Wells Fargo Situation: How Pay Plan Foresight and Maslow’s Theory Might Have Helped
Upper Saddle River, NJ – September 23, 2016 – Sales Compensation plans are unlike Salary Administration programs developed for rank and file employees.
Salary Administration for non-sales staff is primarily a market research process in which like jobs (as measured by duties and responsibilities with an appreciation for industry, business model, company differentiators, financial size (revenue or assets) and geography) are analyzed within the identified business environment to establish fair pay ranges. By comparison, development of sales compensation programs is essentially a behavioral exercise and the resulting plans, a behavioral tool.
Unless the sales staff is on a “base salary only” program (very rare), sales personnel are driven by their financial needs as manifested in the variable pay provided by commissions. Thus, sales staff are the only employees in a company that have a direct (and almost immediate) quid pro quo between their actions (performance or behaviors) and their paycheck(s).
Enter Maslow. Maslow’s psychological theory on human motivation, known as the “hierarchy of needs”, outlines five distinct tiers of human existence, or needs, and each level has to be fulfilled sequentially in order to proceed to the next level. According to the theory, the level in which an employee currently exists drives that person’s behavior. So, assuming these near minimum wage Wells Fargo sales employees are at level 2 (Safety), which includes financial security, their behavior would be to do whatever it takes to satisfy their current monetary needs.
As designed, the Wells Fargo plan (besides the low base pay rate provided) focused on the creation of new accounts in order to generate commissions dollars, resulting in the group behavior of over 5,000 sales reps for the past five years establishing fraudulent accounts, which were attached to actual Wells Fargo clients – a multi-dimensional fiasco for Wells Fargo.
Foresight beyond what is obvious, knowledge of compensation theory, and commitment to strategic compensation planning, coupled with knowledge of the employee population who are filling the sales roles of a company, could have prevented the implementation of this plan, and, potentially avoiding these unintended consequences for this “too-big-to-fail” financial institution.
About Compensation Resources, Inc. (CRI): CRI provides compensation and human resource consulting services to mid- and small-cap public companies, private, family-owned, and closely-held firms, as well as not-for-profit organizations. CRI specializes in executive compensation, sales compensation, pay-for-performance and incentive compensation, performance management programs, and expert witness services.
Harry J. Schum, MBA
Compensation Resources, Inc.
877-934-0505 x170 · Fax: 201-934-0737