Lloyds boss Antonio Horta-Osorio is to take a £1.7m shares bonus and hand out £395m to staff after the group returned to profit for the first time in three years.
The chief executive of the taxpayer-backed bank defended the decision following its £20.5bn 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 failures.
Recently the group reported another £1.8bn in payment protection insurance (PPI) provisions and a record £28m fine for paying staff 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 that Mr Horta-Osorio’s windfall is deferred for five years and is dependent on the Government selling another 50 per cent of its remaining 33 per cent 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 received a bonus worth more than £2m for 2012.
Details of the payouts were revealed as Lloyds confirmed statutory profits of £415m against losses of £606m in 2012 - its first bottom line profit since 2010.
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 £1.8bn, 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 eight per cent on the £365million paid out for 2012 and coming days after Barclays defied calls for pay restraint.
The payout means Lloyds staff will receive payouts averaging £4,500 each.