incentres Gone tifrong, Then Wrong Again, 'E'il Money is an important tool for both attracting and moti- vating talent. If you owned a company or were its CEO, you would likely agree and choose performance man- agement practices to deliver such outcomes. It also is possible you'd use incentives to help align your employees' interests, behaviors, and performance with those of the company. After all, countless companies have used incentives very successfully, but not all. The incentives used by Wells Fargo had disastrous consequences for employees, customers, and the company itself. THE serial/mo AND eatlitters A client enters a bank branch and opens a checking account. The performance expectations of the banker that helped open the account were to open eight accounts for each customer, which meant he or she needed to persuade that customer to open seven additional accounts! This resulted in the banker then attempting to open a savings account and maybe a credit card account, simple enough. But the problem happened when the customer left without opening additional accounts and many bankers went ahead and did so anyway without the customer's consent. Customers who had mortgages with the bank some times had insurance policies opened without their knowledge. The bank also financed automobiles for many customers, and insurance was also often added unknowingly to these. Small business customers were frequently overcharged for credit cards and other ser vices. More generally, customers for one product were cross-sold other products, and along with many of these additional accounts there were fees. The increased number of accounts helped employees meet their numbers, and the fees provided still more income for the bank.112 Even after all of these efforts, many bankers still fell - short of their goals and opened accounts in family mem- bers' names. One branch manager opened 24 accounts in her teenage daughter's name and 21 In her hus- band's. Other reports include Wells Fargo bankers can- vassing employees at stores in which they shgpped.113 Pet insurance was added in some instances!1 Some sham accounts were closed once the employee received credit, but many remained open, charging fees and affecting customers' credit. THE DAMAGE TO CUSTOMERS AND EMPLOYEES Wells employees created approximately 3.5 million fake accounts; even now precise numbers are difficult to obtain. But it seems as if 1.5 million deposit and 500,000 credit card accounts were opened without customer consent, and it erroneously foreclosed on over 400 mortgages and repossessed thousands of cars. Over 800,000 customers with auto loans were charged for auto insurance.115 The list goes on. The negative consequences within Wells Fargo also have been enormous. CEO John Stumpf was ousted along with former head of community banking, Carrie Tolstedt. Seventyfive million dollars in compensation was clawed back from these two executives, as it was considered illgotten and due to illegal or at least unprofessional behaviors. The same executives lost additional millions in compensation, and approximately 5,300 employees were fired. Numerous regulatory agencies fined Wells Fargo for nearly $200 million, the company's stock underperformed its competitors', and it is difficult to estimate the cost of damage to the com- pany's reputation and the resulting lost business.116 Above all, there are the incalculable costs to custom ers in money, frustration, ruined credit, lost vehicles, and lost homes. THE CULPRITS Much of this carnage has now been attributed to per- verse incentives and poor leadership. Investigations revealed that both Stumpf and Tolstedt were well aware of these unethical behaviors, but they turned a blind eye or even encouraged these behaviors. It was reported that Tolstedt repeatedly denied and resisted complaints about goals being unachievable and prob- lematic.117 But what about the thousands of employees that actually opened the accounts? When writing about the Wells Fargo scandal, Professor Elizabeth Tippett noted, \"Research suggests that ethical behavior is not about who you are or the values you hold. Behavior is often a function of the situation in which you make the decision, even factors you barely notice.\"118 Another interesting detail regarding performance expectations is that the eightaccount expectation for every customer was only three 10 years earlier. It also is important to note that this sort of cross-selling Performance Management CHAPTER 6 247 (multiple products to the same customer) was some- C. Use details in the case to determine the key thing Wells was known for and contributed to its past problem. Don't assume, infer, or create problems success. It's been reported that the reason for eight that are not explicitly included in the case itself. instead of another number was that CEO Stumpf said it D. To refine your choice, ask yourself, why is this a rhymed with "great." problem? Explaining why helps refine and focus your thinking. Focus on topics in the current ACTIONS chapter, because we generally select cases that To be fair, numerous examples exist of Wells Fargo illustrate concepts in the current chapter. management explicitly instructing employees not to STEP 2: Identify causes. engage in such activities, including ethics training and Using material from this chapter and summarized in the deployment of risk professionals to identify and the Organizing Framework, identify what are the correct inappropriate conduct. But this obviously causes of the problem you identified in Step 1? wasn't enough, and even though employees were Remember, causes tend to appear in either the Inputs expected to report any misdeeds, they didn't. Incen- or Processes boxes. tives stayed in place and employees continued to be pressured and even fired if they did not make their A. Start by looking at the Organizing Framework sales quotas. Some involved in the scandal argued it (Figure 6.9) and determine which person factors, isn't the employees' fault, they needed a paycheck if any, are most likely causes to the defined and this is what their employer required. "19 Tim Sloan, problem. For each cause, explain why this is a who worked at Wells for decades, was inserted as the cause of the problem. Asking why multiple times new CEO and charged with cleaning up the mess, is more likely to lead you to root causes of the restoring the bank's reputation, and warding off a problem. There may be few or no person factors potential new $1 billion fine. 120 but be sure to consider them. For example, did Sloan worked in the role for two years before step- attributes of the leaders or other employees ping down in 2019, presumably for not being able to contribute to the problems defined in Step 1? turn things around. 121 Whoever replaces him has the B. Follow the same process for the situation fac- same challenges. Assume you are the new CEO, what tors. For each ask yourself, Why is this a cause? would you do? For example, leadership at the executive and other levels might have some effect on the prob- APPLY THE 3-STEP PROBLEM- lem you defined. Aside from performance man- SOLVING APPROACH TO OB agement, did other HR practices contribute to the problem? If you agree, which specific prac- Use the Organizing Framework in Figure 6.9 and the tices and why? By following the process of ask- 3-Step Problem-Solving Approach to help identify ing why multiple times you are likely to arrive at inputs, processes, and outcomes relative to this case. a more complete and accurate set of causes. Again, look to the Organizing Framework for this STEP 1: Define the problem. chapter for guidance. A. Look first to the Outcome box of the Organizing C. Now consider the Processes box in the Organiz- Framework in Figure 6.9 to help identify the ing Framework. Performance management pro- important problem(s) in this case. Remember cesses are clearly part of the story, but are any that a problem is a gap between a desired and other processes at the individual, group/team, or current state. State your problem as a gap and organizational level that caused your defined be sure to consider problems at all three levels. problem? For any process you consider, ask If more than one desired outcome is not being yourself, why is this a cause? Again, do this for accomplished, decide which one is most impor several iterations to arrive at the root causes. tant and focus on it for steps 2 and 3. D. To check the accuracy or appropriateness of the B. Cases have key players, and problems are causes, be sure to map them onto the defined generally viewed from a particular player's problem and confirm the link or cause and effect perspective. You need to determine from whose connection. perspective-employee, manager, team, or the STEP 3: Recommend solutions. organization-you're defining the problem. As in Make your recommendations for solving the problem, other cases, whether you choose the individual considering whether you want to resolve it, solve it, or or organizational level in this case can make a dissolve it (see Section 1.5). Which recommendation is difference. In this case you're asked to assume desirable and feasible? the role of the new CEO. 248 PART 1 Individual Behavior