Incentives matter when it comes to shaping both individual and corporate behaviour. Financial services firms — and their regulators — must absorb this truism and do a better job of ensuring they aren’t encouraging recklessness.

Ever since the credit crunch took hold, regulators and policymakers have been trying to unpick the root causes of the crisis and glean some lessons for the future, while firms have been scrambling to limit the damage. One of the many culprits to come under scrutiny is the industry’s compensation structure.

The new governor of the Bank of Canada, Mark Carney, has observed that there are “problems with incentive alignment” at financial services firms. Namely, that traders get paid handsomely to take excessive risks while risk-management professionals don’t get paid nearly enough to avoid them.

In theory, those who are paid to take risks need to have more of their own compensation on the line. That could mean aligning their long-term interests with shareholders by paying out more of their salaries in shares — and perhaps paying them out over longer time periods so that they aren’t encouraged to ignore the long-term implications of their bets.

Moreover, firms need to realize that risk management matters. A review by European and U.S. banking regulators found that the firms that have avoided much of the subprime mess had more comprehensive, robust and powerful risk-management systems.

Although the problem and the solution may be fairly straightforward, the issue is how to get firms to change. Ideally, financial services firms have learned a lesson and will reform themselves.

Ordinarily, such decisions are driven by competitive concerns. But when an industry is as critical to the economy as financial services — and has the potential to run into severe enough trouble to merit a public bailout — then, there’s a role for regulators.

In the U.S., the president’s working group on financial markets is calling on banking and securities regulators to develop guidance for firms on risk-management issues that have emerged from the crisis, including compensation “incentive problems.”

Although Carney says that he’s against direct regulatory intervention, he suggests that regulators should make compensation arrangements one of the items they consider when assessing firms’ risk-management capabilities and internal control systems.

Excessive pay probably isn’t going away, but it needs to evolve.