UPDATE 2-Australia's Myer board survives, shareholders lash pay

* Shareholder votes go against Myer executive pay

* Myer shareholders vote against sacking board

* Company has struggled against online competition (Recasts, adds share reax, quotes)

SYDNEY, Nov 30 (Reuters) - Shareholders of Australia’s biggest department store operator Myer Holdings voted to keep the board during a tense annual meeting on Friday, sending its shares up strongly, although they rejected its executive pay for a second year.

The result gives the struggling high-street retailer a year of breathing space following a fierce campaign by its biggest investor, retail veteran Solomon Lew, who has campaigned to remove the board due to years of dismal earnings.

Under Australian law, companies must give shareholders the option to replace the board if the pay proposals are rejected two years running. A vote against the remuneration report needs just 25 percent to succeed but a majority is needed to convene a meeting to oust the board.

Owners of 37.5 percent of Myer’s shares voted against the company’s remuneration report in a sign of deep dissatisfaction with the company’s performance.

But directors kept their jobs after 64 percent voted against calling a special meeting to remove the board.

Shareholders also voted for new CEO John King’s pay, after he started in August.

Myer shares rose 6 percent in a weaker overall market as investors welcomed the prospect of stability. The shares are just over half their level of a year ago.

“Level certainty is worth a few cents,” said Philip Pepe, a senior research analyst at Blue Ocean Equities.

“Whatever happens, you now have certainty.”

While the board survived, Chairman Garry Hounsell criticised Lew, the billionaire who bought 11 percent of the company last March and has since called for its directors to go on grounds of inadequate retail experience.

“As shareholders, I don’t know what you make of this. It is just a travesty. We’ve ... got someone who is running a vindictive campaign against this company,” he said.

Lew, who was not at the meeting, called the vote “a resounding success”.

“That’s a huge message to the board,” he told reporters later.

Introduced in 2011 to give shareholders more say on executive pay, few Australian companies have had two straight votes against their board salary plan, the trigger for a motion to oust the directors.

“It’s a no-cost option for shareholders to communicate frustration or displeasure with management and the board, without actually having explicit consequences,” said Daniel Smith, general manager of proxy adviser firm CGI Glass Lewis.

Reporting by Byron Kaye; Editing by Muralikumar Anantharaman and Stephen Coates