Sir Fred Goodwin regained his place as the highest-paid executive at Royal Bank of Scotland last year after taking home £4.2m but he and his fellow directors missed out on millions of pounds of performance-related bonuses.

Goodwin's pay package was up 5% from 2006 with a basic salary of £1.3m and a performance bonus of £2.9m. He also earned extra pension rights worth £772,000 in the course of the year and netted a paper profit of £1.2m after exercising cut-price options on nearly 500,000 shares under a performance scheme.

The figures were contained in the bank's annual report published yesterday which revealed that Royal Bank is more exposed to the beleaguered mortgage-backed securities (MBS) market than many investors had expected.

Banks around the world have been forced to write down the value of such assets after rising defaults in the US sub-prime market hit confidence in the sector as a whole.

Royal Bank has £68.3bn of the securities, a figure described by analysts at Credit Suisse as "staggering" and more than double what the company had the year before. Analysts attributed this to Royal Bank's takeover of ABN Amro, with consortium partners, last year.

Of additional concern is that £43.7bn of these assets are held on the bank's trading book so writedowns will come off its profit-and-loss account, not reserves.

The Royal Bank board is also asking shareholders to give it the right to issue 2.5 billion shares when they meet for its annual meeting on April 23. This would allow the bank to secure £8.15bn of additional capital at its closing share price last night. This is equivalent to a quarter of its £32.6bn market capitalisation.

Royal Bank insisted yesterday that the authority was merely a "standard procedure" and it has no intention of issuing shares other than in relation to employee share schemes.

"Periodically the board has the authority to issue shares and broadly it is to make sure they have that head room," a spokeswoman said.

But the move will do nothing to reassure investors who are jittery about the state of Anglo-Saxon banks after the effective collapse of US bank Bear Stearns and Northern Rock in Britain.

Goodwin's pay package made him the best-paid of Royal Bank's executives. It could have been higher but he missed out on 286,579 shares that could have been awarded under a medium-term performance plan from 2005 as the company failed to meet targets. His fellow directors were also hit.

Goodwin regained his supremacy over his finance director Guy Whittaker who benefited last year from major pay-outs to compensate him for his move from Citigroup in 2006. In 2007, he received £3.35m in pay, performance awards and a bonus issue of shares to reflect the Citigroup ones he lost when he joined the company.

Larry Fish, who ran the bank's US subsidiary Citizens Financial, also fell back in the pay stakes. He netted £6.6m in 2006 but in 20007 had to make do with around £2m in pay and bonuses. Royal Bank said this was due to his changing role in the company as he moves to a non-executive position. From May he will get a fixed fee of around £300,000 a year.

The biggest pay hike was enjoyed by Mike Fisher, who has gone to manage Royal Bank's portion of the ABN Amro business. He took home £2.4m in pay and bonuses, up 24% on 2006.