Sales Incentive Plans that Align with Risk & Regulatory Guidance

I am quite sure that most large financial institutions have reviewed the largest sales incentive plans to ensure that they address employee conduct as well as protect the customer during the sales process.  In my prior corporate roles (please review my resume link: hyperlink), I developed principles and processes for establishing risk-balanced goals.  My view is that clear goals are important to guide an organization toward the strategies and performance objectives.  In my opinion, it is a mistake to communicate a long term commitment that a company is “eliminating product sales goals for all retail bankers to make certain nothing gets in the way of doing what is right for our customers” as stated in the Wells Fargo shareholder letter.  Management can temporarily suspend sales goals to address short-comings in incentive compensation programs.  I do applaud the Wells Fargo process improvements cited such as improving account opening transparency, customer remediation, and an independent review of sales practices.

The importance of fair and risk-balanced sales incentive programs is important even if regulatory guidance is reduced. In fact, I see a continued focus on incentive compensation and tying executive compensation more closely to performance, risk-balanced accountability, and increased consumer, political, and regulatory awareness of corporate policies. No firm wants the reputational risk that could arise from the ire of Congress, negative consumer sentiment, legal actions against the company, regulatory action by the OCC regulators and fines by the Consumer Financial Protection Bureau (CFPB). What is required is important changes in our business practices, compensation systems, and compliance programs to improve our legal and ethical culture not covered in the existing code of conduct.

All companies try to increase sales and many employ goals or metrics. In my opinion, eliminating sales goals entirely may create a void in how strategic initiatives will be measured, communicated, and monitored. However, before I suggest an alternative approach, let me review briefly the legal and ethical issues related to specific events at Wells Fargo that every institution should consider.

Under the direction of various regional leaders, there were over 1.5 million banking deposit accounts and 565,000 credit card accounts without customer authorization. This violated the Dodd-Frank Wall Street Reform and Consumer Protection Act which “prohibits unfair, deceptive, and abusive acts and practices by financial institutions” (“Consumer Financial Protection Bureau Fines Wells Fargo”). In addition, the account opening processes may have generated fees and delinquencies negatively affecting consumers’ credit bureau and FICO scores in violation of the Fair Credit Reporting Act (FCRA) law that requires accuracy and privacy of information reported to credit bureaus (Andriotis). The company fired 5,300 employees and managers for violation of Wells Fargo’s Code of Conduct, which represents our company’s existing ethical standards for how business should be conducted (Keller and Westbrook). These employee firings led to a class-action lawsuit on September 9, 2016 seeking $2.6 billion for wrongful termination accusing Wells Fargo of applying unlawful sales and business practices (Reuters). These recent legal and ethical issues are in addition to the 2015 lawsuit by the Los Angeles district attorney on unfair business practices and violations of law regarding misusing personal information and violating state data breach notification laws (Reckard).

Rather than permanently eliminating sales incentive goals, my recommendation is to develop a more transparent reporting system with escalations to senior management through explicit controls to ensure ethical and legal adherence.  Let’s look at some of the principles that a company should consider when reviewing incentive compensation plans.

  • In today’s world, the use of metrics and strategic goals will continue to play a major role in communicating success and failure for shareholders, employees, regulators, and customers. The challenge is what are the correct metrics for the products and customer segments targeted. Could the sales incentives drive inappropriate behavior (Zoltners, Sinha, and Lorimer).
  • The Human Resources Department should have a process to monitor and report feedback and complaints to senior leaders on their performance goals. This will create a communication channel to senior leaders as well as the Board’s compensation committee.  Feedback can be positive or negative. An example of positive feedback, is the level of management support (e.g. effective advertising of customer benefits, providing the sales team with customer incentives) provided to help the employees attain their goals and satisfy customers’ needs.
  • Compliance, Audit, Human Resources, and Risk Management should conduct an annual review of prior year issues under incentive plans or goals. Their analysis should be considered in designing and altering new goals or incentive plans for the upcoming year as well as provided to senior management.
  • Define goals as targets that includes a reference to documentation on how goals should be attained. The incentive compensation system should treat employees fairly given the environment and processes in place.  Targets should not be viewed as minimum mandatory performance requirements. Incentive compensation should consider the outcomes, and more importantly, how the outcomes were attained.
  • Design mandatory training for employees to learn how to properly conduct business and provide examples of activities that do not conform to the culture, code of conduct, or would be considered ethically wrong. Too often in our culture, we do not step back and look at the big picture of “how did we achieve our goals.”  Avoid the Machiavellian culture where “the ends justify the means.”

I have seen incentive compensation programs evolve over time and it is a journey not a destination as strategies and the environment keeps changing. Good luck and provide feedback.





Andriotis, AnnaMaria. “Lawmakers Worry Wells Fargo Sales Practices Hurt Credit Scores.” WSJ., 20 Sept. 2016. Web. 25 Sept. 2016. <;.

“Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts | Consumer Financial Protection Bureau.” Consumer Financial Protection Bureau. United States Government, 8 Sept. 2016. Web. 25 Sept. 2016. <;.

Keller, Laura J., and Jesse Westbrook. “Wells Fargo Drops Product Sales Goals for Retail Bankers.” Bloomberg, 13 Sept. 2016. Web. 25 Sept. 2016. <;.

Reckard, E. Scott. “L.A. Sues Wells Fargo, Alleging ‘unlawful and Fraudulent Conduct'” Los Angeles Times. Los Angeles Times, 4 May 2015. Web. 26 Sept. 2016. <;.

Reuters. “Wells Fargo Employees Who Lost Their Jobs Are Suing the Bank.” Fortune Comments. Fortune, 26 Sept. 2016. Web. 26 Sept. 2016. <;.

“To Wells Fargo Customers: Our Commitment to You.” Wells Fargo. Wells Fargo, Sept. 2016. Web. 25 Sept. 2016. <;.

Zoltners, Andris A., PK Sinha, and Sally Lorimer E. “Wells Fargo and the Slippery Slope of Sales Incentives.” Harvard Business Review. Harvard Business Publishing, 20 Sept. 2016. Web. 26 Sept. 2016. <;.



Author: RiskDirector, LLC

Risk Management Advisory and Consulting

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