Shamed by the banking royal commission, and then slammed by a review headed by former ACCC boss Graeme Samuel, APRA is in the regulatory doghouse, and is trying to get out.

A key part of that escape plan is a new regulatory standard for pay in the financial services sector.

It builds on the Banking Executive Accountability Regime (BEAR), which the Government introduced in response to the many scandals which have dogged the sector.

"APRA seems very awake to one of the central problems about executive pay in large banks and other financial institutions, which is that the bits of executive pay which are described as being at risk, really aren't," explained Martin Lawrence from corporate governance specialists Ownership Matters.

APRA wants to change that, and the key is a proposed seven-year vesting period for CEO bonuses.

New risks

But that comes with risks, according to Professor Elizabeth Sheedy from the Business School at Sydney's Macquarie University.

"What we may well see is that there will be a move to have less reliance on bonuses, which we sometimes call variable remuneration," Professor Sheedy told the ABC. "There may be greater reliance on base salary."

In other words, bosses wanting to be paid more up front.

And that could set off a chain reaction, with chief executives of companies in other sectors watching closely.

"From what we see, it's the banks' remuneration outcomes which tend to trickle down to the rest of the listed companies in Australia, rather than the other way round," Simon Mawhinney, chief executive of funds manager Allan Gray, says.

"So, I think that as the banks move, so too others will follow."

Investor pressure

However, Ownership Matters' Martin Lawrence thinks APRA could be in the right place, at the right time.

With big shareholders increasingly flexing their muscles on executive largesse not matched by stellar performance, Mr Lawrence is not convinced there will be a return to the bad old days.

"In the current environment, increasing the pay of bank executives in order to compensate them for not getting as much up front is unlikely to go down very well."

Which means the pressure is on directors, and that's just what APRA wants, proposing they have much greater responsibility and involvement in remuneration — from the top of the company to the bottom

Macquarie University's Elizabeth Sheedy says the fact that APRA wants directors to lift their game is a reflection on their poor performance.

"They're [directors] not providing sufficient challenge to the executive," she said. "They're not really providing the accountability in terms of remuneration outcomes."

Directors under pressure

The sting for directors could be in what APRA hasn't said — the penalty for not lifting their game.

Last year, for example, it forced Commonwealth Bank to hold an extra billion dollars in capital to compensate for the risks of bad behaviour.

"I'd imagine in that situation you would have a bunch of very unhappy shareholders who would be taking it out on the directors," Mr Lawrence said.

As directors of companies like AMP, NAB and Commonwealth Bank have found out in recent times, they're very disposable if shareholders are unhappy.

What about the customers?

The big question though is, will APRA's proposed new standard for pay in the financial services sector put an end to the culture that tolerated massively ripping off clients?

For those the ABC spoke to, the answer is no.

The reason: APRA's push for non-financial metrics to be at least 50 per cent of bonus calculations.

Things like Customer Service, Community Engagement, People, etc.

It's what's known as a "balanced scorecard".

Simon Mawhinney, from funds manager Allan Gray, is not convinced.

"If I keep my staff alive, and preside over a safe working environment, or don't steal from my customers, do I get a bonus? No, I keep my job, that's the bare minimum."

Mr Mawhinney also points out it is the system most banks use now.

Soft targets, like customer satisfaction, he adds, can be easily manipulated by lowering prices, which hurts profits and shareholders — but still guarantees a bonus.

Put another way, under the APRA proposal, a company could lose money but the CEO would still get 50 per cent of their bonus.

In 2016, Commonwealth Bank proposed making half of then-boss Ian Narev's bonus dependant on customer satisfaction, as well as goodwill with staff and the community.

Shareholders revolted and it was withdrawn.

"The fact that APRA are implicitly supporting this approach, with no evidence, I think is really disappointing," Macquarie University's Professor Elizabeth Sheedy lamented.

"I do hope very much that it is not an example where they have been overly influenced by what the industry wants."

Bank employee performance

And then there's those at the bottom of the company, where management rate junior staff, a system Professor Sheedy believes is also flawed, given how subjective the ratings are.

"What tends to happen that almost everyone gets the same rating, making the whole thing virtually meaningless."

APRA is inviting submissions on its proposed new pay standard for financial services sector companies, and if all goes to plan, it will become law in July 2021.

But given the seven-year time frame it's advocating for bonus deferrals, that means it could be another decade before we know if this grand plan to fix the culture in the financial service sector will really work.