Wells Fargo is in the news again after a shaky end to 2016 with their controversial incentive compensation and overly challenging sales goals, which pressured employees into using fraudulent practices in order to meet demanding metrics. By creating a sales culture so deeply rooted in growth, Wells Fargo employees compromised what matters most: the customers’ best interest. Since then, the company has changed directions for 2017, aiming for a more customer-centric focus.
The Canidium team recently took a look at the proposed changes for Wells Fargo’s compensation program for retail bank team members. See what our experts have to say about the pillars of Wells Fargo’s new compensation program below:
The Expert Panel:
- Michael Stus, Founder and Owner
- Lee Goldberg, VP of Sales and Marketing
- David Kohari, VP of Strategic Services and Customer Success
- Jason Kearns, VP of Technology Services
- Drew Chandler, Senior Manager
- Tom Hampton, Senior Manager
- Rodney Ray, Senior Manager, Learning Program
- Kim Thorn, HR Manager
New Ways to Measure Performance:
No product sales goals are assigned.
- MS: I understand that Wells had their hand slapped quite severely for the behaviors that have come to light so maybe this extreme reaction to eliminate sales goals is necessary from a PR perspective. However, the existence of sales goals was not the issue that got them into trouble but rather poor design, management, and operation of their incentive program at best and at worst a culture that condoned and even rewarded unethical behavior.
- LG: I understand why Wells is taking this approach. However, regardless of the recent history, sales folks who are selling these products need to have goals that can be reached and have the visibility into their performance.
- DK: This isn’t necessarily a bad idea but it is perhaps an over-reaction to the recent issues. Ultimately, I believe that Wells Fargo will likely return to some type of product-specific goals or focus.
- JK: It is unclear to me how this will affect the behavior of retail banking reps. Banks still need to sell products, and those on the front lines need to be evangelists for those products. I suspect that this might change if sales suffer dramatically.
- DC: I think this is quite interesting. It is putting the emphasis on understanding customer need and then determining which product to sell them to address those needs, rather than figuring out a way to sell the customer a certain product. Given the controversy specific to Wells Fargo, I think this is the main takeaway from the story that they want the public to understand. Removing product sales goals clearly differentiates the new plan from how they used to pay their employees.
- TH: By removing the sales goal, Wells Fargo seems to be changing the culture and removing itself from any questionable sales practices, and instead it is going back to its foundation.
- KT: This is a good idea because it takes the focus off reaching numbers and more onto customer satisfaction.
Customer feedback and usage.
A larger allocation of incentives is associated with direct customer feedback, such as customer initiated transactions, customer retention, and household balances.
- MS: I think this is a wise move—to focus incentives on the customer-centric KPIs.
- LG: This is a great idea and it allows Wells to not only capture new customers but also promotes additional incentivize to employees to make sure that people remain customers.
- DK: Great idea and long overdue for many organizations. CSAT and retention metrics are critical in the new economy, where customer lifetime value (LTV) is more and more the focus versus transactional activity.
- JK: This is in line with the new corporate charter so it makes a lot of sense.
- DC: Assuming that this type of feedback is readily available and customers will give this information, this emphasis should be effective if the focus is on customer relationship building rather than specific product sales. However, customers are fickle and I question how much I would emphasize customer feedback as an input to determining employee effectiveness. Specific to banking, say a customer wanted a home improvement loan and was turned down—I would expect a low rating from this customer, yet the loan officer may have been acting completely fairly and in the bank’s (and by extension the bank’s customers) best interest. I would want to know more here about how much control the employee has over the questions being asked of the customers. They mention household balance as a metric—I can categorically say that there is pretty much nothing that any bank employee can say or do to affect my checking account balance.
- TH: By focusing on building strong relationships, Wells Fargo is hoping to redefine itself. As Bill Gates once stated, “Your most unhappy customers are your greatest source of learning.” Customer feedback should provide key insights to grow Wells Fargo’s market share after it lost some of its clients because of its former shady sales practices.
- KT: Love this idea. It helps to ensure that employees will do their best to treat customers well, resulting in better customer retention and referrals.
Metrics in the plan take a longer-term view of customer relationships and incorporate the quality of customer experiences and customer retention.
