Mr Hester warned that directors must be free to run the bank as shareholders met to approve its participation in a government asset protection programme.
Sir Philip Hampton, chairman of RBS, insisted it need to pay “commercial” bonuses despite attempts by the Government to cut them saying it had to be able to keep and retain the best staff.
He admitted that the bank had taken legal advice over whether the government had the veto right on bonuses. It is argued by some that the board are unable to run the bank commercially and in the best interests of all shareholders with the veto in place.
The bank pointed out that the percentage of top ranked staff that had left in the past year had doubled, with investment banking and private banking particularly hard hit.
A sparsely attended shareholder meeting gave formal approval for another £25bn of taxpayers funds to be pumped into the troubled bank.
“We have to be clear that the process of politicisation of RBS is damaging - damaging to our business and to taxpayers’ interests,” the chief executive said.
The combined impact of European regulators forcing disposals to compensate for state aid and subsequent bonus and pay restrictions from the UK government had wiped nearly 40% off the bank’s share price - some 15bn pounds - over three months.
The bank also sought to dampen speculation of a revolt at the top over the government’s bonus veto.
“There have been no threatened mass resignations of the board, at any time,” the chairman said.
Prime Minister Gordon Brown and other politicians have said there is no discrimination against RBS, whose problems have placed it at the centre of the crisis, but markets have remained uneasy over the threat of a mass board walkout.
Industry sources have said board members took legal advice on whether they should resign if the government forced them to take a position that would harm investors and therefore violate their fiduciary duties.
Sir Philip confirmed the board had sought advice, but on whether to allow the right of consent on the bonus pool to a single shareholder - at the potential detriment of others.
RBS also said its long-term incentive plan for its board will be “completely rethought” and shareholders will be asked to vote for it at its spring AGM.
RBS has warned repeatedly in recent months that it will struggle to retain staff without competitive remuneration.
Last year the bank managed to pay £1bn in bonuses, but with only a small cash element. As a result 1,000 bankers have left -- something the chief executive said is "damaging but not destructive".
Most of the 98 small investors who attended on Tuesday were hit by massive losses to their savings as a result of RBS’s troubles and they supported the bank’s turnaround efforts.
But few backed a resignation over bonus payments.
“If the board wants to resign, let them. There are plenty of unemployed bankers out there,” said retired civil servant Peter Thompson. “They were paying the top money when the system crashed into a wall, so I don’t think this argument stands.”
Over 99 percent of minority investors - which excludes the Treasury - voted in favour of the plan to insure £282bn of loans in the Asset Protection Scheme.
The scheme will shield RBS against losses, but strings attached include a government’s right to veto the “quantum and shape” of the bank’s bonus pool - a condition it has already said could heighten risks and make it harder to retain staff.
We have to be clear that the process of politicisation of RBS is damaging - damaging to our business and to taxpayers’ interests
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