The Australian Prudential Regulation Authority (APRA) will use a principles-based approach to encourage management behaviour that avoids risk-taking in financial institutions.

Rather than focus on the levels of compensation paid to executives, APRA says it will concentrate on the structure of executive remuneration and on incentives built into these arrangements.

APRA Executive Member John Trowbridge says remuneration practices that encourage inappropriate risk-taking have contributed to the global financial turmoil.

“So far Australian financial institutions have weathered this global financial storm well,” he said. “It is nevertheless essential that remuneration practices in the Australian financial sector are conducive to long-term financial strength and stability.”