The unprecedented salary package for John Armitt, the infrastructure company's chief executive, comes as the rail unions are in the process of balloting their members to mount a national strike in a row over pensions.

Announcing its latest results on Thursday, Network Rail will confirm that it met key performance targets over the last financial year, triggering substantial bonuses for Armitt and three other senior executives.

Although 86.4% of trains now run on time - a higher percentage than at any point since the Hatfield rail crash in 2000 - the company has admitted that future punctuality is unlikely to rise much higher than 90%.

Iain Coucher, Network Rail's deputy chief executive, suggested last month that seasonal problems, such as leaves on the line in autumn, will always drag down better performance at other times of the year.

"When we're talking about a 90% railway, what we're really talking about is 93% or 94% for much of the year," he said. "That is towards the theoretical maximum we can drive from this railway because you're always going to get [delays caused by] bridge bashes and suicides."

This means that a commuter who makes 10 journeys to and from work each week can expect to be late at least once.

Armitt's pay deal includes an annual bonus of up to 60% of his £504,400 basic salary and is dependent on how comfortably Network Rail meets three performance targets, including one based on delays.

Insiders indicated this weekend that while Armitt will not receive the maximum bonus, the value of his overall pay package - including pension contributions and other benefits worth about £170,000 - will rise to more than £1m.

Last year, Armitt, whose company perks include a chauffeur-driven car, was awarded a bonus of £270,000, taking his combined earnings to £919,000 for 2004-05.

Coucher, whose basic salary is about £450,000, and two other senior executives at Network Rail, are also in line for large bonuses this week.

Keen to defuse an anticipated outcry over the payouts, a source at the company claimed that Armitt's package was modest compared with the wages of bosses at FTSE-listed transport companies. "Network Rail's top management have delivered a huge improvement in performance for the railways," he said.

When Armitt, a civil engineer, was appointed to head Network Rail in 2002, following the collapse of Railtrack, almost a quarter of all trains were failing to arrive on time. Although punctuality levels have steadily improved under his tenure, Network Rail, which is part-funded through government grants, is still responsible for more than half the delays on the tracks.

Passengers travelling on Virgin's CrossCountry inter-city franchise will be offered fares on weekday off-peak services starting from £1 if they book in advance on the internet from June 1.

Critics, however, believe the new initiative from Stagecoach, which has a 49% stake in Virgin Trains, will add to the confusion about fares.

Last week the Commons transport select committee described the bookings system as "chaotic" and accused train operaters of driving people off the network by charging "exorbitant" prices for walk-on tickets.