Royal Bank of Scotland boss Stephen Hester has admitted he had "underestimated" the furore his £1 million bonus would cause.
Mr Hester, chief executive of the 83% state-owned bank, disclosed that he had considered resigning amid the political storm. But he said he believed it was essential to defuse the "timebomb" of the bank's balance sheet for the benefit of the taxpayer.
"In the end, I came to the conclusion that it would be indulgent for me to resign," he told BBC Radio 4's Today programme.
Mr Hester said he decided to waive the bonus - to be paid in bank shares - because of the damage the row was doing to the bank. "I took the judgment that it was going to be damaging for RBS to stay in the intensity of the spotlight that we had got into," he said.
While he said he had "great sympathy and understanding" for people concerned about the high rewards in the banking industry, such "societal issues" were ultimately a matter for politicians.
He said it was essential that RBS was able to recruit the best people to resolve the problems it had inherited from the former management, which led to it being bailed out by the taxpayer.
"When I was asked to take on this job three years ago, I had to replace the whole senior management team of RBS," he said. "We had to go around the world looking for the best people, not just people to run a bank well, but people to defuse the biggest timebomb in history in terms of bank balance sheets.
"Those people are doing a good job. I think they deserve recognition. If they do a good job, it is our task to make sure that there is a connection between the job people are doing and how they get treated."
Mr Hester acknowledged that bank bonuses were controversial but said RBS had not realised what a storm his award would create. "I understand why these issues are controversial - particularly in a time of austerity. Of course, we underestimated that, going forward," he said.
He admitted the banks had been guilty of "hubris" after 20 years of "unbridled expansion" leading up to the crash of 2008, but he warned it was important not to "demonise" a sector which remained essential to the economy.
