Lloyds Banking Group has delivered a £3.2 billion bumper payout for investors and handed its boss a £6.4 million pay package after reporting a record annual profits haul.

Chief executive Antonio Horta-Osorio hailed a “landmark year” as the bank saw bottom line profits surge 24% to £5.3 billion in 2017 and unveiled plans to invest more than £3 billion as part of a new three-year strategy.

On an underlying basis, profits rose 8% to £8.5 billion.

The profits were lower than expected after another £600 million hit from the payment protection insurance (PPI) mis-selling scandal.

But shares rose 2% as Lloyds cheered investors with a 20% hike in its dividend payout to 3.05p a share and announced a share buyback of up to £1 billion, giving a total return to its 2.4 million shareholders of up to £3.2 billion – its highest ever, according to the group.

Lloyds Banking Group
Chief executive Antonio Horta-Osorio saw his total pay package rise 11% to £6.4 million (PA)

Pay details released alongside the results also showed that Mr Horta-Osorio saw an 11% hike in his total remuneration package to £6.42 million, up from £5.79 million.

His base salary has risen to £1.2 million from £1.1 million, alongside additional increases to his long-term incentive plan and benefits.

The bank said it would increase the wider staff bonus pool by around 5.5% to £414.7 million for 2017 after the 2017 profit rise.

Mr Horta-Osorio defended his pay deal, saying it was “not up to me to decide my pay, it is up to the board and the remuneration committee”.

Having steered the group back to private ownership last summer, nearly nine years after being bailed out at the height of the financial crisis, he said his new strategy was a “bold and ambitious” plan to invest in technology and staff.

It will include its “biggest ever investment in people” as it looks to increase staff training and development by 50% to 4.4 million hours a year to embrace new technology.

The group will revamp its banking app and digitise 70% of its processes by 2020, with aims to have more than 50 million online banking customers in the same time-frame.

Lloyds also plans to beef up its financial planning and retirement business, expanding its corporate pension customer base by a million.

The group said the size of its branch network would continue to reflect the shift to online banking, but said it would look to maintain its market-leading share of bank branches in the UK, currently standing at 21%.

Mr Horta-Osorio said: “I’ve always been a strong believer in branches. We will continue to have the biggest branch network in the country.”

Mr Horta-Osorio also praised the resilience of the UK economy and said its plans were based on interest rates rising to 1.25% by the end of 2020, with growth in 2018 similar to last year.

He said: “Although the precise nature of the UK’s future relationship with Europe remains unclear and the economic outlook is therefore uncertain, the economy has been resilient.”

Richard Hunter, head of markets at Interactive Investor, praised the results and said: “With the shackles of the government share stake now removed, Lloyds has been able to concentrate fully on financial growth and repair.”

But the results showed a mammoth £1.7 billion spent on PPI compensation last year, after Lloyds revealed an extra £600 million set side in the fourth quarter.

It said it was braced for an increase in average weekly complaints to 11,000 ahead of the deadline for claims in August 2019.

The group’s latest PPI hit takes its total bill for the saga to £18.7 billion.

Lloyds also admitted that a further £865 million charge last year for other conduct provisions – including penalties for packaged bank accounts and arrears handling – was “disappointing” but said these were “coming to an end”.