Small business: Incentives must be handled carefully

Wells Fargo recently was fined $185 million for having employees set up fictitious accounts so that they would meet or exceed incentives that were set up by the bank.

The accounts were not authorized by customers and funds were transferred from customers’ accounts to the fraudulent accounts to make it look like the account was viable. The Consumer Financial Protection Bureau declared that these were unfair and abusive practices, and the bank terminated 5,300 employees.

In this case, the bank set up an incentive system to reward employees for increasing the number of new accounts and services the bank offered to its customers. The employees did things they thought would increase their incentive without being aware – or not caring – what the repercussions would be for the bank or the customer.

There is no question in my mind that the bank wanted its employees to bring in new customers and services and was willing to reward with incentives.

Incentives work, and I have seen many firms use employee incentives, but this is the biggest case I’ve seen in which such an incentive system was abused. That said, you can’t dismiss incentives because of this terrible example.

At Wells Fargo, they put an incentive system in place but did not anticipate their employees trying to cheat the system, nor did they have adequate checks in place to monitor the effectiveness of the incentive system. However, officials could have checked the new accounts to insure they were not fictitious.

What can small business owners do to successfully implement an incentive system?

First, make sure the behavior change you want to see is being accomplished without cheating. Monitor staff members to ensure all rules are being followed.

While this Wells Fargo example is huge, I can’t tell you the number of firms I’ve seen that tolerate cheating or look the other way when it comes to incentives.

One firm I worked with gave a production incentive on the number of units each employee completed. The employees submitted their number of units completed, but when we checked products completed against what employees said they completed, the employees overstated their production by about 20 percent.

While employees are wrong for cheating on system, management also is culpable for not checking on the incentive system, which in essence rewards bad behavior.

If you have an incentive system in place, make sure the incentive is effective, your employees are not cheating and not abusing your customers.

This story was originally published September 22, 2016 at 10:15 AM with the headline "Small business: Incentives must be handled carefully."