Barclays’ new boss is to overhaul the way bonuses are paid next month by giving senior staff loan notes that are dependent on the success of the bank, according to a report released yesterday.

Chief executive officer Bob Diamond is considering paying a large proportion of bonuses in special contingent convertible bonds – also known as “cocos” – that are effectively worthless if the bank runs into trouble, the Financial Times said.

Issuing cocos would incentivise staff to ensure the bank is run in a sustainable way and would give the bank extra stability in times of stress, it was claimed.

Meanwhile, the Treasury’s negotiations with the UK’s biggest banks to hammer out an agreement on bonus payments and levels of lending to small businesses have stalled, and no agreement is now expected this week.

The cocos could be paid to its top 1,000 staff who rank at managing director level and above.

Barclays said no decision has yet been made but it is understood that the bank intends to announce the pay plans when it reports its annual results in mid-February. Issuing a large amount of bonuses in the form of cocos would be a departure for investment banks, which have reacted to recent criticism of bonuses by increasing the amount of deferred pay and shares handed out. Bonuses are a hot topic at the moment, as the big banks, including those that have been bailed out, prepare to announce annual rewards packages amid public anger and in the face of government cutbacks. Talks between the Treasury and the big five banks – dubbed Project Merlin – were expected to reach an agreement as soon as this week but a decision could now be delayed until next month. John Varley, until recently chief executive officer of Barclays, has been leading the industry’s involvement in the talks with the government.

The Treasury said the negotiations were still taking place, but talks have dragged on amid difficulties over finalising lending commitments and because banks are unwilling to cut their bonus levels for the third year in a row.

Banks are believed to be concerned about promising to lend a certain amount to businesses, many of which face further shocks from the economic crisis.

The government is reportedly keen to ensure any lending goal is stretching enough, and that some concession on bonus handouts is provided by banks.