Wells Fargo ethical case analysis
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n I2017, the bank Wells Fargo was accused of opening fraudulent accounts in the customer’s name without the knowledge of the customer. This incurred fees for the customer. This process went fairly unnoticed. The basic premise for the culture at Wells Fargo is “Rather than spend too much time and money recruiting new customers, sell existing customers on new products.”
They had an exemplary record, coming out unscathed in the midst of the housing crisis of 2008. And yet, their reputation is now in shambles. This is a far cry from who the general public thought they were compared to where they are today. What happened to the poster child of the banking industry? There are two key issues that plagued the company and explain what lead to the downfall of one of the most respected banks in America.The two key issues are Conflict of Interest and Incentive Gaming.
The bank’s management set unrealistically high expectations for sales goals. The only way that employees could meet their unrealistic sales target was to create fake accounts that customers did not even know that they were being charged for. This is an example of what happens when employees feel under pressure from their managers and what they had to do so that they would not get fired.
Conflict of Interest businesses have a fiduciary duty to the company and to the consumer. For Wells Fargo, there was a conflict of interest between the consumer and the managers. They needed to meet their sales goals that their managers set for them. The problem was that their managers set the bar too high. The lower level employees had to meet unrealistic sales quotas set by their managers. If they were unable to meet these goals, they would have to have a talk with their manager. “She says the number of products she was expected to sell — checking and savings accounts, credit cards — seemed really high: at least eight products a day.” They felt immense pressure to meet the goals that were set and they would do anything they had to to not get fired. If they were not meeting their sales goals they were coached.
“It’s like being called into the principal’s office,” she says. “Sit down at the large conference table, no windows in this room, they shut the door, lock the door.” Then she says managers would give her a “formal warning” and tell her to sign it. And she says they’d tell her, “If you don’t meet your solutions you’re not a team player. If you’re bringing down the team then you will be fired and it will be on your permanent record.” She said she was in her early 20s, like many of the lower level sales people in the office. She says she was afraid to lose her job, especially because this started back when the economy was
still in bad shape. “You were stuck and it was the feeling that no other employer is going to want you because we will ruin you.”
Incentive gaming, or gaming the system, occurs when we figure out ways to increase our rewards for performance without actually improving our performance. This is what the managers were doing at Wells Fargo. They managed to find a way to maximize their own pay with minimal effort on their part, while the party that pays gets none of the reward. For example passing students even if they were not good or reaching sales goals for a bonus. When there are financial awards, strategic or opportunistic people tend to treat the situation differently and take advantage of others to obtain the rewards for themselves. Rewarding for A, but hoping for B. Focus on what pays them the best and manipulate the issues that makes them look better than they actually are.
At Wells Fargo, the situation for the lower employees was dire. “Behind the ever rising ratios of “products per household,” investigators found, was a boiler-room atmosphere of “excruciatingly high pressure” to boost numbers. Regional bosses set daily quotas for tellers and personal bankers, requiring them to stay late and work weekends or risk being fired.”
The managers at Wells Fargo incentivized their own profit and they gave priority to there own selfish desires and were unashamed of who they were taking advantage of. They focused on what payed them the best and they forced their employees to cross the line and manipulate their customers to reach these higher sales quotas. They were using there employees for their personal gain. The more sold the more they got paid. That was the culture at Wells Fargo.
Humans are a naturally mischevious breed and if you give them something they will always want more. They’ve got their eyes on the prize so you need to be aware and careful to make it balanced and fair for all who are involved. If you give them an incentive system, many of them will figure out how to manipulate it to maximize pay and minimize effort. Designers of incentive-based compensation systems must think carefully about unintended consequences, putting themselves in the shoes of their employees, and ask, If I were given these incentives, what might I do to game them?”
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