- LG: Everybody makes more money when the customer remains. This is a great motivation for any sales person.
- DK: As indicated above, customer LTV is more important than specific transactional activity in most cases. It’s good to see recognition of this by Wells Fargo leadership, and hopefully it’s less reactionary and more a real change in the perception of the customer relationship.
- JK: A component like this is typically more effective at the management layer, but it will be interesting to see how it evolves. It sounds good in general, but it can be difficult to tie to specific individuals over time. Perhaps they are using a team-based measurement.
- TH: This strategy allows Wells Fargo to focus on restoring trust between the customer and its community banks. Happy customers will begin spreading their happiness with others who are looking for a new bank. By focusing on a longer term, this will help drive more loyalty when customers feel respected and appreciated.
- RR: This was the biggest attention-grabber for me. Reactive decisions based on short-term events is a bit too pervasive (just look at the stock market). I like the idea of focusing on the longer-term goals.
- KT: This shows me that the company realizes that success doesn’t happen overnight and is willing to take the time needed to ensure the satisfaction of customers and employees.
Entry-level banker incentive plans are based on team rather than individual performance.
- MS: Again, I think this is a wise move and a way to propagate the culture of the team and organization, assuming that the cultural and ethical deficiencies that resulted in the scandal have been cleaned up or removed.
- LG: This is a great idea, and it promotes a healthy team environment.
- DK: This makes sense, especially for entry-level bankers who need mentoring and coaching from senior-level resources. There will need to be some accommodations made for the senior-level resources as well to help encourage the mentoring behavior.
- JK: This works in some industries and might be a great fit here, considering the diversity of products offered at a bank. The organization should be prepared to see a slowdown of type-A reps who strive for individual achievement and recognition.
- DC: I would question how star performers are identified with this type of plan metric. How do you know how your top performers are doing?
- TH: With Millennials entering the workplace, it’s great that Wells created entry-level plans to provide support to new hires and foster a team dynamic. When one wins, the entire team wins.
- RR: This could carry a downside for star performers.
- KT: This will make for a stronger team environment, versus a competitive environment, resulting in a happier workplace.
A significantly higher percentage of team members will have the opportunity to earn incentive pay under the plan, which is expected to drive greater alignment across the Community Bank.
- MS: Incentives work: what gets measured, gets done. Assuming that the incentives are properly aligned with a customer-supportive and ethical corporate direction, they should see good results.
- LG: When everybody has incentives, it encourages teamwork across every business and it also holds teams accountable for not pulling their own weight.
- DK: Another potentially good idea that could go wrong for Wells Fargo is if the plans are not designed correctly. Think of the comp plan as an amplifier in some ways: it can amplify the right behavior, but it can also amplify the wrong behavior, as Wells found out the hard way. Increasing the number of participants in a poorly designed plan only increases the damage potential.
- JK: Along with the team-focused incentive approach, this makes a lot of sense.
- DC: I would be sure to confirm that everyone who is eligible for this incentive has the opportunity to impact the behaviors being measured. Generally, though, greater participation should result in greater alignment.
- TH: By motivating the proper behavior with customers in community banks, the team will be working toward shared goals, and in the end, will drive the correct behaviors.
- RR: I believe everyone in the company should have some sort of incentive pay.
- KT: I think this is good for employee satisfaction and retention. The more chance an employee has to earn, the better they will perform and the happier they will be with their role.
Stronger oversight and risk controls.
Stronger controls have been put in place at the local, regional and corporate levels to monitor behavior, additional reporting is built into the plan to provide enhanced oversight of the sales process.
- MS: Yes. This is wise; much of Wells’ trouble could have been avoided if tighter controls were in place initially.
- LG: Exposure and reporting on the metrics allows everybody to have the proper checks and balances across the organization.
- DK: Absolutely required—although I would argue for more of a “shared service” approach that centralized oversight and governance to ensure better alignment to corporate goals and objectives.
- JK: This probably could have been put in place alone, and it might have fixed the problem to some extent.
- KT: This will benefit Wells Fargo by giving the different branches more one-on-one attention, possibly resulting in faster resolution of any issues and higher sales.