Problem Solving Application: Incentives Gone Wrong

Problem Solving Application Caseincentives Gonewrong Then Wrong Agai

Read about how performance incentives led to scandal at Wells Fargo. Then, using the three-step problem-solving approach, answer the questions that follow:

1. Discuss avoiding plagiarism writing. List the top three things to remember when using other people's works as sources in an APA formatted paper.

2. Describe, with examples, the difference between count nouns and non-count nouns.

3. View the video. Of the ten items discussed, which do you think is the best suggestion, and which the least useful (or one you like least).

Paper For Above instruction

Introduction

The Wells Fargo scandal epitomizes the devastating impact of poorly structured incentive schemes on organizational ethics, employee behavior, customer trust, and corporate reputation. By examining the origins and consequences of this scandal through a structured problem-solving framework, we can understand how incentives designed without adequate caution can lead to widespread misconduct. This analysis employs a three-step approach: defining the problem, identifying its causes, and proposing actionable solutions.

Step 1: Define the Problem

The core problem at Wells Fargo was a misaligned incentive structure that created a significant gap between desired and actual outcomes at multiple levels—individual, group, and organizational. Bank employees were under immense pressure to meet aggressive sales targets, which fostered unethical behaviors such as opening unauthorized accounts and adding services without customer consent. The immediate issue was the proliferation of approximately 3.5 million fake accounts, including unauthorized credit cards and deposit accounts, with severe repercussions for customers and the bank’s reputation.

From an organizational perspective, the stimulus for such misconduct was the overly ambitious number of accounts each banker was expected to open—namely, eight per customer, a goal purportedly set to mirror the company’s past success. This goal was a drastic increase from the previous target of three and was compounded by a corporate culture that prioritized sales metrics over ethical considerations. It’s crucial to highlight that managerial oversight and ethical lapses contributed significantly, as leadership turned a blind eye or even fostered a setting where misconduct was overlooked or implicitly encouraged.

On a personal level, employees faced a dilemma: pursue ethical conduct or meet their sales quotas to retain employment and bonuses. The conflict between individual ethics and organizational demands became stark, as indicated by reports of employees opening accounts in family members’ names or engaging in fraudulent practices just to fulfill quotas. The lack of appropriate controls, combined with a culture that rewarded results rather than integrity, created a fertile ground for misconduct.

Step 2: Identify the Causes of the Problem

The primary causes stem from both systemic organizational factors and individual behavioral influences. The incentive system was designed in a way that heavily rewarded account openings and cross-selling, with clear pressure to maximize sales regardless of ethical boundaries. The managers often set unrealistic targets, which employees perceived as impossible without unethical conduct, thereby incentivizing manipulation of customer accounts.

Leadership’s role was pivotal; senior executives, including CEO John Stumpf, knowingly endorsed or ignored unethical practices. Their awareness and implicit approval of manipulation tactics fueled a culture where unethical sales practices became normalized. Such leadership attitudes created a situation where employees, feeling compelled to meet targets, resorted to fraudulent methods as a means of survival and success.

Moreover, the organizational processes lacked effective oversight and accountability mechanisms. Although ethics training and reporting protocols were in place, they proved ineffective against the pressure to achieve numerical goals. The deeply embedded sales culture, combined with inadequate checks, caused the misconduct to proliferate.

On a broader level, external pressures, such as competitive banking environments and regulatory expectations, contributed to the intensification of sales goals. The redefinition of the “eight accounts” goal from three in previous years demonstrates a strategic push to outperform competitors and demonstrate growth, at the expense of ethical standards.

Individual factors such as personal values, personality traits (e.g., risk-taking), and situation-specific pressures (target-driven environment) exacerbated the likelihood of unethical conduct. The misalignment between personal ethics and organizational expectations created a conflict that many employees resolved through misconduct.

Step 3: Make Your Recommendations and Create an Action Plan

To address systemic issues, a comprehensive overhaul of the incentive structure is imperative. First, implementing a balanced scorecard that emphasizes ethical behavior, customer satisfaction, and long-term reputation alongside financial targets can better align incentives with organizational values. This would involve modifying sales targets to be achievable without undue pressure and linking bonuses to ethical conduct verified through audits and customer feedback.

Secondly, enhancing leadership accountability and establishing a strong ethical culture are crucial. Senior leaders must actively promote transparency, demonstrate ethical behavior, and enforce strict penalties for misconduct. Regular ethics training, anonymous reporting channels, and independent oversight committees should monitor compliance and address issues proactively.

Thirdly, reinforcing organizational controls and process improvements can prevent misconduct. This includes integrating customer consent protocols into onboarding processes, deploying technology to flag unusual account activity, and conducting random audits. Training employees on ethical sales practices and empowering them to report unethical behaviors without fear of retaliation are essential components of this solution.

Action Plan:

  • Revise incentive schemes to balance sales goals with ethical standards within three months.
  • Introduce a new performance evaluation system that incorporates ethics and customer satisfaction metrics by the next fiscal quarter.
  • Establish an independent ethics oversight board within six months to review conduct, report findings, and enforce accountability.
  • Implement advanced monitoring systems that automatically detect suspicious account activity within four months.
  • Conduct ongoing ethics training sessions, quarterly town halls, and anonymous reporting mechanisms to promote a culture of transparency and integrity starting immediately.

Conclusion

The Wells Fargo case underscores the peril of poorly conceived incentive systems and the importance of ethical leadership. Addressing these systemic issues through restructured incentive schemes, strengthened oversight, and a culture of integrity can significantly mitigate the risk of similar scandals. These measures will not only enhance compliance but also restore trust among customers, employees, and stakeholders, positioning the bank for sustainable success in the future.

References

  • Cowley, S., & Kingson, J. A. (2017). Wells Fargo to claw back $75 million from two former executives. The New York Times. https://www.nytimes.com/2017/04/10/business/wells-fargo-unauthorized-accounts.html
  • Corkery, M., & Cowley, S. (2016). Wells Fargo warned workers against sham accounts, but 'they needed a paycheck.' The New York Times. https://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-accounts.html
  • Egan, M. (2018). The two-year Wells Fargo horror story just won’t end. MoneyCNN. https://money.cnn.com/2018/09/07/news/economy/wells-fargo-scandal-two-year/index.html
  • Merle, R. (2019). After years of apologies for customer abuses, Wells Fargo CEO Tim Sloan suddenly steps down. The Washington Post. https://www.washingtonpost.com/business/2019/03/28/after-years-apologies-customer-abuses-wells-fargo-ceo-tim-sloan-suddenly-steps-down/
  • Wolff-Mann, E. (2018). Every Wells Fargo consumer scandal since 2015: A timeline. Yahoo Finance. https://finance.yahoo.com/news/every-wells-fargo-consumer-scandals-2015-timeline-123408212.html
  • Tippett, E. C. (2016). How Wells Fargo encouraged employees to commit fraud. The Conversation. https://theconversation.com/how-wells-fargo-encouraged-employees-to-commit-fraud-66615
  • Additional scholarly sources on ethical organizational behavior and incentive design.

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