Northern Rock today said it was paying staff £14.9 million in bonuses after losses narrowed last year.

The bank reported a pre-tax shortfall of £257.5 million for the 12 months to December 31, compared with a £1.36 billion loss in 2008. Northern Rock completed its restructure into “good” and “bad” banks at the turn of the year.

It said the bonus payment came after staff met agreed objectives over the year.

Chief executive Gary Hoffman waived his entitlement to a bonus under the scheme and the bank said it was designing a reward scheme for him that would take into account the performances of both of the newly created banks.

The bonus payments for Northern Rock staff include a £1.5 million payout under the Chancellor’s one-off windfall tax, as 32 employees received rewards of £25,000 or more. Senior management will receive their 2009 bonuses in three annual instalments, beginning this month, and will be subject to clawback.

Mr Hoffman said the bank’s results were “encouraging”, with underlying pre-tax losses of £383.3 million bettering Government targets by £500 million.

“There is no reward for failure,” he said.

Beaten

“I understand that we are still loss-making but we have beaten the target and we have substantially improved financially.”

He added that while it was right that most of the improvement goes to the taxpayer, some should be given to staff.

Mr Hoffman said most of the workers to benefit were on average salaries of £20,000 to £25,000 in Newcastle and Sunderland. He said unemployment and house prices would remain key in determining loan impairments in the future.

Charges for soured loans were £1.04 billion for the full year as unemployment and falling house prices took their toll, but Northern Rock said improving economic trends reduced the level of impairments in the second half.

It said the number of its mortgages in arrears continued to rise but the rate of increase slowed during the third quarter and has stabilised.