Wayne Byres wants the financial services sector to rely less on “narrow and mechanical shareholder” metrics to decide senior executives’ remuneration.

Executives should also be assessed on all-round performance, the Australian Prudential Regulation Authority Chairman told the Senate Economics Legislation Committee.

While the sector has policies and processes to align remuneration with sound risk outcomes, their practical application is often weak.

“We have indicated that we are minded to strengthen the prudential framework to give better effect to the principles we want to see followed,” Mr Byres said. “Less rewards based on narrow and mechanical shareholder metrics, and greater exercise of board discretion to judge senior executive performance more holistically.

“But we have also urged institutions to push ahead with their own improvements, notwithstanding some investor opposition, in light of the long-term commercial benefits that can flow from better remuneration practices.”

On the misconduct exposed by the Hayne royal commission, Mr Byres says the sector has its work cut out restoring public trust.

The industry remains financially sound and stable, which is a key focus for the regulator.

“We don’t know when the next period of adversity will arrive or what will trigger it, but when it does arrive we need to have done what we could to strengthen the financial system so it can continue to provide its essential services to the Australian community when they are needed most,” Mr Byres said.