Stephen Hester is to step down from his role as group chief executive of Royal Bank of Scotland in December.
Mr Hester will receive payment in lieu of notice of £1.6m which represent 12 months pay and benefits. He will not receive a bonus for 2013.
Mr Hester was appointed to the RBS board in October 2008 and became group chief executive the following month. He has since led RBS through its recovery and restructuring following the financial crisis.
RBS is to go through a process of privatisation and Mr Hester said he was 'unable to make that open-ended commitment' to lead the bank through the process.
A search for his replacement is to begin immediately and both external and internal candidates will be considered by the firm.
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RBS said: "The Board believes that an orderly succession process will give the new CEO time to prepare the privatisation process and to lead the bank in the years that follow. Stephen was unable to make that open-ended commitment following five years in the job already."
Mr Hester said: "We are now in a position where the Government can begin to prepare for privatising RBS. While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey.
"I will therefore step down at the end of this year to allow a new CEO to lead the Group in this next stage. Over the coming months I will put all my effort into completing the final recovery and continuing to build a strong customer focused culture. I thank all of the people of RBS for their support and wish them all the best for the future."

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