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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."
In my personal experience, these boneheaded metrics and goals are the sign of an manager, organization or company seriously lacking in competency and even self-awareness of their intended goals.
And software development, alas, isn't free of managers and companies pushing such boneheaded stupid goals that get the contrary of what they intend to.
My default response to a manager pushing you to pursue a stupid/easily gamed goal is to leave ASAP.
Sales aren't the only area affected by the need to keep the money flowing. Research grants work the same way. In order to keep your job you have to produce the data the people with the money are looking for.
~ People that think they are better than anyone else for any reason are the cause of all the strife in the world.
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.
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This is common in any environment, including Dilbert. Reward or punish a behavior without any common sense and you get what you ask for. On the other hand, if you do like Nordstrom's did in their five word employee handbook then you just might get what you want: Use good judgement in all situations. Then of course that requires the same of management. The other side is zero tolerance, as in we have zero tolerance for bugs leads to a situation where nothing is ever label as a bug.
I worked a retail job that was all sorts of f'd up (pay wise) fresh out of high school.
It was commission draw, which means you're guaranteed minimum wage, but once your commissions exceed that any time you were performing below was taken out of your earnings to repay it.
E.g assuming a $10/hr minimum wage (easy math):
you worked a sloooooow day for 8 hours and sold only $40 worth of commission; you're paid $80 ($40 commission + $40 draw)
next day was a lot better and you sold $120 worth of commission in 8 hours; you're paid $80 ($120 commission - $40 draw from yesterday).
While in theory this was okay, the problem was that when you were working and the store was closed you effectively were not paid.
Add to that some of the products had negative commissions...
So, the game that was used: on a slow day buy a product for cash that was on incentive (high commission for short time) that was due to be off before 30 days were up.
Wait between two weeks and 30 days for it to clear your paycheck *and* the spiff to go away, return for cash under generic ring number.
Naturally this resulted in arrests for fraud, which resulted in countersuits for unfair pay. All in all a total F* fest.
Old way of straight pay (above min wage) for hours worked and *stores* getting a bonus for good performance worked a lot better.
-nb
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"The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."
https://en.wikipedia.org/wiki/...
it has impacts in a great many areas, including the test-based teacher and school evaluations.
"But remember, most lynch mobs aren't this nice." (H.Simpson)
-- Joe
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.
Sales aren't the only area affected by the need to keep the money flowing. Research grants work the same way. In order to keep your job you have to produce the data the people with the money are looking for.
I've worked in sales with a quota. I've worked in research.
They don't remotely work the same way. The sales were sales, nothing particulary difficult. My sponsors wanted correct answers, not something that corresponded with their desires. There were no "wrong" outcomes, just abandoned avenues.
For the occasional rogue researcher, there's a path to find out their transgressions. Most take this very seriously, and disgrace can be forever http://time.com/3084494/japane...
Andrew Wakefield lost his career permanently after his conman anti vaccine conspiracy came to light.
Malcolm Pearce did fraudulent work on ectopic pregnancies - presumably transplanting the out-of place embryo into the uterus and resulting in a full term healthy infant A man who signed on as co-author because of being the head of the medical department where Pearce worked, one Geoffrey Chamberlain also lost his career in disgrace.
Dong Pyou Han was sentenced to 4.5 years in jail, and a fine/repayment of 7.2 million dollars.
Now if you will, let us compare disgrace ending in suicide, disgrace ending in lost careers, with the treatment of the head of the unit of Wells Fargo that was doing this sandbagging, Carrie Tolstedt. http://fortune.com/2016/09/12/...
She made the decision to retire after 27 years, and is getting 125 million. Nearly the amount of the fine levied against Wells Fargo. Toltsted profited off the sandbagging, and although Wells Fargo could have elected to demand the fraudulently received money in a device named "clawback", she is keeping the money that was illegally obtained.
And finally, who was punished? It's pretty difficult to call retiring with a 125 million bonus punishment. But the employees who fell to the pressure to do this industry standard dandbagging? Oh - they were fired. Seldom happens to the technicians involved in a research fraud case, unless they were highly complicit
Fscking identical treatment between scientists and the banking industry - damn near exact, eh? Meantime the stockholders are picking up the Wells Fargo tag.
