It's worth pausing a minute to contemplate the fate of Wells Fargo's incentive plan. You know, the one that has caused all the oversight trouble and fines.
If you don't know the details here's a quick quote, "Regulators said the bank's employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells employees told regulators they had felt extreme pressure to open as many accounts as possible." "The bank has fired at least 5,300 employees who were involved." Here are links to the September 8 and September 9 New York Times articles about the actions of the Federal banking regulators.
I am a very satisfied Wells Fargo consumer and have found the bank's services to be head and shoulders over all the other banks I have used previously, so I am not writing with any agenda. But I do think there is much we can commiserate with in this story, if we look into our own Compensation hearts.
Specifically, I'm inspired to get us thinking about implementation methodologies that are often overlooked, yet immensely valuable, since misguided incentives can easily wreak havoc, as we all know. Even though we don't know the Wells Fargo incentive plan design and how it went off track (and stayed there for a few years), there are valuable implementation reminders for us in this news story.
Here's what I was I was reminded of, thought harder about and decided I'd share with you:
Beta-tests of broad-based plan designs should be a consistent part of our discipline. In many ways, it is irresponsible to put large sums of money on the table without confirming that what you imagine could happen, will. Of course, you'll never know everything that could happen, but when you try out a design with a subgroup you learn so much about what needs adjusting or fixing in your design and practices, your rollout is bound to be much more successful and financially reliable.
Measuring program results is your annual (or more frequent) responsibility. It's not enough to see improvements and assume your plan design is working. You are a trusted business advisor and if you have designed an incentive plan, you should be acting as if you have financial responsibilities for the incentive outcomes and funding. Measure results as often as data can be made available. Not sure how to rethink this part of your implementation practices? There's a full chapter of data management guidelines in the eBook, Everything You Do (in Compensation) Is Communications.
Quit giving ourselves permission to guess. Admit it, we don't talk with employees enough. What if Wells Fargo had hired a third party to conduct focus groups? (It's a valid investment when you seriously want candid insights.) Odds are, the third party would have been privy to some straight talk -- much more straightforward comments than HR would have heard doing focus groups with employees who were afraid of losing their jobs.
Another suggestion for overcoming our proclivity for guessing -- there's much more that we can and should learn about human motivation and behavioral economics. Here's an overview of this new field that hints at how much research we have to catch up on: '"Standard economic theory suggests that as long as people understand the full consequences of their actions, they tend to act in their self interest," says [Leslie] John [of Harvard Business School]. "If they want to be healthy, and you tell them how many calories are in a burger, then they'll eat better." But behavioral economics suggest that people make mistakes in their thinking. For example, we have self-control problems that can lead us to knowingly "misbehave."'
Of course, it's not that we in Compensation didn't know that little uncomfortable fact before, but behavioral economics' research can now tell us how they'll misbehave, when and why. With a bit of due diligence, we can have these tested research findings to factor into our plan design.
What have I missed? You must have other implementation practices to suggest that will improve incentive design?
Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create the DIY guide to compensation leadership, Everything You Do (in Compensation) Is Communications. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio, performance management and compensation implementation discussions at the Café. Margaret is a Board member of the Bay Area Compensation Association (BACA). Before founding re:Think Consulting, she was a Principal at Willis Towers Watson.
Perfect time for this great topic, Margaret! "Precommitments," as mentioned in your excellent link about behavioral economics, might have helped.
Posted by: E. James (Jim) Brennan | 09/12/2016 at 01:10 PM