BUSI 504 Week 6 Case Study 3 Example

Reinforcing the Wrong Behavior: Sales Goals, Incentives and Change at Wells Fargo

Introduction

In September 2016, federal regulators and the Los Angeles City Attorney announced that Wells Fargo would pay $185 million in penalties after branch staff had created checking, savings and credit card accounts that customers never requested (Consumer Financial Protection Bureau, 2016). The bank had fired about 5,300 employees over several years for sales misconduct. A later review raised the estimate of potentially unauthorized accounts to about 3.5 million, and in 2020 the bank settled the resulting criminal and civil inquiries for $3 billion (U.S. Department of Justice, 2020). Wells Fargo's stated values emphasized doing what was right for customers. This paper argues that the case is a study in reinforcement: the bank's goals, incentives and management practices reinforced exactly the behavior its values condemned, and changing that behavior required dismantling the reinforcement system itself.

What the Goals and Rewards Reinforced

Spector (2013) argues that new behaviors last only when the organization's systems, including appraisal, rewards and recognition, reinforce them. The principle works in both directions. At Wells Fargo, the community bank set ambitious cross-selling goals, summarized in the slogan that eight products per household was great, and translated them into daily branch and individual targets. The board's own investigation found that the sales model imposed unrealistic goals and intense pressure on employees, enforced by managers whose own standing depended on meeting the numbers (Independent Directors of the Board of Wells Fargo & Company, 2017).

In the language of Kerr (1975), Wells Fargo hoped for deep customer relationships and rewarded account counts. Employees who could not meet targets honestly faced warnings, lost bonuses or dismissal, while those who met them were praised. Research on goals explains why this produced misconduct rather than simply hard work. In laboratory studies by Schweitzer et al. (2004), participants working toward a concrete, hard target misreported their results more often than participants simply urged to try their best, and the gap widened for those who ended up narrowly missing the target and for those whose payment depended on hitting it. Ordóñez et al. (2009) argued that goal setting has been prescribed too freely and that narrow, difficult goals can encourage unethical behavior and crowd out attention to anything the goal does not measure. Account openings were counted; customer consent was not. In that environment, the shortest path to a reward ran straight through the customers' trust.

Why Leaders Missed the Damage

For years, senior leaders treated the misconduct as the work of individual bad employees, which is why thousands were fired while the goals remained. Ashforth and Anand (2003) explain how wrongdoing becomes normal in organizations through three processes: institutionalization, in which corrupt practices become embedded in routines; rationalization, in which people develop accounts that justify them; and socialization, in which newcomers are taught to accept them. All three are visible in the case. Opening extra accounts became a routine branch practice, employees and managers justified it as harmless or as what everyone did, and new hires learned it from those around them.

The board's investigation also pointed to structure. Wells Fargo's decentralized model gave the head of the community bank wide autonomy, and risk and control functions were slow to challenge the sales culture (Independent Directors of the Board of Wells Fargo & Company, 2017). Welsh and Ordóñez (2014) add a reason the problem grew over time: in their experiments, a series of consecutive high goals depleted people's self-control and increased unethical behavior across rounds. A system of ever-rising targets is precisely such a series. Each year's achievement became the floor for the next year's goal, so employees who had stretched honestly one year faced a target the following year that only stretching the rules could meet.

The signals were available. Customers complained about accounts they had not opened, employees called ethics lines, and the steady stream of dismissals for the same kind of misconduct was itself evidence that the problem was systemic. What was missing was a willingness at the top to read those signals as information about the goals rather than about the employees. Leaders who have built a celebrated sales model have strong reasons to see failures as exceptions, and the decentralized structure meant that few people below the top had the standing to say otherwise.

Reinforcing New Behaviors After 2016

Wells Fargo's response, read through Spector (2013), was largely an attempt to change what the organization reinforced. The bank announced that it would eliminate product sales goals for retail bankers beginning in 2017 and replace them with measures tied to customer service and the use of accounts rather than their number. The chief executive resigned, and the board clawed back compensation from him and from the former head of the community bank. In 2018 the Federal Reserve restricted the bank's growth until it improved governance and controls.

