HSBC's executive pay policy got a grudging green light on Friday, along with a stinging rebuke from one of its top investors, as Europe's biggest bank said it was bracing for further economic shocks.

Recovery in the developed world has been much slower and we are not out of the woods yet, as this month's events have reminded us, HSBC Chairman Stephen Green told shareholders at the company's annual shareholder meeting in London.

We may yet see further shocks to some western nations as they come to terms with the reality of large national debts.

HSBC won approval for its remuneration report, but of those who responded, close to a quarter voted against it or abstained.

Guy Jubb, head of corporate governance at Standard Life , which owns more than 1.5 billion pounds ($2.2 billion) of HSBC shares, voted against the pay plan for the third successive year.

Despite our clear communication of concerns, the bank has not been listening. This year our concerns compounded, Jubb said.

HSBC earlier this year sought to increase the pay of CEO Michael Geoghegan and other executives by about a third, but backtracked after resistance from investors, people familiar with the matter said.

Jubb said the proposals were to put it simply, unacceptable. He added: The decision to scale them back was welcome, but the damage was done.

Jubb said Standard Life was also concerned about Geoghegan's recent relocation to Hong Kong.

Green, who dismissed a report he was planning to step down and said he would remain as chairman for at least the next year, said getting the right remuneration policy was absolutely crucial. The bank's new remuneration committee chairman John Thornton would review current policy in discussion with investors over the summer.

There's a real long-term shareholder interest in us getting this right, Green told shareholders. What you don't want as owners of this company is to find the leadership and management team unraveling over time because we are not prepared to be internationally competitive.

Thirteen percent of shareholders who voted were against the pay plan. Almost as many withheld their vote -- often seen as a protest vote -- although Green said it typically indicated they were reserving judgment before Thornton's consultation.

Governance body Pirc, which advises investors with combined assets of over 1.5 trillion pounds, had advised shareholders to reject the pay plans.

Investors have criticized an extra 300,000 pounds ($437,800) a year awarded to Geoghegan for living costs after he relocated to Hong Kong earlier this year. He also gets housing and other benefits that could be worth over 500,000 pounds.

HSBC has also been criticized for paying a 9 million pound bonus last year to Stuart Gulliver, head of its investment bank.

SHANGHAI LISTING UNLIKELY IN 2010

HSBC has said Geoghegan is underpaid relative to peers. His base salary is 1.1 million pounds and he gave his 4 million pound 2009 bonus to charity.

Geoghegan has been CEO for almost four years and steered the bank through the financial crisis better than most. Conservative capital and liquidity policies meant it did not need taxpayer help and allowed it to grab market share from stricken rivals.

HSBC has suffered big losses on U.S. home loans, however, and is increasingly focusing expansion on Asia.

The bank said a stock market listing in Shanghai remained a high priority, but Green said after the AGM that it was unlikely to occur this year.

Asked whether HSBC would be interested in AIG's Asian life insurance arm if a proposed sale to UK insurer Prudential unravels, Green said: We are not an insurer. We are clearly a distributor of insurance products ... Manufacturing insurance is not a core part of our business.

($1=.6852 Pound)

(Writing by Paul Hoskins; editing by Myles Neligan and Will Waterman)

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