The top salaries at banks receiving bailout funds will henceforth be capped at no more than 15 times the national average salary or 10 times the average wage at the bank, The Financial Times reported.
The maximum bonus pay allowed would be twice the executive's regular salary, the Times reported.
By example, Stephen Hester, the departing chief executive officer at RBS, earns a salary of $1.8 million, which is about 38 times the average salary in Britain and 35 times the average salary at RBS.
The new restrictions, however, are meant to spur efforts of bank executives to correct problems and to repay bailout loans as quickly as possible.
"There should be incentives for banks' managements to undertake far-reaching restructuring in good times and, thereby, minimize the need to recourse to state support," the European Commission's new guidelines say.
The caps on pay would remain in effect until the bank restructured its debt or repaid the bailout loans, the Times said.
Banks have argued caps on pay would mean the most qualified executives would leave their jobs, leaving a struggling financial firm under the new and perhaps inexperienced management.
The plan is similar to one in place in Germany where executive pay at a bailed out bank is limited to $644,500, the Times said.