Incentives Gone Wrong, Then Wrong Again, and Wrong Again Money is an important tool for both attracting and moti- vating talent. If you owned a company or were its CEO, you would likely agree and choose performance man- agement practices to deliver such outcomes. It also is possible you'd use incentives to help align your employees' interests, behaviors, and performance with those of the company. After all, countless companies have used incentives very successfully, but not all. The incentives used by Wells Fargo had disastrous consequences for employees, customers, and the company itself. THE DAMAGE TO CUSTOMERS AND EMPLOYEES Wells employees created approximately 3.5 fake accounts; even now precise numbers are to obtain. But it seems as if 1.5 million depo 500,000 credit card accounts were opened customer consent, and it erroneously foreclo over 400 mortgages and repossessed thousa cars. Over 800,000 customers with auto loan charged for auto insurance.115 The list goes on. The negative consequences within Wells Farg have been enormous. CEO John Stumpf was along with former head of community banking, Tolstedt. Seventy-five million dollars in compen was clawed back from these two executives, as considered ill-gotten and due to illegal or at unprofessional behaviors. The same executive additional millions in compensation, and approxir 5,300 employees were fired. Numerous regu agencies fined Wells Fargo for nearly $200 millia company's stock underperformed its competitor it is difficult to estimate the cost of damage to the pany's reputation and the resulting lost busine Above all, there are the incalculable costs to cu ers in money, frustration, ruined credit, lost ve and lost homes. THE SCENARIO AND BEHAVIORS A client enters a bank branch and opens a checking account. The performance expectations of the banker that helped open the account were to open eight accounts for each customer, which meant he or she needed to persuade that customer to open seven additional accounts! This resulted in the banker then attempting to open a savings account and maybe a credit card account, simple enough. But the problem happened when the customer left without opening additional accounts and many bankers went ahead and did so anyway without the customer's consent. Customers who had mortgages with the bank some- times had insurance policies opened without their knowledge. The bank also financed automobiles for many customers, and insurance was also often added unknowingly to these. Small business customers were frequently overcharged for credit cards and other ser- vices. More generally, customers for one product were cross-sold other products, and along with many of these additional accounts there were fees. The increased number of accounts helped employees meet their numbers, and the fees provided still more income for the bank. 112 Even after all of these efforts, many bankers still fell short of their goals and opened accounts in family mem- bers' names. One branch manager opened 24 accounts in her teenage daughter's name and 21 In her hus- band's. Other reports include Wells Fargo bankers can- 113 vassing employees at stores in which they shopped. Pet insurance was added in some instances!114 Some sham accounts were closed once the employee received credit, but many remained open, charging fees and affecting customers' credit. THE CULPRITS Much of this carnage has now been attributed verse incentives and poor leadership. Investi- revealed that both Stumpf and Tolstedt were we of these unethical behaviors, but they turned eye or even encouraged these behaviors. reported that Tolstedt repeatedly denied and complaints about goals being unachievable ar lematic. 117 But what about the thousands of em that actually opened the accounts? When writir the Wells Fargo scandal, Professor Elizabeth noted, Research suggests that ethical behav about who you are or the values you hold. Be often a function of the situation in which you decision, even factors you barely notice."118 Another interesting detail regarding per expectations is that the eight-account expec every customer was only three 10 years earl is important to note that this sort of cro (multiple products to the same customer) was some- thing Wells was known for and contributed to its past success. It's been reported that the reason for eight instead of another number was that CEO Stumpf said it rhymed with "great." C. Use details in the case to determine the key problem. Don't assume, infer, or create problems that are not explicitly included in the case itself. D. To refine your choice, ask yourself, why is this a problem? Explaining why helps refine and focus your thinking. Focus on topics in the current chapter, because we generally select cases that illustrate concepts in the current chapter. STEP 2: Identify causes. Using material from this chapter and summarized in the Organizing Framework, identify what are the causes of the problem you identified in Step 1 Remember, causes tend to appear in either the Input or Processes boxes. ACTIONS To be fair, numerous examples exist of Wells Fargo management explicitly instructing employees not to engage in such activities, including ethics training and the deployment of risk professionals to identify and correct inappropriate conduct. But this obviously wasn't enough, and even though employees were expected to report any misdeeds, they didn't. Incen- tives stayed in place and employees continued to be pressured and even fired if they did not make their sales quotas. Some involved in the scandal argued it isn't the employees' fault, they needed a paycheck and this is what their employer required. 119 Tim Sloan, who worked at Wells for decades, was inserted as the new CEO and charged with cleaning up the mess, restoring the bank's reputation, and warding off a potential new $1 billion fine. 120 Sloan worked in the role for two years before step- ping down in 2019, presumably for not being able to turn things around.121 Whoever replaces him has the same challenges. Assume you are the new CEO, what would you do? APPLY THE 3-STEP PROBLEM- SOLVING APPROACH TO OB Use the Organizing Framework in Figure 6.9 and the 3-Step Problem Solving Approach to help identify inputs, processes, and outcomes relative to this case. STEP 1: Define the problem. A. Look first to the Outcome box of the Organizing Framework in Figure 6.9 to help identify the important problem(s) in this case. Remember that a problem is a gap between a desired and current state. State your problem as a gap and be sure to consider problems at all three levels. If more than one desired outcome is not being accomplished, decide which one is most impor- tant and focus on it for steps 2 and 3. 3. Cases have key players, and problems are generally viewed from a particular player's perspective. You need to determine from whose perspective-employee, manager, team, or the organization-you're defining the problem. As in other cases, whether you choose the individual or organizational level in this case can make a difference. In this case you're asked to assume the role of the new CEO. A. Start by looking at the Organizing Framework (Figure 6.9) and determine which person factors, if any, are most likely causes to the defined problem. For each cause, explain why this is a cause of the problem. Asking why multiple times is more likely to lead you to root causes of the problem. There may be few or no person factors but be sure to consider them. For example, did attributes of the leaders or other employees contribute to the problems defined in Step 1? B. Follow the same process for the situation fac- tors. For each ask yourself, Why is this a cause? For example, leadership at the executive and other levels might have some effect on the prob- lem you defined. Aside from performance man- agement, did other HR practices contribute to the problem? If you agree, which specific prac- tices and why? By following the process of ask- ing why multiple times you are likely to arrive at a more complete and accurate set of causes. Again, look to the Organizing Framework for this chapter for guidance. C. Now consider the Processes box in the Organiz ing Framework. Performance management pro- cesses are clearly part of the story, but are any other processes at the individual, group/team, organizational level that caused your defined problem? For any process you consider, ask yourself, why is this a cause? Again, do this for several iterations to arrive at the root causes. D. To check the accuracy or appropriateness of te causes, be sure to map them onto the defined problem and confirm the link or cause and effe connection. STEP 3: Recommend solutions. Make your recommendations for solving the probl considering whether you want to resolve it, solve dissolve it (see Section 1.5). Which recommendati desirable and feasible