Wells Fargo has been ordered to pay a fine of $185 million to the U.S. government and the City and County of Los Angeles for creating “fake” accounts for customers who did not ask for the accounts. It also reached a settlement, perhaps the first of many, of $110 million with Wells Fargo customers over the same issues. It appears that the fake accounts were created so that Wells Fargo employees could meet their sales targets. That, in turn, would allow them to keep their jobs and in some cases earn large bonuses.
These unethical actions appear to have been a result of pressure from the top to grow the company. One employee described the culture at the bank as “cross-sell, cross-sell, cross-sell.” Cross-selling refers to the practice of asking existing customers to open another account (e.g., a checking account, a new credit card, a home loan, or a line of credit). During one big push to increase sales called “Jump into January,” employees were pressured to sell 20 products a day. The environment was described as “soul crushing” and one in which everyone was “miserable.” If you did not sell enough, you would be fired. Another employee said that managers did not directly ask him to deceive customers but instead would repeatedly ask, “Where are you at? How are you gonna get there?” But, if you hit your numbers, you did not get those questions. Some former employees reported that one way to hit your numbers was to include extra forms in a transaction to open a requested account. For example, if a customer was applying for a home loan, the banker would include a form for a line of credit and hope the customer would not notice when signing all the papers.
According to New York Federal Reserve President Bill Dudley, the “widespread fraud” at Wells Fargo shows the “powerful role—for good or bad—that incentives can play.” He compared what happened at Wells Fargo to how compensation systems helped cause the mortgage crisis and financial crisis of several years ago. Wells Fargo reports that it is now changing its compensation plan away from a focus on cross-selling as many banking products as possible to a focus on customer service, customer usage, and growth in primary balances.
Share your thoughts on the incentive program at Wells Fargo, include information such as:
What caused the problems at Wells Fargo, and how can they be fixed?
How helpful will the new compensation plan be in fixing things? Why?
Have you ever experienced “cross-selling”? How did you feel?
Put yourself in the position of a Wells Fargo customer that unknowingly signed for additional products… how would you feel about the organization?
Put yourself in the position of a Wells Fargo employee that was “incentivized” to “push” products/services that the customer did not need or want… how would you feel about the organization?
