Essay Sample on Rewards, Benefits & Compensation: Ethical Behavior and Leadership

Introduction

The Wells Fargo and Co., which was the leading United States-based financial services and banking, was in the news in 2016 for alleged unethical customer relationship management policies. However, the management held the employees liable for the misconduct; the employees, on the other hand, claimed that some resorted in those practices with an effort of meeting the set targets under a scheme known as Gr-eight initiative. The workers blamed the management of putting them the pressure of achieving various targets and harassing the employees who complained against the practices. In the case scenarios, the bank confessed that it had indulged in unethical doings and agreed to pay a compensation fee to the consumers affected. The fact that the bank had engaged in unethical practices dented its reputation severely and placed intense pressure on the top management to reclaim the name the bank built for over 100 years.

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Various activities happened in the 17 months nightmare of Wells Fargo. The company had stiff competition and rising legal protocols in the United States. Due to the powerful competition in the banking sector, senior management in the organization began applying coercive sales schemes and giving pressure to employees to attain unrealistic sales quotas. The employees were given threats concerning their job security, and they had to work free hours in case they failed to meet the targets. In 2010, Stumpf, the CEO, made a decision to impose very aggressive sales targets. Wells Fargo employees, in 2016, were found guilty of opening around 3.5 million counterfeit accounts on behalf of the customers (Wattles, 2018). This scenario was the most significant financial scandal ever experienced in the world. Due to these actions, in 2016, the company was fined around 185 million dollar and have borne fines of about $1.7 billion because of the financial scandal (Blogger, 2017). The company also ignored warning signs, and the incentive compensation structure in the company remained unchanged. Besides, the company was accused of ripping off small businesses by overcharging them in credit card transactions by applying the deceptive contracts to confuse them. Furthermore, in Wells Fargo report, it admitted for wrongly fining mortgage clients for missing deadlines, which were caused by delays resulting from the company's doing.

The company allowed fraud to happen in various ways. The primary way was through opening customer checking and credit card accounts without their consent. This was done to meet sales targets and therefore earn extra compensations. This was allowed to happen through forging the applications, and in some situations, the bank sent unsolicited credit cards to its consumers (McCoy, 2017). The employees used the ideal customers, such as elderly clients who they thought will not realize any discrepancy. Due to these actions, the management and employees were paid under the bank's incentive compensation for meeting the bank's goals. The fraud was allowed through techniques; for instance, bankers transferred money from existing accounts to the other created new accounts to portray artificial growth. Another way the fraud was allowed to happen was through threats for those who communicated with the bank management. Some of the employees became uncomfortable with the sales practices of the bank and reported the concerns to the national and local management and, in some scenarios, to the CEO. The employee's notifications were not received positively, and as a result, they were forced to resign, demoted, and contracts terminated for reporting the controversial sales practices. For instance, one of the employees of the bank who had filed around 50 ethics complaints was intimated for the actions through being denied bathroom breaks. The contract was eventually terminated, and the employee laid out for allegations for not reporting at work on time. The bank highly compensated the executive management for the increase in earnings that arose because of the controversial sales practices.

Recommendations

A new incentive plan is necessary to avoid another financial scandal. The first strategy that should be used is getting rid of CEO duality. Since 2007, John Stumpf had acted as both the Chief Executive Officer and chairman for Wells Fargo until he resigned in 2016. By serving as both the CEO and chairman, more extensive control and power are offered, which weakens the controlling authority of the board's decision. Based on this, I recommend a new incentive plan that eliminates the dual role. One role in the company will result in having efficient corporate governance and allow the CEO to focus more on strategy and operations execution entirely. Another recommendation is in the new incentive plan; the employees should not be paid based on the number of new accounts they open or given incentives for meeting the sales goal of the company. Hence, the pay plan should be restructured and tie incentives to how often the bank consumers use their accounts. The most crucial and most significant thing to make sure the financial scandal does not happen is by ensuring the board of directors has the right corporate governance, risk management, and proper internal controls are in place.

References

Blogger, G. (2017, April 26). Wells Fargo Unauthorized Account Openings: A Case Study for Bank Board Directors. Retrieved from The FinReg Blog: https://sites.duke.edu/thefinregblog/2017/04/26/phony-accounts-scandal-a-case-study-for-bank-board-directors/

McCoy, K. (2017, August 31). Wells Fargo review finds 1.4M more potentially unauthorized accounts. Retrieved from USA TODAY: https://www.usatoday.com/story/money/2017/08/31/wells-fargo-review-finds-1-4-m-more-unauthorized-accounts/619794001/

Wattles, J. (2018, February 3). Wells Fargo's 17-month nightmare. Retrieved from WRAL COM: https://www.wral.com/wells-fargo-s-17-month-nightmare/17314448/