Lloyds insists it is right to offer financial rewards to staff who hit targets
Lloyds Banking Group has defended plans to reward retail and commercial staff with bonuses, worth a reported £120m.
Its subsidiary HBOS - bought with government backing last year - is to record a loss of nearly £11bn, raising concerns it may need more state help.
But Lloyds, already 43% taxpayer-owned, said its employees deserved "financial recognition" for hitting targets.
The government and the Tories have said executives should not receive bonuses but staff on lower salaries should.
The bank said that, in most cases, staff payment would amount to £1,000 or less for employees earning about £17,000 per year.
But a spokesman insisted no final decision had been made on this year's bonuses, although the group's five executive directors have all voluntarily agreed to forego any bonus they may be awarded for 2008.
The report comes amid speculation that the government - which has already poured £17bn into the group - may be forced to take a majority stake in Lloyds, or even nationalise it.
Employment Minister Tony McNulty said cashiers and others should get bonuses "if they do the work".
"I would draw the line between senior managers, board members, executives, those responsible for the business model and strategy that got them into the mess, they shouldn't get a penny," he said.
Conservative leader David Cameron said: "Those banks that are owned by the taxpayer or where the taxpayer has a large stake - it's completely wrong to be paying bonuses."
But he added: "I wouldn't deny the teller in the bank one or two-thousand-pound bonuses if they are on a modest salary.
"Bonuses to the board, to senior executives, to big traders, to the big managers - that's completely wrong when it is out of government money."
Asked whether Lloyds had to be nationalised, Mr Cameron said: "It may have to be. We can't rule it out. It may happen."
Chancellor Alistair Darling has insisted the government was forced to act quickly to save the entire banking system from collapse.
HAVE YOUR SAY
I don't see a problem with paying bonuses to people who have earned profit for the company
Richard Leadbetter, Brighton
While he has not ruled out further taxpayer support for Lloyds, he has stressed that ministers feel banks are "best run in the commercial sector and privately owned".
Liberal Democrat Treasury spokesman Vince Cable said the government had to be "more decisive" about nationalisation.
On the bonuses, he added: "There are contractual problems that have to be overcome, but as a general policy position no bonuses should be paid to banks that have failed and are dependent on the taxpayer.
"We should be quite clear about that. There is a longer term question about how you have a bonus system and how you do create incentives and prevent people taking cash that creates excessive risk."
Lloyds' share price plummeted on Friday, after chief executive Eric Daniels revealed the extent of HBOS's expected losses.
However, the Sunday Telegraph claims Lloyds is still planning to hand over £120m in bonuses to staff.
It said the bank was in talks over the bonuses with UK Financial Investments (UKFI), the government-owned body which oversees the taxpayer's stake.
A UKFI spokesman refused to comment on the report.
Lloyds Banking Group spokesman Shane O'Riordain said: "We are a retail and commercial bank where most colleagues earn approximately £17,000 a year.
"We have stretching performance targets and if they are met we believe it is right that colleagues receive some financial recognition.
"In most cases this means an annual bonus of £1,000 or less."
He added: "No decisions have been taken about bonus outcomes and they will not be for some time.
"We will consult with UK Financial Investments when we have a proposal to make to them."
Wendy Dunsmore, from the UK's largest trade union, Unite, said hardworking frontline staff at Lloyds should not be made "scapegoats" in the public debate about pay and bonuses.
"Unite will not accept a situation where staff are made to suffer financially for the mistakes or greed of the top executives who ran the bank," she said.
Last week, Prime Minister Gordon Brown's spokesman said he was "very angry" about proposed bank bonuses and wanted bankers to consider waiving their right to them.
He was speaking after reports suggested taxpayer-saved RBS group was to pay out £1bn in bonuses.
When the government bought shares in Lloyds/HBOS and RBS last October it secured agreements that there would be no cash bonuses for board members this year.
However, no ban was imposed on payouts for staff below this level.
Unlike the plans being considered by RBS, Lloyds is not believed to be planning payouts for significant numbers of highly-paid City traders.
It is understood any bonus package would be smaller than last year's reported £150m total.