These steps addressed the reinforcement system directly, which is what the chapter recommends: removing the rewards for the old behavior and creating rewards for the new. They also show the limits of reinforcement as a remedy. Once employees and customers had seen the gap between the bank's words and its systems, new incentive plans alone could not restore trust. Reinforcement shapes behavior going forward, but it cannot by itself repair the damage done by years of reinforcing the wrong thing. Employees who had watched colleagues fired for following the old incentives had reason to wonder whether the new measures would last, and managers who had risen under the old system now had to lead under the new one. Rebuilding trust required consistency over years, not a single redesign, which is consistent with the chapter's view that reinforcement must be sustained to hold new behavior in place.

Principles for Reinforcement During Change

Four principles follow from the case. First, measure the outcomes the organization claims to care about, even when they are harder to tally; a measure of customer use of accounts is harder to collect than a count of openings but much harder to game. Second, treat a pattern of misconduct as a signal about the system, not only about individuals; thousands of dismissals for the same behavior should prompt a review of the goals that produced it. Third, balance goals with controls, so that independent risk and audit functions can challenge results that look too good. Fourth, reward the behavior leaders say they want in visible ways, by promoting managers who meet targets honestly and by recognizing employees who refuse to cut corners, so that the organization's stated values and its reinforcement system send the same message.

A Biblical Perspective

Paul warned Timothy that people who are determined to become rich fall into temptation and a snare and into many harmful desires, and he named the craving for money as a source from which every sort of wrongdoing grows (English Standard Version Bible, 2001/2016, 1 Timothy 6:9-10). The passage locates the danger in the desire, not in money itself, and that is the right lens for the case. Wells Fargo's reward system turned a legitimate aim, serving more of each customer's needs, into a relentless pressure for numbers that harnessed employees' fear and ambition. The biblical concern also applies to the system's designers. Leaders who set rewards shape the temptations their employees face. A Christian manager has a responsibility not only to resist the love of money personally but to design systems that do not place that snare in front of others.

Conclusion

The Wells Fargo case shows that reinforcement is powerful in both directions. The bank's goals and incentives reinforced the behavior they rewarded, account openings, at the expense of the behavior the bank claimed to value, honest service to customers. Spector (2013) argues that change lasts only when systems reinforce the new behavior; the case adds that harmful behavior lasts when systems reinforce it, regardless of the values on the wall. Changing the outcome required changing the reward system itself. For managers implementing any change, the lesson is to ask first what the organization actually rewards, because employees will answer that question correctly long before leaders do.

References

Ashforth, B. E., & Anand, V. (2003). The normalization of corruption in organizations. Research in Organizational Behavior, 25, 1-52. https://doi.org/10.1016/S0191-3085(03)25001-2

Consumer Financial Protection Bureau. (2016). Consent order in the matter of Wells Fargo Bank, N.A. (File No. 2016-CFPB-0015). https://www.consumerfinance.gov/enforcement/actions/wells-fargo-bank-2016/

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Independent Directors of the Board of Wells Fargo & Company. (2017). Sales practices investigation report. Wells Fargo & Company.

Kerr, S. (1975). On the folly of rewarding A, while hoping for B. Academy of Management Journal, 18(4), 769-783. https://doi.org/10.5465/255378

Ordóñez, L. D., Schweitzer, M. E., Galinsky, A. D., & Bazerman, M. H. (2009). Goals gone wild: The systematic side effects of overprescribing goal setting. Academy of Management Perspectives, 23(1), 6-16. https://doi.org/10.5465/amp.2009.37007999

Schweitzer, M. E., Ordóñez, L., & Douma, B. (2004). Goal setting as a motivator of unethical behavior. Academy of Management Journal, 47(3), 422-432. https://doi.org/10.5465/20159591

Spector, B. (2013). Implementing organizational change: Theory into practice (3rd ed.). Pearson.

U.S. Department of Justice. (2020, February 21). Wells Fargo agrees to pay $3 billion to resolve criminal and civil investigations into sales practices involving the opening of millions of accounts without customer authorization [Press release]. https://www.justice.gov/opa/pr/wells-fargo-agrees-pay-3-billion-resolve-criminal-and-civil-investigations-sales-practices

Welsh, D. T., & Ordóñez, L. D. (2014). The dark side of consecutive high performance goals: Linking goal setting, depletion, and unethical behavior. Organizational Behavior and Human Decision Processes, 123(2), 79-89. https://doi.org/10.1016/j.obhdp.2013.07.006