Mr Hoffman was expected to receive Â£58,000 per month in salary as well as other benefits including a pension allowance, a company car and fuel benefits.
His decision to leave the government-backed bank to join start-up bank NBNK was confirmed following speculation in the press earlier in the week.
However, the banking chief has now decided to waive the "golden goodbye", a decision which follows an angry reaction from the Unite union.
Brian Cole, Unite officer, said: âUnite is disgusted that Northern Rock has awarded Gary Hoffman a golden goodbye of Â£500,000.â
âThe award of half a million pounds for Mr Hoffman to put his feet up represents a punch in the stomach for the 2,500 Northern Rock employees who have been sacked by Northern Rock during the last two years.â
Ron Sandler is to resume his role as executive chairman of Northern Rock âfor the foreseeable futureâ in order to provide some âcontinuity of leadershipâ.
The outgoing CEO is expected to take up his new position at the end of April.
By Jim Ottewill