The current system of finance sector executive remuneration based largely on the achievement of financial targets, including long-term incentives based primarily if not entirely on relative total shareholder return, will have to change. And the banking regulator will be heavily involved in driving the change.This was the message Australian Prudential Regulation Authority chair Wayne Byres delivered at the Australian Financial Review Banking and Wealth Summit yesterday.Byres said: "Attempts to move away from the conventional model of executive remuneration have not been wholly welcomed. Boards have struggled to gain acceptance that new approaches are needed."So it seems inevitable that regulatory intervention and a greater degree of prescription will be required to shift practices."Byres' stance carries the royal commission's imprimatur. Hayne recommended that APRA develop a much stronger framework of regulation and supervision of remuneration. The royal commission specifically recommended APRA impose a cap on the use of financial metrics for long-term incentives."We have committed to commence consultation on revisions to current prudential standards by the middle of next year. But in the context of executive remuneration, I think there are a few aspects where the direction is pretty clear," Byres said."We want to see remuneration based on a genuine and even balance of financial and non-financial considerations."He said APRA was yet to reach a view on the right mix but 50:50 would be the starting point. APRA will be looking for more than a single, share-price based metric. Total shareholder return could go from the primary, if not sole, determinant of long-term incentives to less than 25 per cent."Boards have a responsibility to ensure executive remuneration is appropriate. Given the complexity and nuance involved in performance assessment, that means more board discretion, not less. That is, both more discretion in rewarding and more discretion in judging whether rewards should ultimately vest."Totally formulaic approaches with high leverage that some investors seem to favour are not going to cut it in future."Last year, I noted that it would be disappointing if the industry viewed the minimum deferral requirements of the BEAR [Banking Executive Accountability Regime] as the default. Disappointingly, this is what seems to have happened largely."We will be examining the case for longer deferrals, at least in some instances, to better align vesting with the emergence of risks."The royal commission also recommended that APRA require additional clawback arrangements. Byres said: "Many boards argue that it is very difficult to make clawback work in practice. That may well be, but if so it won't be the case of simply going without. Longer deferrals and malus periods, possibly combined with post-vesting holding locks, might be needed to compensate."