Northern Rock is to pay out bonuses to several hundred employees despite the fact the nationalised bank expects to report losses of £1.4 billion for 2008.

Around 400 junior management employees, subject to qualifying criteria, with an average annual salary of £21,000 will receive a 10% deferred bonus. A 10% bonus has been paid to front-line employees on the grounds that the company hit its agreed performance targets in 2008, such as the repayment of a proportion of the government loan.

A number of senior employees, including board members and executives, will also receive a deferred bonus for 2008. However, these rewards, which are set to be deferred until 2010, could be subjected to a 100% clawback if the bank fails to meet its performance targets this year.

A spokesperson for Northern Rock said the bonuses have been designed to be reflective of the bank’s performance ,and were necessary to retain and recruit “good people".

But the bank has recommended to the government that executives and senior management should receive no cash bonus for 2008 and 2009, apart from contractual entitlements. It has also suggested these employees should receive no pay increases for 2009.