* Fidelity publicly criticises Barclays over bonus rise
* Barclays has said it needs to raise bonuses to keep staff in US
* European lawmakers to consider revamping EU bonus rule
* British banks risk tougher regulation due to pay rises
By Steve Slater and Chris Vellacott
LONDON, March 11 (Reuters) - Barclays faces a backlash from shareholders over its decision to raise bonuses despite a fall in profits, with investors increasingly demanding CEO Antony Jenkins give more money to them and less to his staff.
British banks have failed to rein in pay despite a new EU cap, leading to a threat that politicians and regulators in both Brussels and London might impose more curbs.
Few have drawn as much criticism as Barclays, where profits fell by a third but staff have just won a 10 percent bigger bonus pot to share for last year than the year before.
Jenkins said in a newspaper interview last week that he was forced to increase bonuses after an exodus from Barclays' investment bank in America left him fearing a "death spiral". But the excuse seems only to have annoyed shareholders who think he should have fought harder on their behalf.
"The bonus issue is on a collision course with shareholders again. I have been unhappy with this for a long time," one of the bank's institutional shareholders told Reuters on Tuesday.
"Shareholders have been long suffering, while employees sail on unscathed. They will trot out the same arguments again, about how if they don't pay up they will lose key staff. This is a bluff that has never yet been called," the shareholder added.
In a rare public display of criticism, Fidelity, Barclays' 17th biggest shareholder, said it was "disappointed" the bank was not paying shareholders more.
Chief investment officer Dominic Rossi said the bank had landed itself in a "public relations mess". Fidelity confirmed the comments, first reported by Sky News.
Barclays is now paying three times more in bonuses to staff than in dividends to its owners, a fact that business leaders' group the Institute of Directors said should push shareholders to be more "aggressive".
Once hailed as Saint Antony for his pledge to overhaul the hard-charging culture at Barclay's investment bank, Jenkins is instead on the defensive after raising the 2013 bonus pool to 2.4 billion pounds ($4 billion) despite the fall in profits.
While investors do not have a vote on overall pay levels at banks, some told Reuters last week they could voice dissatisfaction at banks' failure to cut overall pay by voting down remuneration for executives. Shareholders in British companies have a binding vote on directors' pay.
Barclays holds its annual general meeting on April 24.
Barclays declined to comment on the criticism. Its shares dropped 2.4 percent to 236.1 pence on Tuesday after sagging as low as 233.6p, their lowest level since December 2012. The stock has fallen 15 percent since results on Feb. 11 amid concern that fixed income revenues have stayed weak across the industry, and Barclays is losing share to U.S. rivals.
Bumper bonuses have been widely blamed for encouraging the risk-taking that contributed to the 2007-09 financial crisis, which saw taxpayers bail out lenders with billions of pounds and euros of public money.
But efforts to rein them in have failed, with almost half of Britain's bankers and other financial service professionals set to get a higher bonus for 2013 than they did in 2012 and the average payout rising by nearly a third, a survey showed.
Barclays has often been a lightning rod for pay issues in Britain as it has the largest investment bank and the highest pay scales among UK lenders. But this year other lenders have also irked regulators and politicians.
Banks in Britain have led the way in raising fixed pay in response to new European rules that cap banker bonuses. The banks say they have no choice but to raise other forms of pay or lose top talent to U.S. rivals that have no bonus caps.
Britain's HSBC has said it will use "allowances", paid monthly or quarterly to raise fixed pay. UK peers Lloyds and Barclays last week indicated they would follow suit.
Their actions prompted European lawmakers on Monday to agree to consider a revamp of the bonus rules to prevent British bankers from softening their impact.
The Bank of England is also looking at the allowances to see if they are a covert way of avoiding the EU bonus cap.
While Britain's Conservative-led government is challenging the bonus cap in the EU's top court, fearing its impact on London's banking hub, British lawmakers from across the political spectrum are unhappy that bonuses are rising.
Andrew Tyrie, a Conservative backbencher who leads an influential parliamentary committee on banking, has warned that authorities may need to step in to cap pay. The opposition Labour Party has said if it returns to government next year it could reintroduce windfall taxes on bankers' bonuses, potentially raising 2 billion pounds.
Labour introduced a "one-off" bonus levy in 2009.
Shareholder advisory group Pirc said stiffer rules might be the only thing that works.
"If the big banks have not got the message of restraint by now maybe it's time for stronger regulations," a spokesman for Pirc said on Tuesday.
The main concern among Barclays shareholders is that Jenkins does not have control of costs in the investment bank, one person familiar with the matter said.
Jenkins has told investors the bank increased the bonus pool because of a big rise in departures in its U.S. investment bank after it cut bonuses in 2012 more than rivals.
The departure rate in the U.S. investment bank doubled last year to near 10 percent, people familiar with the matter said.
Barclays' annual report last week showed the bank paid 481 employees at least 1 million pounds last year, up from 428 the year before. It said 57 percent of them were based in the United States and 27 percent were in Britain.