CORRECTED-Disgruntled investors flex vote muscle on UK executive pay

(Corrects title of Stephan Costa in paragraph 17)

* HSBC forced to rethink future executive payouts

* Follows revolts at BP, others on 2015 payouts

* Bulk of pay policies up for fresh vote by 2017

By Sinead Cruise and Simon Jessop

LONDON, April 22 (Reuters) - Change the way you pay or risklosing your jobs, corporate governance watchdogs have warned theboards of Britain's top companies, as investors call for areality check on salaries.

Four years on from 2012's "investor spring" over spirallingexecutive pay, shareholders are mounting a fresh rebellionagainst firms they say have lost touch with the real world aftera year of falling share prices, lacklustre profits and job cuts.

With the season for corporate annual meetings just days old,oil firm BP and medical equipment firm Smith & Nephew have already seen investors reject last year's payouts innon-binding votes. Shareholders in miner Anglo American came close. BP and Anglo said they would consult withshareholders to refine policy for the future.

On Friday Europe's biggest bank, HSBC, tookpre-emptive action and announced changes to its future potentialexecutive payouts in response to shareholder concerns.

Now investors are warning that if their concerns about payare not addressed they will stop board members who setremuneration policy from being re-appointed.

"We take a robust approach on the election or re-election ofindividuals and groups of directors who do not live up to thisresponsibility," said Hans-Christoph Hirt, co-head of investoradvisory firm Hermes EOS.

Investor willingness to challenge boards on pay hastraditionally been tempered by a desire not to demotivate CEOsand risk losing them to rivals in a global war for talent.

But after a year in which the FTSE 100 has fallen 5percent, companies are being asked to justify why their leadersshould be so well paid.

"Excessive remuneration has always been an issue asultimately investors pay for performance not failure," saidIsabelle Cabie, Global Head of Sustainable & ResponsibleInvestment at Candriam.

"But investors and other stakeholders have also startedlooking at this as a 'moral or social justice' issue rather thanjust a performance issue."

Investors at every UK company can vote yearly on the firm'sremuneration report, which details the pay and perks given toexecutive directors in the year under review. Those votes arenon-binding.

Since 2014, shareholders have also been guaranteed separate,binding votes at least once every three years on a firm'sremuneration policy, which governs future payouts.

Should more than 50 percent of votes oppose the board, it isrequired to rewrite the policy, although according to data fromvote advisory firm Pensions & Investment Research Consultants(PIRC), that has not happened a single time in 619 suchresolutions for the FTSE All-Share firms it tracks.

Eight votes went completely unopposed and more than half hadless than 5 percent opposition.

However, the high-profile rejections of BP and othercompanies in the non-binding votes on the past year could bodeill for some of the 90 percent of firms which need to seek freshapproval for their future policies by 2017.

Data from governance and pay consultancy ISS CorporateSolutions on Friday showed an average of 5.8 percent of voteswere cast against remuneration reports and policies so far thisyear, compared with an average of 3.9 percent last season.

"There is a notably higher level of shareholder votingdissent we are now seeing compared with the same period lastyear. A number of blue chip companies will hold their meeting inthe coming weeks and we anticipate investors will continue tofocus their engagement on portfolio firms failing to adequatelytie pay to performance," said Stephan Costa, an executivedirector at ISS Corporate Solutions.

Shade Duffy, head of corporate governance at AXA InvestmentManagers said: "There's an absolute need to be conservative - weall know what the wider economic environment is like - and payshould reflect that."

The opening skirmishes of this year's season carry with themechoes of 2012, when investors used their non-binding votes toreject remuneration reports at companies including advertisinggiant WPP and Centamin.

Several CEOs, including Andrew Moss of Aviva andDavid Brennan of AstraZeneca, stepped down in the wakeof the 2012 "shareholder spring", and the government respondedby introducing the tougher rule enabling investors to veto paypolicy.

Stefan Stern, director of think tank the High Pay Centre,which aims to reduce the pay gap between the super-rich andeveryone else, says this AGM season is evidence of a hardeningin investors' approach to board pay.

"I think what you're seeing is genuine and substantialconcern being expressed in these votes. There's a bit of 'enoughis enough' in the air."

Remuneration consultants who advise companies on their paypolicies defend their clients, however, and point to recentinnovations aimed at aligning executive pay with shareholderinterests.

"Clawback is now going to be there for five years," saidAlan Judes, consultant at Strategic Remuneration, referring tothe option company boards have to force executives to repaybonuses in the event of poor performance.

"They (companies) are all moving in the way shareholderswant them to." (Editing by Peter Graff)