In the Department of Justice’s Evaluation of Corporate Compliance Programs, Prong 8 Incentive and Disciplinary Measures it states: Incentive SystemHow has the company considered the potential negative compliance implications of its incentives and rewards?

This week I have been considering how a company could use incentives to further a compliance program and the role of HR in this process. I want to consider how incentives might lead to the converse but looking at the intersection of sales incentives and compliance which led to the problems at Wells Fargo. When you misalignment these two concepts with a faulty sales strategy it can lead to a catastrophic failure, literally costing a company millions of dollars in fines, loss of business and depreciation of shareholder value.

The sales incentives under which Wells Fargo came to such grief is simple and even benign, cross-selling of products. As noted by Rachel Louise Ensign, writing in a Wall Street Journal (WSJ) article entitled “Banks Simple Strategy Gets Tangled”, “the concept sounds simple enough. If a customer has a checking account, why not sell him a mortgage, wealth management services and credit card as well?” She went on to write, “with banks becoming larger over the past two decades, cross-selling has become a mantra.” You can also think of the cross-selling McDonalds engages in every time you buy a Big Mac when the representative asks you “Would you like french fries with that?”

Yet there are other reasons for engaging in this type of business practice. Each and every time a company has a touchpoint, particularly a commercial touchpoint with a business, it strengthens the relationship. According to Gary Silverman, writing in the Financial Times (FT) in an article entitled “John Stumpf, the Labrador of Main Street, Wells Fargo’s Chief Executive Officer (CEO) “Mr Stumpf’s take on traditional Wells teaching was to promote deeper, more frequent contact with the people it serves. “If there’s one word to describe this company, it’s ‘relationship,’” he told the Financial Times in May. “What we’re trying to do is make sure that every team member, in every interaction with a customer, gets it right. If we don’t get it right, we try to make it right, really quickly.””

So what starts off as a legitimate, legal and beneficial business strategy becomes not only high risk but illegal because of the manner in which Wells Fargo administered its approach to cross-selling. As with any sales initiative, if a company wants to push it, it will set up incentives for the sales team to engage in such behavior. This can be done by increasing commissions around the service or product being emphasized, such as the banks products. Ensign noted, “Banks have tried to create incentives for cross-selling.” At some banks, “Branch employees can get bonuses—sometimes 10% or more of their salaries—when they sell additional products.” Companies can also increase sales by making clear that you will be evaluated on how much you sell a product or service. In other words, whether you receive a bonus, pay raise or even keep your job will be evaluated, in some part, on how much you cross-sell.

You can even have a hybrid of the above, which may be the worst of all worlds. At Wells Fargo, employees were evaluated for continuing employment by supervisors on cross-selling. Yet they did not receive the same financial incentives to make such cross-selling. Branch managers and supervisors could receive bonuses of up to $10,000 per month for meeting cross-selling quotas when employees who hit their monthly quotas, received, in addition to continued employment, $25 gift cards.

A panel at Compliance Week 2016, entitled “The Unsolvable Problem: Performance, Pay, Pressure and Misconduct”, contained an academic type, Marc Hodak, adjunct Professor of Business at New York University, Alexander Proels, Compliance Head Americas at Siemens, and Michael Weisman, Chief Ethics and Compliance Officer at The Kraft Heinz Company. They had some interesting thoughts around compensation, which I think you should consider in your role as a Chief Compliance Officer (CCO) going forward. One key area is the amount of your variable compensation relative to risk? What does your discretionary bonus program consist of? Is it corporate performance based? Group performance based? Only personal, i.e. eat what you kill? Or is it some combination of all of the above?

What are some of the indicia that your compensation structure might be off the rails from the compliance perspectives? Weisman gave three examples: (1) Lofty goals but no direction for employees on how to get there; (2) that is a paucity of communication between management and line employees, meaning there was raw fear from employees to inform their immediate supervisor of bad news. Conversely, it could be the supervisors who do not want to hear such bad news; and (3) if your company has singular focus on numbers, meaning that is the single judge of your worth as an employee.

Tied directly into this concept is that for every incentive there is an offsetting risk. Managing that risk must be done on an ongoing basis. As a CCO or compliance practitioner, you need to know your business and be a trusted business partner. You will need to understand the design of incentive plans and finally to be able to monitor incentive plans to identify underlying links that may arise through compliance violations.

Hill ended his piece by citing to Oxford Saïd Business School Professor, Jonathan Trevor, for the following “whether the strategy, purpose and structure of companies are aligned often makes the difference between a good organisation and a bad one. Expunging phantasms is essential, but not enough. Leaders also need to make new truces, lest the dead hand of past behaviour strangles new ways of working.” This is particularly true in the convergence of compensation and compliance. Whatever the structure, there will be employees who try to game the system. Some will do it with the tacit or explicit approval of management. You, as the CCO, may be required to act.

Three Key Takeaways

  1. Even a benign sales incentive program came become skewed.
  2. A sales incentive program can become high risk or illegal if not properly monitored.
  3. If there is alignment between the strategy, purpose and structure of an incentive system, it often makes the difference between a good and a bad one.


This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.