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It's Not Just Wells Fargo - How Sales Targets Can Encourage Wrongdoing (bloomberg.com)
The revelation of Wells Fargo employees opening more than two million unauthorized customers accounts to hit the sales target might have come as a shock to many, but they are just the tip of a very old problem the industry has been facing. Bloomberg has an article today in which documents several similar incidents when employees went a little inventive to keep their jobs afloat. Marc Hodak, an adjunct professor of business ethics at NYU's Stern School of Business and managing director of Hodak Value Advisors says, "Companies tend to forget that an incentive to perform is identical to an incentive to cheat." In the early '90s, Sears "switched the compensation system in its auto centers from an hourly wage to a system that had more upside potential based on commissions and sales quotas." In the wake of this program, Sears customers were reported to keep running to the store for cheap brake jobs. The Bausch & Lomb scandal was also similar, with the employees were found manipulating earnings to reach financial goals using a trick called "channel stuffing" (in which someone ships goods and then book them as sales without having actually sold them. There are several similar examples in the story. From the artic;e:"Every large organization in the world has got these land mines of perverse incentives," said Hodak. "It's just a matter of degree to which of these things are allowed to run amok" because of those three factors. Barry Schwartz, an emeritus professor of psychology at Swarthmore College, goes farther: "Incentives poison people's will to do the right thing. It's the worst way to get people to do the things you want to do."
Apt Dilbert cartoon illustrating your point nicely. Any metric that's simple enough for management to come up with is simple enough to be gamed heavily by the workers.
Any organization is a bunch of people trying to keep their jobs. Government employees do it by expanding their departments powers and budgets, justified by sticking their noses into affairs which really should have nothing to do with them. Corporate employees do it by shit like this. Dragging work out, inventing projects they don't need and exploiting evaluation systems is how they do it. Smaller companies won't tolerate it because it because eventually hits their balance sheet and can send them under, but it "Too big to fail" companies like banks have so little competition they can afford the waste. No one will shun Wells Fargo over this. How pathetic is that?
How many of these things are actually incentives and how many are just outright coercion re-labeled incentives?
I tend to think of an incentive as a motivation to get X+N if I do some extra thing. If I don't do the extra thing, I just get X. But if I say "do the extra thing or you're fired", that seems like coercion. I don't get X+N, I don't even get X if I don't do the extra thing, I get fired.
Holding a gun to someone's head and demanding their wallet and then claiming that staying alive is an incentive to hand over your wallet seems like a perversion of the concept of incentives.
I think most of these companies where Wells Fargo style fraud happens aren't actually operating on incentives, they're operating coercively. People will do all kinds of unethical things if they think the outcome from not doing them will be termination and subsequent financial peril. Wells was probably holding a gun to their head and claiming that continued employment was an incentive.
There is probably also a threshold where the incentive on offer is so lucrative that people are willing to risk unethical activity to achieve it, but then again there should be sufficient checks to make the unethical achievement either impossible or with a penalty that outweighs the value of the incentive. Robbing a bank has a potentially lucrative incentive, but it also carries a penalty that makes a haul of low five figures in cash not work the risk of a 20 year prison sentence.
The upselling and fraud are due to employee incentives and internal competitions. Anyone can have incentives or competitions, non-profit-making has nothing to do with that. Credit unions are not immune to this.
Credit union users, please stop thinking of credit unions as some type of magic entity. They're groups of people, same as everything else.
To state that they are not attempting to make a profit is incorrect, it's just that the profit they do make goes to their members (who are considered owners of the credit union) rather than some smaller group of individuals. You could conceivably get the same kind of employee misbehavior if a credit union were to implement that kind of incentive system for its employees, but they're unlikely to since there's no impetus from shareholders to drive up the stock price for the next quarter.
Credit unions are typically organized as a non-profit or treated as such for tax purposes, but to imply that they're against making a profit doesn't make any sense as it would suggest they don't care about how they manage their members money or would just give out a loan to anyone for no interest at all. If my credit union weren't making a profit, it wouldn't be able to pay interest on the money I have on deposit with them.
It's not just banking - it's virtually *any* publicly traded business.
When pressure is on to look good on the quarterly reports, you quickly lose any sense of ethics.
=Smidge=
Not unique to public businesses. Private businesses can press employees to please the bosses, government agencies can be squeezed to placate CongressThings (despite all the civil service cruft that's supposed to make that impossible). And so forth.
It's a tough situation. If you incentivize fixing "problem accounts", then you create the perverse incentive for people to create problems so that they can fix them and earn more.
Any incentive program needs oversight to watch for the most common abuses, which means that it needs to be simple enough to spot, and managed by people smart enough to maintain it.
I manage the incentive program for my department where I work, and I can tell you that it falls into what I feel is the 3-leg stool equation.
1. It has to benefit the customers
2. It has to benefit the employees
3. It has to benefit the company
If you can pull this off, you're good, but a BIG PART of this is human understanding.
Example. Last month one of my teams spent the entire month dealing with a messy bunch of clients from an acquisition. As such, their productivity (by the raw numbers) were way below the minimum thresholds for participation in the incentive program.
Their supervisor brought this concern to me. I'm not about to punish one of the best teams I have because they busted their asses to provide good service to clients we just gained from another company we purchased (and want to retain!!!).
So I said fine, those techs get an average of the 3 previous months' performance for bonus payouts for the month of August.
The techs were very happy with this (and continue to not shy away from work just because it's "difficult" or may detract from the raw numbers everyone is bonused on), their supervisor is the hero because he looked out for his troops, and I'm the understanding manager because I understand that no numbers for any incentive program can exist in a vacuum.
Productivity continues so the company benefits, the customers benefited and will continue to do so, and the employees benefited -- but only because human understanding made for reasonable exceptions.
If you don't run an incentive program with these kinds of approaches, you deserve the mess you inevitably get.
And the circle of life continues to spin, occasionally wobbling on its axis thanks to the weighty presence of dumb.