Australia's prudential regulator says it is ambivalent about the size of executive pay packets but it does want to ensure that remuneration practices do not embed "risk time-bombs" in the country's financial institutions. Speaking at an executive remuneration forum in Sydney, a senior official from the Australian Prudential Regulation Authority said that financial institutions needed to ensure their pay practices did not encourage short term risk-taking at the expense of long-term financial stability.David Lewis, general manager of APRA, said that as a prudential regulator his agency was concerned not with how much executives were paid but with whether their remuneration models encouraged excessive risk taking. He said there was ample evidence from overseas that remuneration was a key driver behind the financial crisis. In Australia, generally speaking, there was a different remuneration environment, but regulators still needed to ensure that pay was not contributing to systemic risk."Despite all the public angst about the size of bank executive pay packets, we're ambivalent about that," Lewis said. "What APRA looks at is not the 'how much' of executive pay but the 'why'. Our concern is to make sure that the remuneration practices adopted by regulated financial institutions are sound and do not imbed 'risk time-bombs' in the balance sheet which could undermine the future viability of the firm." When assessing incentive structures, APRA looks at the performance hurdles that underpin bonuses and whether these are aligned with prudent risk management. One of the big issues is whether the performance measures that are used promote short-term profits at the expense of a firm's long-term viability. APRA also looks at whether too much emphasis is being placed on immediate revenue growth without considering the quality of the assets being brought onto the firm's balance sheet. Lewis said that these were fundamental matters of good governance and should be priorities for any well-run board.Lewis said that if firms adopt these compliance controls they will ensure that executives have some "skin in the game" and their incentives are aligned with the long-term health of the firm. "If executives want to take a bigger slice of the pie in good times, they must also be prepared to take their share of the pain if things take a turn for the worse."This article was first published by the Compliance Complete service of Thomson Reuters Accelus.