* UBS says Gruebel entitled to bonus
* Says gives up bonus after shares fell in 2010
* UBS shares ended 2010 down 4.4 percent
(Adds background, detail)
By Martin de Sa'Pinto and Sarah White
ZURICH/LONDON March 4 (Reuters) - Oswald Gruebel, chief executive of UBS, is the first head of a major bank to say he will forego his 2010 bonus after the wealth manager's share price fell during the year.
While the Swiss bank has succeeded in stemming wealth management outflows -- one of Gruebel's stated priorities -- and returned to profit in 2010, the CEO renounced his payout for the second successive year.
"The fact that the share price did not increase in 2010 has led to Mr Gruebel's decision," UBS said in a statement.
The bank said Gruebel, who was brought out of retirement two years ago to revive UBS, was entitled to a bonus based on profit, an improvement in results and progress toward medium-term strategic goals.
UBS shares fell 4.4 percent in 2010 but outperformed the Stoxx European Banks index, which dropped 11.6 percent.
Like Gruebel, many other CEOs at top banks renounced their bonus for 2009.
But many have said they will take their awards for 2010 while others are expected to do so after profits recovered and political pressure eased on them to pass up extra payments.
Some have taken their bonus in deferred share awards.
PAY SCRUTINY
Switzerland had to rescue UBS in 2008 after its flagship bank wrote down $52 billion in the crisis, pushing it to the biggest annual corporate loss in Swiss history.
Former chairman Marcel Ospel and other ex-board members agreed to return 33 million Swiss francs in payments from the bank after a media campaign against excessive pay.
Gruebel has set an ambitious plan to rebuild UBS's profit beyond its pre-crisis level and the straight-talking German wants to instill a new culture of strict cost control.
UBS is under more scrutiny than most banks to rein in pay. Compensation represented 52.9 percent of income last year, down from 73 percent in 2009, but still one of the highest among investment banks, where the compensation ratio averaged near 40 percent for 2010.
"Nomura and the two Swiss majors still have problems with high cost ratios," analysts at Barclays Capital said in a research note on Friday, although they added that UBS was "moving in the right direction."
In contrast to Gruebel, Brady Dougan, CEO of rival Credit Suisse, took a bonus of almost 18 million Swiss francs for 2009, bringing his total pay to over 19 million francs for the year and making him the second highest paid executive in Switzerland.
Last year Credit Suisse, which did not need a government bailout, threw oil on the Swiss debate around executive pay by awarding Dougan shares worth around 71 million Swiss francs under a five-year bonus plan.
Pay at 11 European banks totalled $164.5 billion, up 7 percent from 2009, with staff costs rising at all but two firms, according to analysis by Reuters.
But on Friday Deutsche Bank Chief Executive Josef Ackermann said "significant progress" had been made on policies for compensation in the industry.
Many politicians and the public remain angry at the scale of pay in the industry so soon after the financial crisis, especially in Europe.
The Swiss government has kicked off a legal process to tighten regulation of its top banks, including the right to force those bailed out by the state to make changes to bonuses and even cancel payouts.
UBS has brought in a scheme that withholds a portion of bonuses and only pays them out if the bank's results warrant it. (Additional reporting by Steve Slater; Editing by Will Waterman and David Cowell)