Stephen Hester took over as RBS boss late last year
Royal Bank of Scotland has confirmed that chief executive Stephen Hester has agreed not to cash in shares worth up to £3.4m for a further two years.
The share option was given to Mr Hester last month as part of a new pay package worth a potential £9.6m.
Mr Hester had originally been allowed to sell the shares in 2012, should the bank's share price rise about 70 pence, but this has now been extended to 2014.
Shares in the bank, which is 70% owned by the government, currently cost 39p.
A Royal Bank of Scotland (RBS) spokeswoman said the bank recognised that Mr Hester's remuneration needed to be better linked to the bank's longer term performance.
BANKING PAY PACKAGES
Stephen Hester, RBS £9.6m
Eric Daniels, Lloyds £5.4m
Graham Beale, Nationwide £2.3m
The announcement was welcomed by the Association of British Insurers (ABI), which had criticised the initial terms of Mr Hester's share option.
ABI director of investment affairs, Peter Montagnon, said it was a "significant" development.
"Large awards are fine if real value is created, but it must have a sustainable and long-term focus," he added.
Mr Hester was appointed chief executive of RBS in November of last year, replacing the departed Sir Fred Goodwin at the same time as the bank had to be rescued by the government.
He had previously been chief executive of British Land and chief operating officer of Abbey National.
Mr Hester's basic salary is now £1.2m per year. The £3.4m share option that has now been extended by two years is part of a number of bonus schemes that could bring his total remuneration up to the £9.6m level.
For comparison, Eric Daniels, chief executive of Lloyds Banking Group, which is 43% government-owned, will this year receive a base salary of £1.035m.
On top of that he can receive 225% of his base salary in annual incentives and another 200% in long-term incentives, making a maximum value of £5.4m.
Graham Beale, chief executive of Nationwide building society, has a basic salary of £650,000. On top of that he can receive annual performance pay of up to 125% of salary and up to 130% medium-term performance pay.
This makes his maximum possible pay package £2.3m.
In April, RBS announced 9,000 job cuts, having made a loss of £24.1bn in 2008 - the largest loss in UK corporate history.