Context
For years Wells Fargo built its strategy on cross-selling: the more products a single customer held, the more valuable that customer was to the bank. The bank publicly named a goal of eight products per customer. In the branches this became daily quotas for opening accounts and cards, and bonuses and performance reviews depended on them.
Symptom
Sales figures grew, while customers found accounts and cards they had never opened and paid fees on them. Complaints and dismissals for misconduct went on for years, but they were treated as the wrongdoing of individuals.
Cause
The quota was higher than what could be achieved honestly, and the control system checked the number of products opened, not whether the customer needed them. A metric created to measure the relationship with the customer became a goal in itself.
The fork
Keep the quotas and punish offenders one at a time, or admit that the incentive system itself was producing the misconduct and rebuild it.
Decision
For a long time the bank chose the first path: according to regulators, about 5,300 employees were dismissed for misconduct between 2011 and 2015, but the quotas stayed. The system changed only after a public fine in September 2016, when the bank announced it would eliminate product sales goals for retail employees from January 1, 2017.
Execution
The bank paid $185 million in penalties: $100 million to the Consumer Financial Protection Bureau (CFPB), $35 million to the Office of the Comptroller of the Currency, and $50 million to the City and County of Los Angeles. The chief executive resigned in October 2016. The bank ran an expanded review of accounts from 2009 to 2016.
Outcome
In August 2017 the bank reported 3.5 million potentially unauthorized accounts instead of the 2.1 million named a year earlier. The consequences stretched over years: in 2018 the Federal Reserve capped the bank's asset growth, and in 2020 the bank agreed to pay $3 billion under a settlement with the Department of Justice and the Securities and Exchange Commission.
What it means for you
Any metric tied to a bonus starts to change how people behave. The question is in which direction.
- Which of your KPIs can be met without bringing the company any benefit?
- Who in the company checks how a target was met, not only the number?
- When an employee leaves or breaks the rules, what do you learn: a cause in the system, or one person's fault?
We would start by matching every bonus metric against the result it was introduced for, and finding the metrics that can be met at the customer's expense.
Key dates
| Year | Event |
|---|---|
| 2011–2015 | According to regulators, about 5,300 employees dismissed for opening accounts without customer consent |
| 2016, September | $185 million in penalties; the bank announces the end of product sales goals |
| 2016, October | The chief executive resigns |
| 2017, August | Estimate raised to 3.5 million potentially unauthorized accounts |
| 2018 | Federal Reserve caps asset growth |
| 2020 | $3 billion settlement with the Department of Justice and the SEC |
Sources
- NPR. *Wells Fargo Fined $185 Million Over Creation Of Fake Accounts For Bonuses*, September 8, 2016: Source
- Wells Fargo & Company. Form 8-K, Exhibit 99.1, August 31, 2017 (results of the expanded review): Source
- Bloomberg. *Wells Fargo Boosts Fake-Account Estimate 67% to 3.5 Million*, August 31, 2017: Source
- U.S. Department of Justice. Press release on the $3 billion settlement with Wells Fargo, February 2020.
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