Unfortunately, human nature is such that if incentives can be gamed with little chance of detection, they probably will be, as indicated in our “Incentive Gaming” video, also scripted and narrated by Washington University of St. Louis professor Lamar Pierce. The managers at Wells Fargo should have watched this video and heeded its advice, because the problems it warns of came to fruition at Wells Fargo. According to the New York Times:
Wells Fargo is famous for its culture of cross-selling products to customers—routinely asking, say, a checking account holder if she would like to take out a credit card. Regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells employees told regulators they had felt extreme pressure to open as many accounts as possible.
This scandal was quite predictable, given human nature and the impact of social and organizational pressures in the workplace. It is well known that one of the most intractable problems in the workplace is to hit the right compensation balance that will encourage hard work and activity that advances the employer’s goals without creating both the incentive and the opportunity for corrupt behavior that games the incentives. Wells Fargo must go back and try again. It missed rather badly this time, and it missed while recklessly pressuring employees to cross-sell products and services that its customers probably neither wanted nor needed.
The bank must also work on its culture. This was clearly a widespread problem and not just 5300 “bad apples.” Our “Conformity Bias” video makes the obvious point that people take their cues as to proper behavior from those around them. Wells Fargo has a lot of places it can start to make improvements.
Lucian Bebchuk & Jesse Fried, Pay Without Performance (2004).
Ed Caesar, “Deutsche Bank’s $10-Billion Scandal,” The New Yorker, Aug. 29, 2016.
Michael Corkery, “Bank is Fined For Setting Up Sham Accounts,” New York Times, Sept. 9, 2016.
Cheating in the Workplace: An Experimental Study of the Impact of Bonuses and Productivity
Why Incentives Are Irresistible, Effective, and Likely to Backfire
Financial Incentives and Bonus Schemes Can Spell Disaster for Business