The controversial pay package awarded to Stephen Hester has been approved

Royal Bank of Scotland boss Stephen Hester has seen his controversial £7.7 million pay package rubber-stamped by the Government as the bank insisted it had to pay staff "fairly".

UK Financial Investments (UKFI), which manages the taxpayer's 83% stake in RBS, gave its support despite a widespread backlash over the deal.

Shareholders were asked to cast their vote on the part-nationalised bank's pay plans at the group's annual meeting in Edinburgh.

The board was grilled by angry shareholders at the AGM, who fired questions and criticism over bonuses and the lack of dividends.

The bank has been embroiled in controversy since it emerged last month that Mr Hester was awarded an additional £4.5 million potential shares windfall on top of his £2 million annual bonus and £1.2 million salary for 2010, which was not originally revealed under the Project Merlin agreement with the Government to rein in pay.

RBS also admitted it paid 323 code staff - those deemed to be in risk-sensitive roles - £375 million last year despite remaining in the red by £1.1 billion in 2010.

RBS chairman Sir Philip Hampton told the AGM it had tried to strike a balance between paying to motivate people and showing restraint.

"We need talented and motivated people and we need to be able to pay them fairly," he said.

"It is important to remember we have to motivate all staff and that only a tiny minority were responsible for the problems RBS encountered, all of whom have now left."

PA