Here’s what’s replacing the employee sales goals that got Wells Fargo in trouble last year (WFC)

Wells FargoREUTERS/Noah Berger

When it was revealed in September that Wells Fargo employees were opening fake checking and credit card accounts for customers, it soon became clear that the bank’s incentive structure for branch workers was to blame.

It’s now in the process of fixing this, taking a major step last week by rolling out a new compensation program for its branches.

“This has been a top priority over the past few months and it is a significant step in reinforcing to our retail banking team members what is expected of them, how their actions connect to our business priority of serving our customers and how they’ll be rewarded for performance against these expectations,” said CEO Tim Sloan on the bank’s quarterly conference call with analysts.

There was no way for Wells Fargo to get around doing so, but the question for investors going forward is whether the California-based bank can maintain its edge without aggressively cross-selling financial products to its customers.

wells fargo john stumpfREUTERS/Noah Berger

Wells Fargo highlighted five aspects of its new compensation program when it reported fourth-quarter earnings last week.

  • It doesn’t include product sales goals.
  • Compensation will instead be based on “customer service, growth in primary customers, household relationship growth, and risk management.”
  • The new metrics are heavily weighted toward team goals, not individual goals.
  • Additional monitoring and controls have been put in place to “provide enhanced oversight of sales process.”
  • Periodic reviews are built in to monitor against unintended outcomes.

The big thing to note is the fact that the new compensation program doesn’t include product sales goals. This matters because one of Wells Fargo’s perceived strengths over the years has been its success at getting its average customer to use at least six of its financial products, compared to less than three at most other banks.

wells fargo bankREUTERS/Noah Berger

You can already see how this decision is impacting Wells Fargo’s business. New checking account openings in December fell 40% compared to the same month in 2015. New credit card applications dropped 43%. The story was the same in November.

In the short run, these aren’t likely to filter down to Wells Fargo’s bottom line. What’s more important right now is customer activity — i.e., how much they’re using their existing cards and accounts. Over the long run, however, the decline in new account openings will almost certainly weigh on Wells Fargo’s growth.

“Our existing customers have continued to use their accounts and we’ve seen higher deposit and credit card balances and increased credit and debit card transaction volume which drives near-term revenue,” said Sloan. “The decline in the rate of new account openings may impact the pace of future revenue growth, so we’ll continue to be transparent regarding those trends.”

For current and prospective investors in Wells Fargo, in turn, its decision to eliminate product sales goals and the corresponding impact on the bank’s top and bottom lines should be watched closely over the months and quarters ahead. 

NOW WATCH: A Harvard psychologist reveals the best way to fake it till you make it

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s