It is the first time a British bank has exercised a “clawback” option on executive pay packages since the financial crisis.
Nadhim Zahawi, a Conservative MP who has campaigned for banking reform, said other bankers should also face clawbacks.
He said: “It should set a precedent for other banks. For too long it has appeared to the public that executive jobs at big banks are a one-way bet, that no matter what you do you get a huge reward.
“That has to change so that negligent behaviour at the top of banks has clear consequences and punishments.”
The decision could pave the way for clawbacks at rival banks. Royal Bank of Scotland, which is 83 per cent owned by the taxpayer, was the second largest player in the PPI market behind Lloyds.