Wells Fargo on Tuesday revealed its new plan for compensating branch employees, the latest step in the San Francisco company’s efforts to overhaul its practices in the wake of a sales scandal.
Under the new incentive-pay system affecting tellers, branch managers and other branch employees, compensation will be based on customer growth, service and usage of products, according to a description Wells provided the Observer. The revamped program comes after Wells Fargo in October threw out product sales goals for retail bankers amid growing fallout from the scandal.
“It’s not the answer to everything that Wells Fargo is doing to restore trust,” Mary Mack, Charlotte-based head of community banking for Wells, told the Observer on Tuesday. But it’s a “really important step,” Mack said, “as we begin to chart this path around restoring trust.”
The new plan affects 70,000 employees nationwide, including more than 1,000 branch employees in Charlotte, according to the bank. It adds to efforts by Wells to fix its culture after agreeing in September to $185 million in fines, to settle claims that employees opened millions of accounts potentially without customer approval in order to meet high-pressure sales targets and avoid being fired.
Wells struck those accords with authorities, including the Consumer Financial Protection Bureau, a federal regulator whose claims included that Wells employees transferred funds from consumers’ authorized accounts to temporarily fund new, unauthorized accounts.
Since the scandal, Wells has seen declines in business in its branches. The fallout cost the former CEO his job, led to losses of government deals and sparked a bevy of federal probes. Wells also announced in December the splitting of its chairman and CEO roles as the third-largest U.S. bank seeks to right itself.
Wells Fargo last year began restructuring its incentive plan more around customer service after eliminating sales goals. Tuesday’s plan shows incentives will also be based on customer growth – measured by deposits, loans and assets – as well as customer use of products.
“Are the customers actively using their accounts?” Mack said. “It’s all based on customer-initiated activity, like customer-initiated transactions, debit card, online usage, direct deposit, etc.”
Wells’ community banking unit, where the abusive sales practices occurred, will use new “business success metrics” measured at the branch or district level, according to the description provided by Wells. Those include growth of customers who use Wells Fargo as their primary financial institution.
Entry level banker incentive compensation will be based on team rather than individual performance. Mack said branches will be measured on their performance at retaining customers, as opposed to past focus on how many new accounts were opened.
“That’s a big change for our team members,” she said.
Also, a larger percentage of bankers’ total compensation will be made of base pay instead of variable incentives for most branch employees, the bank said while declining to provide details.
Wells also said that under its prior incentive system, primary oversight of incentive plans fell to local management. The new approach will rely on local, regional and corporate oversight, as well as mystery shopping and other means to monitor bad behavior.
Mack, 54, who arrived at Wells in 2008 when it acquired Charlotte-based Wachovia, was put over the community banking unit in July to replace Carrie Tolstedt, who later left the bank in the wake of the scandal. Prior to her new role, Mack headed Wells Fargo Advisors, the company’s retail brokerage unit.
On Tuesday, Mack, who was in Dallas to disclose details of the plan to employees, said initial response from area presidents and district managers has been “great.”
“I think people are very energized,” she said.
Other U.S. banks, such as Charlotte-based Bank of America and New York-based JPMorgan Chase & Co., continue to have sales goals as part of their compensation strategy, although other factors such as customer satisfaction are used by those banks to award incentive pay.
Dick Bove, an industry analyst, called Wells Fargo’s two-page outline of its new plan “a reasonable first statement as to how to approach an intractable problem: how do you sell without selling too hard?”
Bove said the new team-focused approach will take some pressure off individual employees. “But not a heck of a lot, because you have people in your team breathing down your neck,” he said.
Wells’ new plan comes before the bank reports its fourth-quarter earnings Friday, which will give investors their first view of the scandal’s impact over a full quarter.