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Thursday
Sep152016

Wells Fargo stretch goals brought out the sandbaggers

Incentive compensation is making lots of news lately, but the news is all bad. Mylan's Epipen, Volkswagen, and Wells Fargo. Ugh. 

Take Wells Fargo for example. It had a reasonable goal of increasing accounts through aggressive cross selling of products to existing consumers. So the bank designed a system it hoped would encourage that, Bloomberg said.

Predictably, that system got gamed big time. Employees opened about two million fee-paying deposit and credit card accounts that customers may not have authorized. The employees used the accounts to meet sales goals and targets.

The result, as Bloomberg reported, was “not what anyone wanted,” including fines by federal, state, and local authorities totaling $185 million.

The bank said this week it will stop using product sales goals; it has already fired about 5,300 employees for involvement with the unauthorized accounts.

Wells Fargo will recover from the stumble. But its reputation took a hit. That reputation, as Andrew Ross Sorkin said, was built"as a bank for Main Street,” not Wall Street.

So how did a logical incentive plan to cross sell customers end up with “bundling” and “sandbagging,” according to the L.A. City Attorney.

When I was working in the field I was often called a “sandbagger” during the sales planning process. I didn’t take offense; after all, it was true.

For those unfamiliar with the term, it basically means trying to set the lowest possible sales forecast or goal, and thereby create the easiest targets with the least amount of sales pressure.

Sales forecasts and goals don’t happen on their own, it’s a process. That process usually starts with a sales roll-up, where there’s often a tug of war between field personnel “sandbagging” their projections and management pulling for stretch goals.

The process is an open invitation to manipulation. Field personnel deliberately understate their numbers while management dangles goals that might be impossible to achieve. At face value, it’s dishonest.  

Sure, the tug of war often produces a result in the optimal middle-ground, with everyone equally unhappy. But what does that a fundamentally deceitful planning system say about our values?

All compliance officers should sit in on one of these sessions. It's an education, I promise.

Before the next tug of war commences, how about starting with an open and focused dialog about shared  ethical values, as goals of both management and field personnel. In that discussion, front-line sales teams should have an opportunity and responsibility to articulate the real-world challenges and possibilities in their territories. Management can then understand those issues, challenge them when appropriate, and consider whatever risks might exist before they set final sales targets.

About a year ago, Wells Fargo CEO John Stumpf said in an interview: “We think everyone here is a risk manager,” and “whether it’s your official title or not, everything we do is a part of that.” He’s right.

For organizations that have global sales teams, the process of setting goals and targets can also be viewed as part of risk management. So an honest, two-sided process must be a better way to manage that front-line sales risk than pitting fantasy sales goals against sandbaggers. It’s certainly worth the try, and possibly to the benefit of all your stakeholders.

____

Richard Bistrong is a contributing editor of the FCPA Blog and CEO of Front-Line Anti-Bribery LLC. He was named one of Ethisphere's 100 Most Influential in Business Ethics for 2015. He consults, writes and speaks about compliance issues. He can be contacted by email here and on twitter @richardbistrong. He'll be a speaker at the FCPA Blog NYC Conference 2016.

Reader Comments (5)

I will add a simple point. Companies use incentives because they work. We are not going to remove incentives from the picture. But people who do compliance and ethics work need to step up to the point that incentives have to be part of any compliance and ethics program. If we try to ignore the role of incentives in compliance and ethics work we are not doing our jobs.

Training is helpful. Codes are helpful. Helplines are helpful. But if we do not deal with incentives, including the role of promotions, bonuses and recognition in developing a company’s culture, we are missing a key element in a compliance program. There is a reason the Sentencing Commission added incentives to the compliance program standards in 2004. Wells Fargo is another reminder of this point.

Cheers, Joe
September 15, 2016 | Unregistered CommenterJoseph Murphy
The problem is that employees do not get compensated for ethical behaviour and/or following policies and procedures. There needs to be equal consideration of this in the conpensation process.
September 15, 2016 | Unregistered CommenterCarolyn Vick
Joe, thank you for your thoughtful comment and I couldn't agree more with your statement that "We are not going to remove incentives from the picture." But how can compliance be a part of the incentive planning process? A good place to start, from my perspective, is to be visible at those roll up meetings- it would really give compliance a valuable (and perhaps cautionary) line of sight into the process, and to make sure that risk is a part of that discussion. Thanks again, Richard
September 15, 2016 | Unregistered CommenterRichard Bistrong
What surprises me is that this happened in 2016. Such stories were typical in the last decade but less so in this one. The desired culture doesn't seem to have been embedded properly. However, the 'new' feature of this story is the scale of dismissals: 5300 employees and presumably minimal internal whistleblowing? It would be interesting to know the split of dismissals from 'frontline' v so-called 'support' areas. For this to have happened there had to be failings at all three lines of defence, within product development and ownership, customer experience, complaint-handling, process/documentation stage, leadership levels, etc, not to mention the Executive levels that shareholder activists are querying.
September 16, 2016 | Unregistered CommenterMike Bamber
Thanks Richard. It is interesting that about 12 years ago, when I was working in SE Asia for a gigantic company that had acquired our much smaller company selling high-tech equipment to governments and industry, that I felt there was a big disconnect between the squeaky-clean image the mega-company projected and the actual on-the-ground sales process. At the smaller company the compliance training was minimal (but export control was very strong), but the pressure to bring in sales was much smaller. We actually grew the business very well. After the acquisition I was introduced to "stretch targets", that in my mind were giving the wrong message. It was not the intensive anti-corruption training that was so objectionable, but the hypocrisy and the way false compliance violation threats were used as a weapon to cull out some of the less aggressive, and less compliant sales staff. My view was and still is that incentives should be tied to long-term sales growth in the emerging markets - good for customers, the communities and the company. Instead we saw rapid turnaround in an industry that takes decades of experience to develop technical sales expertise. I stayed two years before I had enough. I also watched what happened to that big company when their stock dropped by 80% due to exposure in the financial subprime derivatives crash of 2007. They actually ran out of operating cash as many others did. My feeling is that the US and Europe need to get back to much higher levels of innovation and develop a long-term perspective.
September 20, 2016 | Unregistered CommenterMark Daniels
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