And that's the really weird thing. A huge amount of fraud going on, and people committing the fraud getting away stock free, and people who might have an issue with scientists act like they should be lined up and shot for their malfeasance.Yet appear to think that the bank fraud is just business as usual. I dunno if that's you or not.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
More to the point, I've always said: "It's not that you measure metrics that matter - it's what metrics you measure that matter." Case in point: I was meeting with a call center manager pitching a new system and we were swapping war stories and he told me about taking over at another company's call center and was reviewing reports, only to see what seemed a really high number of complaints about reps hanging up on customers in the middle of a call. Interviewing some of the worst-offending reps, they told him the situation. "We get paid based on the number of calls per hour that we take! If some bitty starts yakking about her grandkids, I hang up on them to get in the queue for the next call. That way, I maximize my pay. What would you do?" And there you have it....
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.
I've asked lots of cops about ticket quotas - and every one of them says they don't have quotas, but their chief wants them to meet or exceed "performance metrics" similar to other districts.
So yeah - that cop isn't "required" to write you that ticket, but if he wants his promotion - he will.
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.
I once worked for a publicly traded company that was in the PBX business, but generally in the "communications" business since they adopted the PBX gear to work as a nurse-call system in hospitals.
To make their quarterly numbers look good, the upper-management had the nasty habit of borrowing from future sales to make THIS quarter's numbers look good. Once a contract was signed, they would ship the equipment even if the equipment wasn't needed until a year or more later, for example, a new hospital is being built but ground-breaking won't happen for another six to nine months at least. The equipment would get shipped, it would get placed in a shipping container on-site and the sale would get put into the books for THIS quarter.
Of course, it may have started small and somewhat innocently. Maybe the first one was scheduled to ship a month later in the next quarter. Putting that sale into THIS quarter would look good for the investors and the stock price would do well. But now three months later with that sale missing from THIS quarter because it was placed in LAST quarter's sales, somebody has to come up with way to fill that gap, short of actually making real sales THIS quarter. So they borrow yet again from a future sale. And so on and so on.
It got to the point that we would get service support calls from the techs installing the equipment in new hospitals and they couldn't get things to work with the current software we were shipping. It turned out they had firmware that was two or three years old and it wasn't compatible with the new software. It cost a lot to get current firmware out into the field. No, things were dial-up modems back then, so you couldn't just "push" the updated firmware over the Internet.
A new CEO eventually came in and when he found out about this little book-keeping scam, he proclaimed with very loud voice and a lot of table pounding "THIS SHIT ENDS NOW!" The company doesn't really exist anymore at this point. Each of the divisions were sold off to other companies.
Not directly in sales, but I have a personal anecdote on point about how such bad "targets" destroyed an entire department (and ultimately the company).
Years ago I took a summer job working at a collections department for a small cell phone company (back in the days when there were more independent companies around). Horrible job, but paid better than some other options I had at the time. You had the folks working the 30-day delinquent files, the 60-day delinquents, and then the 90-days and 120-days+ files.
Anyhow, when I first arrived there, they had an bonus incentives for two goals: (1) covering the most accounts, and (2) bringing in the most collections money. What did this system do? Well, it made the 30-day and 60-day delinquent account folks do a sort of "triage" to find the accounts that were most advantageous or easiest to take care of. So, they'd try the easiest and quickest methods to contact each account and then move on as fast as possible.
(The dirty secret was that something like 25% of accounts were set up incorrectly in the first place, usually by haphazard handling during the sales process -- a product of bad incentives in that department too. The collectors avoided these "problem accounts" like the plague.)
After my training was over, I optimized my computer for handling accounts as fast as possible, creating various computer shortcuts that could allow me to handle about 3 times the average number of accounts per day. My boss was so shocked when she saw how I was doing things that she insisted I show her how to implement my shortcuts and tools for everyone else in the department (roughly 30 people, as I recall).
