Chancellor Alistair Darling has warned the state-owned bank that the British government will be willing to veto remuneration deals if it deems they are not in the taxpayer's interest.
Members of the RBS board have reacted furiously to his announcements, calling in their lawyers and warning they may resign if they are not allowed to reward staff in a manner they deem to be fair.
Their argument is that RBS will not be able to attract and keep the best staff to help improve the bank's profitability if they can not compete with the pay structures of their competitors.
But their claims have been met with a stinging response from Vince Cable, a Treasury spokesman for the Liberal Democrats, Britain's third-largest political party.
"I would welcome their resignations, as the bank cannot hold the taxpayer to ransom," he said.
"The government must take control and ensure that both its pay and lending practices are in the public interest."
By Asim Shah