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MILAN - Investors are due to approve Andrea Orcel's appointment as chief executive of UniCredit on Thursday, but the issue that scuppered his first attempt to run a major bank is overshadowing his second: pay.

Orcel, 57, will join UniCredit just over two years after Spanish bank Santander withdrew an offer to make him its CEO after a disagreement over his pay package that ignited a 112 million euro ($134 million) legal dispute.

Though only a fraction of the $30 million-plus bonuses Orcel got as a Merrill Lynch banker earlier in his career, UniCredit's offer of up to 7.5 million euros ($9 million) a year puts him ahead of British bank Lloyds' new CEO Charlie Nunn and of most European peers, analysts said.

UniCredit has said the package does not include any compensation for the more than 25 millions euros in deferred pay from former employer UBS Orcel is losing by taking a new job.

But the share bonus of up to 5 million euros, which is twice the fixed pay, has not been linked to performance or subjected to claw-back clauses for the first year.

The guaranteed bonus and a generally much higher pay package than his austere predecessor Jean Pierre Mustier had opted for have irked some of UniCredit investors and prompted leading shareholder advisers to call for a "no" vote on the matter.

Institutional Shareholder Services and Glass Lewis both back Orcel's appointment but they have recommended rejecting UniCredit's remuneration policy due to the "problematic pay package of the new CEO."

"The package is out of tune with the current setting, that calls for sobriety, and the previous CEO's pay," Italian proxy adviser Frontis Governance founder Sergio Carbonara said.

Frontis also advised shareholders to vote against the pay policy and Carbonara said he expected it would be rejected.

Speaking on condition of anonymity due to the sensitivity of the issue, two top 30 UniCredit investors told Reuters their funds would vote against the remuneration package.

A spokesman for UniCredit said it would be Orcel's decision what to do if his pay package was not approved.

'A DISTRACTION'

"They should have judged the market appetite for this type of a reward better," Filippo Alloatti, senior credit analyst at Federated Hermes, said.

"It's a little bit of a distraction ... they're inviting questions they could have easily avoided."

A report by Italian market regulator Consob last week showed that the share of institutional votes rejecting companies' remuneration policies has increased in the last few years.

"Investors' dissent on companies' pay policy is on the rise," said Alessandro Zattoni, an Italian academic who chairs the International Corporate Governance Society.

Not all UniCredit investors begrudge Orcel his pay. The historic Fondazione Cariverona banking foundation has said the "important and brave" choices UniCredit faces to revive its profits call for the best talents available.

Also Turin-based Fondazione CRT, another UniCredit shareholder, intends to support the package.

"The 'Cristiano Ronaldo' of finance deserves a champion's pay," individual shareholder Gianluca Fiorentini wrote in questions to the bank ahead of the AGM. "Only time will tell if that's money well spent."

A rejection of Orcel's proposed pay package would leave in place the current policy - meaning a fixed pay of 2.1 million euros and twice as much in variable remuneration.

UniCredit's former CEO Mustier, who left in February after falling out with the board over strategy, never actually earned that sum.

The French banker, who arrived in 2016 to steer UniCredit through a restructuring, cut his fixed pay by 40%, waived his yearly bonuses and pledged to leave without a severance cheque when the time came - as he outlined in slides during his first investor day.

UniCredit is now proposing doubling the cap on the severance payment to 15 million euros from 7.2 million under the new policy designed to attract global talent.

"They would say that in order to get a very skilful individual they need to put something on the table, but I could retort also that from Orcel's point of view this is a second chance for him in his career," Hermes' Alloatti said.

Orcel, who once declared in an interview he dreamt of running a bank one day, has been out of a job for the past two years after decades at the forefront of European banking, lastly as head of UBS' investment banking arm.