The Australian Prudential Regulation Authority (APRA) has revised a proposed remuneration standard aimed at improving corporate culture, after insurers and other financial firms said the plans would have unintended consequences.

APRA has backed away from a 50% cap on financial performance criteria for bonus-type payments and acknowledged concerns that extended deferral periods may put Australia out of step with global insurer practices, making it more difficult to attract and retain staff.

The revised proposal for variable remuneration would require firms to place “material weight” on non-financial measures and adjust for adverse risk and conduct outcomes. It also slightly reduces deferral periods and makes changes to ease the administrative burden.

“APRA’s revised standard on remuneration is deliberately principles-based to provide boards with flexibility to tailor remuneration frameworks to their entities,” Deputy Chairman John Lonsdale said today.

The regulator warns flexibility comes with an obligation for boards to actively oversee remuneration policies and ensure suitable consequences when people fail to meet expectations.

APRA says the Global Financial Crisis a decade ago and the Hayne royal commission have highlighted that senior executives, in particular, have been financially rewarded despite failings in risk management and poor community outcomes.

“As the industry moves beyond the initial stages of COVID-19 stress, and the focus shifts to supporting growth, it is important that the examples of weak practices observed in earlier years are not repeated,” the regulator says.

“To underpin prudent long-term growth outcomes, entities must broaden incentive structures away from a sole focus on short-term financial performance.”

APRA rejects suggestions that there should be “lesser requirements” for insurance and superannuation and says it has instead taken a “proportionate approach”, differing requirements based on the size and complexity of entities.

A phased implementation would see the new standard applying first to major banks from January 2023. Insurers that are significant financial institutions would need to implement the changes by July 2023 and other smaller firms would come under the rules from the start of 2024.

Consultations on the revised standard will close on February 12. More details are available here.