Iain Duncan Smith has said there would have been "chaos" if ministers had overruled the board of RBS and vetoed a £963,000 share bonus for its boss.

The government has come under pressure to act over Stephen Hester's bonus as it owns 82% of the bank's shares.

Cabinet Minister Mr Duncan Smith told the BBC "nobody would be happier" than ministers if Mr Hester declined it.

But it had been up to the RBS board - if they had gone, it would have had a huge impact, he said.

Mr Hester was appointed as the Royal Bank of Scotland's chief executive at the end of 2008 to replace Sir Fred Goodwin, after the bank had to be bailed out by the government.

Mr Duncan Smith said it was for Mr Hester "individually" to decide whether or not to take his bonus.

"As a member of the government, I don't have a collective opinion on that, but I must say to you: nobody would be happier than the government if he took such decisions. But it's up to him."

'Can't interfere'

News of the bonus - share options currently worth £963,000 which are not payable for three years - has annoyed people across the political spectrum.

Mayor of London Boris Johnson, a Conservative, has said the award was "absolutely bewildering".

Labour Leader Ed Miliband has accused Prime Minister David Cameron, who in recent weeks has been talking about giving shareholders more powers to veto "excessive" executive pay packages, of a "disgraceful failure of leadership".

Mr Hester was appointed after RBS was bailed out by the taxpayer

Work and Pensions Secretary Mr Duncan Smith told BBC One's Andrew Marr programme that ministers had made it "very clear" to the board that they should take into consideration public concern when setting his bonus.

He added that the bonus could be clawed back if he did not perform well.

Repay taxpayers

But he argued that Mr Hester's contract, drawn up under the previous Labour government, meant "the board takes the decision on this" and ministers could not "interfere and tell them what to do".

"If we didn't like that, of course the only option would be to get rid of the board. If you do that, imagine what would happen in the banking sector and imagine what would happen to RBS. You would have chaos.

"Remember RBS's balance sheet is as large, if not slightly larger, than the GDP of the UK. What would that do to ordinary people?"

He said the government had to get the bank to a point where it could be sold and the taxpayer repaid.

On Saturday it emerged that the chairman of RBS, Sir Philip Hampton, had decided not to take a £1.4m share bonus - and had told the bank's remuneration committee it would not be appropriate.

Labour reject the government's claims that their hands were tied by Mr Hester's contract, agreed under the previous Labour government.

'Step in now'

Shadow Business Secretary Chukka Umunna said on Friday that was "nonsense" - because bonuses were agreed on a rolling annual basis.

And Shadow Work and Pensions Secretary Liam Byrne told Sky News on Sunday: "The government is the biggest shareholder and Mr Cameron has been talking about how shareholders need to flex their muscles and have a bigger say in the way executive pay is set.

"Fine, let's be good to your word, Mr Cameron. Step in now and say that this bonus payment for Mr Hester is wrong and should be stopped."

Asked about the issue on Sunday, Scotland's First Minister Alex Salmond blamed both Labour and the Conservatives.

He said: "When an organisation is in the public sector, there has to be an accord with the discipline ordinary workers are being asked to accept."

"I believe the Westminster parties are culpable - Labour made this arrangement in the first place.

"The Conservatives, after calling on shareholders and private companies to do something, seem loathe to do something themselves."