In Focus: Wells Fargo to Claw Back $75 Million over Incentive Pay Scandal

Misguided sales incentives pushed branch workers to create mllions of fake accounts

By Stephen Miller, CEBS Apr 11, 2017

In the largest forced return of pay and stock grants in banking history, Wells Fargo announced this week it will claw back $75 million from two former executives. The bank's former chief executive, John G. Stumpf, and its former head of community banking, Carrie L. Tolstedt, took the brunt of the blame for a scandal over fraudulent accounts. The bank's April 10 announcement held the two responsible for the firm's aggressive incentive program and dysfunctional culture, which last year led to the firing of 5,300 frontline employees for creating over 2 million fake customer accounts.

CEO Regrets Bank Didn't Act Sooner

Bankers across Wells Fargo's giant branch system—the third largest by revenue in the country—were given sales goals that tacitly encouraged them to open unwanted or unneeded accounts in customers' names and, sometimes, to move money into and out of the sham accounts. Timothy J. Sloan, who succeeded Stumpf as chief executive, said at a news conference, "In hindsight, I wish we would have taken more action and would have done things more quickly," adding that the bank's sales incentives should have been eliminated sooner.
(New York Times) 

HR Failed to Connect the Dots

A report from the bank's board describes a long, bureaucratic meltdown. Wells Fargo risk managers couldn't get branch banking executives to tell them what risks the incentive program posed. Its legal department focused on lawsuits, not patterns of corruption. Auditors checked numbers but avoided critical conclusions. Human resources didn't connect high turnover—up to 42 percent a year, more like a retail chain than a financial institution—to relentless goals that went unmet.
(The Philadelphia Inquirer and Daily News

When Bonus Incentives Go Bad—and How to Prevent It

While the Wells Fargo scandal may be unique in its scope, it's not unique for a bonus incentive program—and the management practices behind it—to deviate from its intended purpose at the cost of an organization's reputation. It is important to conduct a periodic review of incentive plan designs to make sure that they are working as intended to improve individual and organizational performance.
(SHRM Online)

A Failure of Ethical Standards

The key lesson from the report is that a company's ethical standards do not trickle down to the workplace by themselves. Many firms can have a policy that promotes honesty and other values. But employees must also see managers who daily live and demonstrate those values, and who also welcome complaints when values are violated.
(Christian Science Monitor)


[SHRM members-only toolkit: Designing and Managing Incentive Compensation Programs]


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