Many of us have heard about Wells Fargo’s phony account scandal by now in which the bank reportedly fired about 5,300 employees in its retail banking division over the past few years for creating more than two million fake accounts. These unauthorized ghost accounts were designed to inflate sales credit for Wells Fargo employees, helping them exceed quotas and earn more incentive dollars. It’s estimated that the fraudulent accounts generated about $2.6 million in fees at the expense of the bank’s customers, which the bank has agreed to repay.
My initial reaction? I sure hope that none of the ghost accounts were opened under my name. In all seriousness, though, it’s another painful reminder of how bad incentives can drive unwarranted behaviors. (And it’s a costly one, too: Wells Fargo is facing a $185 million fine, and CEO John Stumpf, who announced his resignation on Oct. 12, will hand over $41 million in stock options and forfeited salary.) When 5,300 people lose their jobs over fraudulent behavior, it’s not just a faulty incentive plan to blame; it’s likely that there’s an underlying problem with the company culture.
Employees have stated that they felt pressured to hit their numbers, which drove them to open fake accounts to achieve bonuses. The incentive plan focused on “cross-selling,” which is the practice of selling multiple services to the same customer. In the case of Wells Fargo, this could have meant offering a Wells Fargo credit card to a checking account customer or, in some cases, opening the credit card account unbeknownst to the customer. Some employees went so far as to fabricate customer information and generate phony PIN numbers in order to sign customers up for unwanted accounts.
So how did 5,300 employees all learn how to manipulate the incentive plan in order to achieve higher rewards? As ZS’s founders wrote in their recent blog post for the Harvard Business Review, an ethically compromised culture that saw management either look the other way or, in some cases, potentially encourage fraudulent behavior allowed these practices to spread throughout the division. Wells Fargo implemented an incentive plan that was intended to motivate employees to drive higher sales “the right way” by identifying opportunities to cross-sell products and services that were in the best interest of the customer. Yet according to the Los Angeles city attorney’s 2015 complaint against Wells Fargo, some employees believed that their quotas exceeded the number of customers that they would see on a daily basis. This, in turn, motivated them to create fake accounts to boost their cross-selling ratio and the number of products sold.
There’s a fine line between motivating good performance and inadvertently encouraging bad—or worse, illegal—behavior, and strong governance is no match for a compromised culture. Incentive plans often come under fire when a scandal like Wells Fargo occurs, but the incentive plan can’t change or substitute for the company culture; it can only serve to reinforce it. The incentive plan can’t teach employees what they don’t already know how to do; it can only reward performance based on those desired behaviors.
Here are four strategies to motivate compliant behaviors when designing incentive plans:
- Incorporate team-level components into the plan. Bad apples attempting to game the incentive plan are less likely to reap rewards if they’re surrounded by other sales representatives who are more focused on walking the straight line. The rewards for operating outside the lines are diluted with a team incentive plan component. Team components also can have the positive effect of encouraging collaboration and the sharing of best practices. That being said, even the benefits of a team component can be eclipsed by a widespread culture of corrupt and unethical behaviors.
- Consider MBOs. Management by objectives (MBOs), when designed properly, can be a very effective way of measuring sales rep performance against a set of desired behaviors and in situations where the field force is unable to directly influence sales growth. By developing a clear rating scale that’s communicated to the field at plan launch, you can differentiate performance and pay for results.
- Avoid steep payout curves. The potential to go off the rails starts with the incentive payout structure. Identify the monetary reward for top performers that fits with the company culture and model the payout curve around the projections of their performance. Payout curve caps and decelerators may be required in cases of uncertainty. Publishing steep payout curves may pique the field’s interest and generate the desired level of excitement, but the payout curve also should be structured so that the organization is paying for the right performance, especially when compliance is a concern.
- Hold management accountable. First- and second-line managers play a vital role in coaching sales representatives to embody the right sales behaviors. Including an MBO focused on compliance, or building it into the manager competency model, holds the management team accountable for ensuring that the field sales reps epitomize the company values and act in the customers’ best interest. It provides a transparent means for communicating sales manager expectations and disciplining those who aren’t meeting the ethical standards.
Following these steps can yield an incentive plan that motivates performance and staves off the temptation to break the rules (or the law) in order to get ahead, but acting in the best interest of the customer starts with a strong company culture. Focusing the spotlight on the incentive plan risks overlooking deeper and more fundamental cultural issues that the incentive plan alone will never be able to correct.