Tuesday, September 13, 2016

Bogus Accounts at Wells Fargo

A new scandal at Wells Fargo is coming to light (here, here, and here) in which employees moved customers' funds into newly created accounts. Employees claim to have been under incredible pressure to meet sales goals or lose their jobs.
"I had managers in my face yelling at me," Sabrina Bertrand, who worked as a licensed personal banker for Wells Fargo in Houston in 2013, told CNNMoney. "They wanted you to open up dual checking accounts for people that couldn't even manage their original checking account." 

Wells Fargo is paying a $185 million fine, instituting a new $50 million program to fix this, and fired over 5,000 employees.

Incentive compensation schemes work best when there are clear metrics to be rewarded and there is little room to game the system. However, sometimes the metric is made more clear by making it a proxy for the behaviors you wish to incentivize. The more the metric is removed from the value creating behaviors, the easier it becomes to game.

Hat tip: Darshak Patel

1 comment:

  1. Bogus Accounts at Wells Fargo

    When this story made headlines, it drew some attention from me. I worked in banking over 12 years and I have seen managers tiptoe a fine line in the same way. I had managers always pressure you to open more account then the person needed and tell you they just don’t know they need them yet and explain how a savings account can benefit them with even five dollars per month.

    Matt Egan (2016) of CNNMoney reports,” Wells Fargo agreed to pay penalties of $185 million and fired 5,300 employees over the last few years related to this illegal activity. The news is rocking the industry and rippling across Wells Fargo's millions of customers nationwide.” What scares me is not only the fine but the cost associated with losing 5,300 employees. The cost of firing and then rehiring and training that many employees is astonishing. Along with losing the knowledge and the customer relationships that they had established.

    When they talk about the major pressure they received from their managers all I can think about is they pressure the managers must have received from upper management. The bank had to have very poor policy and produces along with poor report in place. They needed to establish a much stronger audit system and put into operation. Anytime you attach quotes and time frames and incentives on to something it doesn’t always end well. Wells Fargo had loop holes in their system and people found them and exploited them. It would be very interesting to see of all the employees let go, the breakdown of upper management down to a teller position.

    Egan, M. (2016, September 9). Workers tell Wells Fargo horror stories. Retrieved December 20, 2016, from http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/index.html?iid=EL