UPDATE 2-UK's Lloyds shareholders back exec pay, bonuses

* 91 pct vote in favour of remuneration plan * Remuneration committee chief to retire

* Lloyds returned to profit in Q1, sees full-year profit

* Shares at 59p vs 63p average price govt paid for stake

(Adds vote results, quotes from chief executive)

By Lorraine Turner

EDINBURGH, May 6 (Reuters) - Lloyds Banking Group (LLOY.L) shareholders backed plans for executive pay and bonuses on Thursday at the first investor meeting since the lender said it had returned to profit.

Britain's largest retail bank, 41 percent owned by taxpayers, has been one of the focal points of public anger on banker pay.

It defended both its remuneration policies and the widely criticised decision to award Chief Executive Eric Daniels a full bonus for 2009, despite billions of pounds of losses.

Daniels -- the only boss of a rescued UK bank to have retained the top job through the financial crisis, and one of few worldwide -- waived the more than 2 million pound ($3.1 million) bonus in February, bowing to growing pressure on bank chiefs.

A large majority of voting shareholders -- 91.47 percent -- backed the group's remuneration plans on Thursday, but several vented their anger over what one investor said was "obscene" pay.

"The whole system of bonuses is rotten. Can we please cap all those bonuses, and cap the salary rises," shareholder David Harrison asked the board at the meeting in Edinburgh, attended by several hundred investors.

"If you did all that, you might be able to pay back some of the government money and pay us back our dividends early."

Lloyds Chairman Win Bischoff said the bank would not be able to cap bonuses on its own, but acknowledged public anger and said the bank was aiming to strike an adequate balance.

"We recognise that remuneration in the banking industry remains a sensitive issue for our shareholders," Bischoff said in his opening address, adding the bank's approach to pay had been discussed with shareholders including the government, through UK Financial Investments.

Another shareholder, Mary Craig, questioned Daniels' proposed pay deal at a time when the group was cutting back on charitable donations.

"The board... believed Eric merited a bonus because of his significant individual contribution and the group's considerably improved overall performance, albeit still loss-making, in 2009," Bischoff said.

The decision to award Daniels a full bonus -- during one of the bank's worst years -- has been blamed for the unexpected decision in March by the chair of the remuneration committee, Wolfgang Berndt, to retire at the shareholder meeting. Berndt was not present.

At least one major investor -- UKFI, which manages the government's stake -- considered voting against Berndt's reappointment, an industry source said.

UKFI said on Thursday, however, that it planned to back all resolutions it was eligible to vote for and supported changes to Lloyds' incentive plan for executives, though it warned it would continue to focus on pay.

BACK IN THE BLACK

Lloyds, which rescued rival HBOS at the height of the crisis, becoming saddled with billions in bad debts, held its Edinburgh meeting against an improving backdrop for both the UK economy and its own operations.

Lloyds said last week it returned to profit in the first quarter, earlier than expected, as losses on both retail and commercial bad debts fell.

Lloyds expects to deliver a profit on a combined basis at both the half-year and the full-year, but executives said on Thursday they remained realistic about prospects for the UK economy, which would continue to grow "below trend".

Lloyds shareholders met on the same day Britons go to the polls in one of the most tightly fought elections in decades, with the outcome critical for Lloyds and the broader sector.

Speaking after the meeting, Daniels cautioned that a hung parliament -- one in which there is no majority -- would prove problematic: "The country is looking for certainty," he said.

Lloyds shares are trading just under 60 pence, just shy of the 63.2 pence average paid by the government for its investment, net of fees. Levels above that would indicate taxpayers stand to make a profit in a share sale, though that is not widely expected before early next year. (Writing by Clara Ferreira-Marques; Editing by Erica Billingham) ($1=.6465 Pound)