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Act on exec pay to rebuild trust: APRA

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Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres has urged chief risk officers to play a greater role driving executive pay reform.

Mr Byres says a review of remuneration policies at large regulated entities found examples where cuts for lower-level staff were not matched by adjustments at an executive level.

“Overall, senior executives seemed somewhat insulated from the consequences of poor risk outcomes – this must change,” he told the Risk Management Association’s Annual CRO Conference in Sydney.

He says performance measures are too focused on shareholder metrics such as return on equity and total shareholder return, with long-term incentives out of step with the way best practice is evolving internationally.

“From insufficient challenge to insufficient documentation, it was clear that stronger governance of executive remuneration is needed,” he said.

APRA has signalled plans to strengthen its prudential requirements in this area, while urging companies to take early action.

Mr Byres says CROs, as senior figures in the risk profession, should assume a leadership role in moving ahead of regulators and driving change.

“That will do far more to demonstrate a genuine commitment to ‘regaining the trust’ than simply complying with new requirements imposed on you by regulators,” he said.