholder vote at AGMs.