Lloyds Banking Group boss Antonio Horta-Osorio has been awarded a £1.5 million shares bonus while staff will share a £365 million total pot despite further losses in the wake of mammoth provisions for mis-selling claims.

The taxpayer-backed bank remained in the red with pre-tax losses of £570 million in 2012 after setting aside £3.6 billion for compensation relating to the payment protection insurance (PPI) scandal and £400 million for the mis-selling of interest rate swaps to small businesses.

Lloyds said Mr Horta-Osorio's bonus has been deferred for five years and will only be paid out if shares reach and remain at 73.6p for a sustained period, or if the Government is able to sell at least a third of its stake at a profit.

Lloyds, which is 39% taxpayer-owned, said staff will share out a £365 million bonus pool, down 3% on 2011, giving each employee around £3,900 on average. It said cash bonuses have been capped at £2,000.

Mr Horta-Osorio confirmed that he requested for his bonus to be linked to Lloyds shares and the price paid by the Government. His award will pay out if the Government sells at least a third of its stake at 61p - the average price at which the stake was bought during the bank's bailout at the height of the banking crisis - within five years.

It comes amid reports that the Government is preparing to start offloading its 39% stake in Lloyds when shares - which closed last night at 54.5p - reach the 61p break-even level. While he declined to comment on the Government's plans for the stake, he said he was "very confident" taxpayers will recoup their cash.

Lloyds said its total provisions for PPI have now reached £6.8 billion, after another £1.5 billion in the fourth quarter alone, while it added another £310 million for swap mis-selling claims in the final three months of 2012. On an underlying basis, the results showed group profits surging from £638 million to £2.6 billion in 2012.

Mr Horta-Osorio insisted the group's sale of more than 600 branches to the Co-operative Bank remained on track in spite of reports earlier this week that the Co-op is battling to plug a potential £1 billion capital hole discovered by the Financial Services Authority.

Lloyds said losses narrowed significantly from £3.5 billion a year earlier thanks to improvements in its core business. But much of this was down to cost-cutting, as income fell 13% amid historic low interest rates.

Lloyds said it was very close to its original target to bring costs down to around £10 billion and was now hoping to cut costs even further, to £9.8 billion, in 2013. The group added that it boosted lending to small business by 4% on a net basis and helped 55,000 customers buy their first home.