* More than half votes cast at AGM oppose remuneration report
* Chairman says he will talk to shareholders
* Investors back binding vote on remuneration policy (Writes through, adds detail, reaction, shares)
By James Davey and Paul Sandle
LONDON, July 11 (Reuters) - Burberry investors showed their displeasure at the multimillion-pound pay package of the luxury brand's boss Christopher Bailey on Friday, joining wider disquiet surfacing at some of Britain's leading businesses.
In a still-rare rebuke for a FTSE 100 company, 52.7 percent of the votes cast in a ballot at Burberry's annual shareholder meeting in London opposed the board's remuneration report.
Though the vote was non-binding, business lobby group the Institute of Directors said that Burberry investors had "fired a warning shot" at the meeting.
"If the board does not react in a constructive way to investor concerns, there is a real risk that shareholders will feel compelled to use their new binding powers at next year's annual general meeting," it said.
Encouraged by politicians, shareholders across all industries are starting to flex their muscles again.
New regulations came into force last October in relation to the reporting on directors' remuneration, which require the policy to be subject to a binding vote. In a first for a London-listed company, investors voted down the remuneration policy of engineering firm Kentz in May.
Bailey, as chief creative and chief executive officer at the company famous for its camel, black and red-checked designs, is among the highest-paid FTSE 100 bosses.
He receives a salary of 1.1 million pounds ($1.9 million), plus a 440,000 pound annual allowance and pension contributions equivalent to 30 percent of salary. He is also eligible for a performance-based bonus of up to 200 percent of salary and participation in executive share plans, awards from which will vest from 2017.
In addition, Bailey was granted a one-off performance-based award of 500,000 shares, which will vest from 2017 to 2019, worth 7.3 million pounds at Thursday's prices.
Burberry Chairman John Peace told reporters he was disappointed with the result of the vote.
"I need to talk to some shareholders," he said. "I want to understand why they felt so strongly to vote like that."
Peace said he felt that the main issue was the award of the 500,000 shares, but he also pointed out that the company had received the support of 83.9 percent of the vote in the separate binding ballot on its forward-looking remuneration policy.
The chairman had defended Bailey's pay during the formal meeting, describing him as "a rare talent" who could command a much higher package outside of the UK.
"We know the amount paid to Christopher is a lot of money, but much of it is performance-related, which he will only receive if Burberry performs strongly," Peace said. "This will, of course, also benefit shareholders."
Bailey officially took over at the 158-year-old business on May 1 after Angela Ahrendts left the company to join U.S. technology giant Apple. Ahrendts took home 6.8 million pounds in Burberry's 2012-13 financial year.
Since Bailey joined Burberry in 2001 its market value has increased from 1.1 billion pounds to 6.5 billion pounds.
At Friday's meeting Andrew Whiley, of investor advisory body Pensions and Investment Research Consultants (PIRC), questioned the one-off award of 500,000 shares.
Peace said it was made so that Bailey's package on his promotion mirrored that granted to Ahrendts.
Bailey had already received multimillion-pound share bonuses, including 350,000 shares in 2010 and one million shares in 2013. These will vest between 2015 and 2018 and are worth 19.8 million pounds at Thursday's closing share price.
Peace said the latter was granted to keep Bailey at the company after he was offered better-paying jobs by competitors.
"My goodness what a good decision that was," he said in reference to the subsequent departure of Ahrendts.
Bailey told reporters that his pay was a matter for the chairman and the board's remuneration committee and denied holding the company to ransom.
And in the formal meeting he was not without support - "worth every single penny", one private shareholder said.
On Thursday Burberry reported better than expected sales growth in its financial first quarter but warned that a strong pound would hit profit this year.
Burberry shares closed 0.8 percent down at 14.53 pounds. ($1 = 0.5877 British Pounds) (Editing by David Goodman)