If there’s one thing we can learn from Wells Fargo, it’s that employee incentive based compensation may not always be the best way to get employees to do a better job. A new study, released in early December of last year from Virginia Tech, shows that end of year incentives and bonuses may lead to dishonesty and risk taking in the workplace. The study focused on managerial positions in particular, but rings true to any position that earns bonuses based on performance or quotas. It makes sense, though. When employees have to work harder to meet unrealistic quotas, they’re more likely to take unethical routes in order to meet those goals.
The Pamplin College of Business at Virginia Tech executed the study. The published study on the Virginia Tech website quotes Bill Becker, the associate professor and co-author of the study as saying, “Goal fixation can have a profound impact on employee behavior, and the damaging effects appear to be growing stronger in today’s competitive business landscape.” The study goes on to discuss the benefits and drawbacks of incentive-based pay as opposed to a flat-rate compensation among managerial positions.
One example of this study ringing true is the Wells Fargo case. It managed to destroy the company’s reputation instantly when it was revealed in the fall of 2016. The case revealed that thousands of employees had been duplicating member accounts. They felt that they had to do this in order to fill unrealistic quotas set by the company. It was discovered that over 2 million fraud accounts had been opened illegally. As a result, Wells Fargo had to fire thousands of employees and spend the next few years participating in a series of investigations to regain the trust of its customers.
Wells Fargo only recently reached a foreseeable end to its troubles. The San Francisco-based bank is being forced to cough up millions of dollars in fines to all 50 states. The amount of the fines vary by state, with California taking a large percentage of that settlement. The remaining impact of the years of bad publicity may cost the company much more though. Millions of its account holders were negatively affected by the scandal. This is just one of the many ways in which incentive-based pay may lead to unethical business practices.
Read the Study
The study published by Virginia Tech describes a “slippery slope” style of behavior exhibited by managerial employees. Those employees that receive incentive-based pay are more likely to increase their unethical behavior. This happens once they see what they can get away with. Rarely will it result in a one-time offence. Instead it will create a series of more serious unethical, risky decisions that can ultimately impact a business’ long-term success. You can read the full study on Virginia Tech’s website here.