Because I was doing so well, I got put on the 90-day/120-day+ accounts then, since they were supposed to be "harder." I soon found out what made them "harder" -- roughly 75% of them were disasters left over because the 30-day and 60-day people didn't have the time to figure out what was wrong. There were loads of accounts with all sorts of things screwed up... so over half of these weren't just simple cases of people not paying a bill for a few months. They were cases where accounts were shut down incorrectly, cases where account had been incorrectly set up by sales people and weren't billing correctly, cases where customers had phones still active 6 months after they should have been shut off, cases where customers had shifted to a different account (usually by someone in sales) but no one had fixed the old one, cases with VIPs who were basically given unlimited phone usage and never were supposed to receive bills but were flagged wrong in the system, even outright cases of fraud, etc. I even uncovered a complex fraud ring in my few months there, which likely saved the company many times what the other collectors earned in collections.
Anyhow, despite the complexity of cleaning up these "messes" with most accounts, rather than just doing the normal collections job, my numbers for account handling were still pretty good. But I wasn't bringing in a lot of money, because... well, mostly I was cleaning up messes left by the way the incentive system was set up. And let's face it, people whose bills are WAY overdue and likely had their phone service shut down for at least a month were unlikely to pay.
So, even though I had been highly praised by my boss (and even the boss's boss) for all of the great work in optimizing the entire department's computers (not my job description), tracking down fraud and other weird cases that required a bunch of detective work to "correct" the many account errors, my "numbers" didn't look good on the spreadsheets for the higher levels of management.
The last straw came when they instituted a system where we had to "log into our phones" when at our desks, supposedly to prevent people from taking long breaks or something. Well, obviously a lot of folks just didn't even bother to log out then for breaks. But I did, because I was a "good" person who obeyed the rules.
About a week af
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.
A non-profit is just that, non-profit. It means their revenues and expenses at the end of the year balance, hence no net profit.
That doesn't mean they can't make a profit, it's just that profit is spent before the fiscal year ends so it's back to zero. Now, some non-profits are arranged so they make very little profit on what they do - thus giving lower prices to everyone, and the profit is then used to pay salaries and all that. But it doesn't have to be that - it can be making ridiculous amounts of profit and they then spend it on something else.
For an example of this, look at the College Board - they are the makers of many of the academic tests out there, and they charge an arm and a leg (ask any student who has to take the SATs). But any other standardized test is probably administered by them as well. They rake in the money, both in the tests, the study guides they sell, and many other things. So much so they spend their profit on luxury hotels and other things - as a non-profit they have to spend it all to even it out.
Of course, most credit unions are less evil and spread any profits as dividends to the members.
The whole housing market bubble that had crashed the economy has been created this way - mortgage providers were incentivized to hand out mortgages to anyone (no income no assets) then funnel them to securities providers making them someone else's problem.
In economics this phenomena in general is called perverce incentive. That is, someone tries to put in place an incentive to reward for productive behaviour but in the end a "workaround" is found to comply with the incentive criteria by doing something very counter-productive.
Doing coding? One organization decided to start giving bonuses to coders by lines of code written. Suddenly all this extra whitespace appears out of nowhere and when looking into your favourite VCS you'll see same lines having a lot of small cosmetic changes changes all over. What an increase in productivity!
Want to make company more profitable? Why don't you give the new CEO incentives that are bound to short-term profits. No way (s)he will do cuts that rise profits momentarily but neglecting long-term viability of the company and by the time the damage is seen in the company profits the CEO is elsewhere continuing on solid path of "success". Pump and dump schemes are another related story (where the company holders have the incentives as well).
Have extra employees in organization and want to do some lay-offs to increase profits? You are likely to keep employees who are best at securing their positions with schemes such as refusing to share relevant information to keep yourself irreplaceable rather than those that are actually valuable to the company. Just imagine what your organization looks like after couple of rounds of these (unfortunately, I've witnessed some horrors like this - the most incompentent "developer" I've seen came from organization that did this, besides lacking relevant coding skills was also very unhelpful to collaborate with neighbor organization that our success was bound with. But he surely made sure it looked like it was the other ones fault.).
I'd say in general the problem is neglecting abuse schemes of incentives and quite often underestimation of intelligence is involved as well. Arrogance to say. Think about mushroom management of R&D organization. No way that employees (with higher average IQ than management) will be able to predict how management is trying to piss on them and no way they will find a strategic behaviour scheme to defend themselves from that which might be not that productive for the whole company...
I'd probably could think of couple of other examples as well but let's talk about law enforcement instead! Arrest quotas, anyone?