Lloyds Banking Group boss Antonio Horta-Osorio has confirmed he will take a £1.7 million shares bonus and hand out £395 million to staff after the group returned to bottom line profit for the first time in three years.
The chief executive of the taxpayer-backed bank defended the decision as he dubbed Lloyds "a normal bank" thanks to turnaround efforts following its £20.5 billion bailout at the height of the financial crisis.
The move comes despite pressure on the group to cut bonuses after it was left counting the cost of past misdemeanours, recently revealing another £1.8 billion in payment protection insurance (PPI) provisions and a record £28 million fine for paying staff ''champagne bonuses'' that drove mis-selling.
Mr Horta-Osorio's counterparts at Barclays and Royal Bank of Scotland have already waived their entitlements to bonuses for 2013.
Lloyds said Mr Horta-Osorio's windfall is deferred for five years and is dependent on the Government selling another 50% of its remaining 33% stake or the share price holding above 73.6p - the average price paid by the Government when the bank was rescued - consecutively for six months.
He recently landed a bonus worth more than £2 million for 2012, which was similarly linked to shares remaining above 73.6p.
Details of the payouts were revealed as Lloyds confirmed statutory profits of £415 million against losses of £606 million in 2012 - its first bottom line profit since 2010.
This came despite its soaring bill for mis-selling compensation, which was revealed alongside headline profit figures in a shock update earlier this month.
Underlying profits more than doubled to £6.2 billion in 2013, with provisions such as PPI stripped out.
Unions attacked Mr Horta-Osorio's refusal to forgo his annual bonus.
TUC general secretary Frances O'Grady said: "With Lloyds still owing billions to the taxpayer and the amount it has had to set aside for PPI mis-selling rising by a whopping £1.8 billion, now is not the time for its chief executive to be taking a multimillion-pound bonus."
Unite said the handout was a "kick in the teeth to the taxpayer, and to hard-working staff who don't know if they will be next in line for the chop from one day to the next".
Its wider staff bonus pool will also stoke controversy after being raised by 8% on the £365 million paid out for 2012 and coming days after Barclays defied calls for pay restraint with a 10% hike in its pot to £2.4 billion.
The payout means the majority of Lloyds staff - around 91,000 employees - will receive payouts averaging £4,500 each, although cash handouts are capped at £2,000 and bonuses are fully deferred for directors.
Mr Horta-Osorio said the bonuses reflect " excellent progress" over the last year.
Lloyds said there had also been a "material" reduction in the staff bonus pot to reflect mis-selling provisions and December's fine, while the group's remuneration committee is due to discuss the clawback of past payouts to individuals relating to the Financial Conduct Authority penalty at the end of last year.
It has yet to decide whether to ask shareholders to approve the maximum level of bonuses - set at double annual salary - under the new EU rules to cap payouts, which came into force on January 1 and apply from this year onwards.
Lloyds said it had returned to core lending growth across all its banking divisions, with net mortgage lending rising in the third quarter and picking up pace in the final three months of last year.
Overall gross new mortgage advances increased £10.7 billion to £36.9 billion in 2013.
The group also hiked net lending to small businesses by 6% last year.
Lloyds has been a beneficiary of the Government's Help to Buy scheme for house-buyers, as well as the Funding for Lending initiative, as mortgage borrowing has taken off.
Its net interest margin, which is the difference between its cost of borrowing and the interest it rakes in from borrowers, rose 5% last year.
The turnaround comes in the face of its vast PPI mis-selling compensation bill, which is now nearly £10 billion after £3.1 billion was set aside for 2013.
It also made a further provision of £130 million last year relating to the sale of interest rate hedging products to small and medium-sized businesses, bringing t he total to £530 million.
Lloyds said in its recent unscheduled update ahead of today's results that it would apply later this year to resume dividend payments at a "modest'' level.
This disappointed the City as some analysts had been expecting dividends to be reinstated earlier and by more than its guidance implied.
Shares were down another 4% today, but remain above the 73.6p break-even level for the taxpayer, at just over 80p.
Lloyds gave no further detail on the timing of a further sale of government shares, having whetted investor appetite earlier this month when it said plans were in place for another share placing, which could see members of the public snap up stock later in the year.
It confirmed today that a prospectus was being worked on, but said the timing was " absolutely " up to the Government.
The multibillion-pound offering is likely to exceed the size of the stake available to retail investors who took part in the Royal Mail privatisation last autumn.
The Treasury has already sold off a 6% stake to institutional investors, raising £3.2 billion last September.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the results point to a "return to full private ownership becoming more imminent".
"This welcome - and overdue - removal of political influence should enable the board to focus more closely on delivering its strategic objectives without distraction," he added.
The group's return to health has come at the expense of jobs, with Lloyds last month revealing 1,080 staff cuts across its retail, risk, operations and commercial banking divisions, while 310 roles will move to other employers.
It said the cull was part of reductions previously announced. Almost 35,000 jobs have been lost at Lloyds since 2008, according to trade unions.
Mr Horta-Osorio said there were no plans for further job cuts on top of the cost-saving action announced under its three-year strategy set out in June 2011, when it also committed to retaining its branch network on a net basis.
It is working on its next three-year plan, from 2015 to 2017, which could see staff and customers face further uncertainty over jobs and branches.
Lloyds also updated on the flotation of its TSB brand, saying it is "progressing well" and on track to take place in the middle of this year.
But it admitted the £1.6 billion cost of separating the business - which is being done to appease EU rules on state aid - would not be fully recouped from the flotation.
Andrew Tyrie, chairman of the Treasury Select Committee, hit out at Mr Horta-Osorio's claims that Lloyds had returned to "normal".
He said: "This return to normality has taken longer than many expected.
"It will only be complete once Lloyds has been fully returned to private sector ownership and is clear of the legacy of past misconduct - misconduct that continued well after the financial crisis."