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.