Northern Rock, the nationalised bank, will pay its new chief executive, Gary Hoffman, nearly £2 million over two years to run the troubled lender.

Mr Hoffman, who is leaving Barclays after 26 years, will receive a basic salary of £700,000 plus three payments of £400,000 each, paid over two years, to compensate him for his loss of long-term incentives at Barclays.

He will also be eligible to take part in Northern Rock's incentive scheme when it starts later this year.

At Barclays, Mr Hoffman was paid £1.1 million in salary, benefits and bonuses and he received £3.5 million in shares and options.

Northern Rock was forced to borrow more than £26 billion from the Bank of England last year after being unable to obtain funding in the wholesale market.

After a drawn-out bid battle for the bank, the Government decided that the potential buyers would not be able to repay Northern Rock's central bank borrowing quickly enough, and instead took it into public ownership.

Northern Rock is not expected to return to the private sector for at least three years.

Andy Kuipers, Northern Rock's current chief executive, who is a long-time employee and had been on the board when the bank's heavily criticised business strategy was formed, will leave the company. Mr Hoffman will join Northern Rock in October.

Ron Sandler, who had been appointed as executive chairman by the Government to run the troubled bank following its nationalisation in February, will become non-executive chairman.

Mr Hoffman will step down from Barclays' board at the end of August. He said that it was a tough decision to leave. "My affection for Barclays is deep and built over many years. Yet the opportunity to help lead Northern Rock back to strength is both compelling and exciting," he said.

John Varley, chief executive of Barclays, said that he was reluctant to let Mr Hoffman go. "This is a unique opportunity for Gary to lead a household name in financial services at a difficult time in its history," he said.

"Gary has been with Barclays for 26 years and has contributed much during this time. I have greatly enjoyed working with him over these years and will miss him both professionally and personally."

Mr Hoffman has been with Barclays since 1982, during which time he ran the Barclaycard business and chaired UK banking. He has been the banking group's vice chairman since 2006.

Mr Sandler said that the long-awaited appointment was a "major step forward" for the bank. "[Mr Hoffman's] skills, experience and overall track record make him an outstanding candidate for the role".

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