(Reuters) - Australia's prudential watchdog has proposed tighter terms for executive pay at the country's financial firms, after a public inquiry last year blamed flawed incentives for widespread wrongdoing in the industry.

The Australian Prudential Regulation Authority (APRA), which supervises institutions across banking, insurance and superannuation, on Tuesday released a discussion paper suggesting reforms to the remuneration framework.

The proposed changes include limiting the importance of financial performance in defining variable pay to increase focus on risks related to culture and governance.

These reforms underline a push for more scrutiny in the wake of the Royal Commission inquiry last year that found serious flaws in the management of compliance and risk.

APRA also said minimum deferral periods for variable pay of up to seven years will be introduced for senior executives in larger, more complex entities to ensure they have "skin in the game" for longer.

"It was clear that existing remuneration arrangements in many entities were not incentivising the right behaviours," APRA's deputy chair, John Lonsdale, said.

Just a day earlier, Australia's biggest retail shareholder group asked investors to reject the executive pay plans of investment bank Macquarie Group <MQG.AX>, accusing it of withholding pertinent information and setting overly achievable performance targets.

(Reporting by Devika Syamnath in Bengaluru; Editing by Stephen Coates and Himani Sarkar)