Executive salaries about structure, not quantum

Incentives and structures rather than the ultimate quantum will form the basis of the Australian Prudential Regulation Authority’s (APRA) approach to issuing guidelines on executive remuneration.

That is the bottom line of an announcement issued by the prudential regulator today, with APRA executive member John Trowbridge making the position clear.

“APRA does not intend to focus on the levels of compensation paid to executives,” he said. “APRA will concentrate instead on the structure of executive remuneration and, in particular, on the incentives built into these arrangements.”

Trowbridge said it would be a principles-based approach aimed at encouraging management behaviour that protected and supported the interests of beneficiaries of APRA-regulated institutions.

“There is a clear consensus that an important factor [which contributed] to the global financial turmoil was remuneration practices that encouraged inappropriate risk-taking,” he said. “So far, Australian financial institutions have weathered the global financial storm well. It is, nevertheless, essential that remuneration practices in the Australian financial sector are conducive to long-term financial strength and stability.”

The regulator is expected to finalise its position and conduct further consultations with the industry next year.