Wells Fargo did a BIG oops, and everyone knows it. Now. Like other highly visible corporate oops, they probably should have known about it well before the world knew. Oh well.
It is inconceivable to me how “thousands of employees” figured out how to game the incentive system by opening accounts without customer approval, in order to reap the incentive rewards of a compensation system. People don’t just stumble on that and decide to do it independently; there had to be a clandestine network that spread the word on how to boost their earnings.
In my mind, that makes the transgression seriously worse, because it means that there is no leadership, no oversight and no control in a business where customers can be financially devastated. So the organization fired 5,300 workers over several years. I wager that the Compensation staff is under scrutiny too. I wonder how many levels of leadership are being held accountable? They’ve been firing employees for this action over several years and it’s just now hit the fan?
This is a leadership issue, pure and simple. I spent 25 years leading a compensation department in a large financial institution. The very best that a Compensation professional can do is to advise and consult. Sometimes leaders listen to the advice, but often they don’t. They are all about getting results in a way that is quick and easy. Particularly in a large institution, the pressure from multiple layers above that branch managers to achieve results is strong enough to break even the most ethical leader.
In my bank Compensation days, we used to laugh when leaders suggested that we add “turning on the lights in the morning,” to the incentive plan goals. No joke. Incentive plans were (and in fairness, this was in the 1990s; maybe it’s changed?) perceived as a panacea: put everything anyone must do into the plan so that leaders didn’t actually have to talk to employees, provide feedback, or correct behavior.
We laughed, but those requests still came, and we had limited power, save our ability to influence, to stop what we knew was inappropriate, at the least.
What happened at Wells Fargo was pretty blatant. Some issues are more subtle. Like incenting tellers to open specific accounts, only to find that they were churning customers’ money; moving it from an account which was more profitable to the bank, to an account that was less profitable. It was only when the bottom line was impacted that the culprit was identified.
Tell me I can get more money by behaving in a certain way and by golly, I’ll do it. And financial institutions know this.
There is a better, more effective way and it’s called effective leadership. What can leaders do differently? I think there are a few things they can and should do.
Know their people
Everyone is different, and it is the leaders’ role to get to know their employees, what motivates them, and how their values influence their work.
Take the opportunity to talk to each employee, both about work and about other topics. Find out what’s meaningful to them.
Observe their behavior
The best way to do this is to work alongside employees every so often. Do the same work, ask questions about process and talk about what skills and resources are needed for continuous improvement. This exercise doesn’t have to be positioned as an “audit.” Most employees would love to have their leader walk in their shoes for a time, if the exercise is positioned by the leader as “I’d like to learn what you do.”
Talk openly about the work
Leaders who ask “how’s it going,” don’t really want to know. It is simply a euphemism that says, “I expect you to say, ‘Fine’.”
Ask tough questions like “what is the hardest part of your job,” or “are there business processes that you think we could simplify?” Get beyond the niceties and talk about what is important. How can you help?
And when much is at stake as a result of the workers’ work, get even more granular and ask them about anything they’ve been told to do that bothers them.
So…here’s the challenge. A leader who asks the tough questions must deal honestly with the answer she receives. If there is a change that can be made, make it. If there isn’t, explain why. Build trust that honest dialogue can occur and will be taken seriously.
Set an example
Make it clear there is no tolerance for unethical behavior. Leaders don’t need the great Executive Leadership Team on the top floor to say that honesty is a core value; any leader can set that example.
So, is there a place for incentives?
That is probably a topic for another article, but I will say that organizations who partner incentive compensation with effective leadership can improve performance. But there is no perfect incentive plan. Any design can and will be flawed. That’s where leadership comes in; to observe, correct and reiterate expectations.