The papers today are filled with the story of the “brazen sham” at Wells Fargo. Apparently, 5,300 employees opened “566,000 phantom credit card accounts” and charged customers $1.5 million in fees for accounts that they didn’t know existed. Why did employees do that? Because their compensation plan told them to.
Wells Fargo seems to have spawned a set of perverse incentives in the credit card division. Rather than incenting employees to do the right thing, the incentives led employees to cut some ethical corners in order to earn bigger bonuses. The company professed one set of values but paid employees to abide by another. That’s perverse but not uncommon.
(For more on perverse incentives, click here, here, and here).
Why are perverse incentives so common? In my opinion, it’s poor message discipline. The company delivers different messages to different audiences.
As it happens, I’m a Wells Fargo customer (though not of the credit card division). I receive a lot of their information and, being a student of branding, I actually read it. I’ve always been impressed by the consistent tone and content of their communications. The messaging managers are doing a good job and building a good brand.
I’ve also had a number of students who work for Wells Fargo as junior to mid-level managers. Without exception, they speak highly of the organization. They report that Wells Fargo uses the Strengths Finder tools to help employees identify their strengths and weaknesses and to help managers build well-balanced teams. They also report that the company has a diverse employee base and a very positive culture. In short, my students who work at Wells Fargo seem to love the place.
The messaging is remarkably consistent, whether it’s coming directly from the company or indirectly through employees. As the New York Times reports, the message consistently focuses on trust: “Wells Fargo has long tried to separate itself from Wall Street…..the bank has sought to portray itself as a bank for Main Street. Its entire ethos, Wells Fargo has long suggested, is one of trust and ethics.”
That message came through clearly and consistently for me. But the people in charge of message consistency missed one critical document: the comp plan.
It’s often said that a company speaks to its sales force through the comp plan. In other words, the comp plan is a messaging document and requires the same discipline as any other messaging document.
Sales people don’t read company brochures and websites to learn how to behave. Instead, they read the comp plan. If the brochures focus on a culture of trust but the comp plan focuses on closing deals at any cost, we almost automatically get perverse incentives. The company is saying two different things to two different audiences. The best that can be expected is confusion. The worst is fraud.
Can Wells Fargo recover? I suspect so. In fact, though somewhat disappointed, I’m still a satisfied customer. They’ve done a good job by me and I appreciate their attitude and, yes, their ethos. Now they have to deliver one consistent message to all audiences, both internal and external.
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No surprise that a compensation plan drives behavior.