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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.
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.
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.