Stretch targets and the hidden dangers - Learning from Wells Fargo

Many organizations are coming out with draconian rules for managing their people. We are all familiar with the violent outburst of the shop-floor employees of the Maruti Udyog in their Manesar plant and the Hero Honda plant in the same neighborhood. Recently, there were reports in the newspapers about how retail employees are treated in Tony textile outlets in Kerala with unrealistic sales pressure. A set of reports also came out on how garment manufacturers were putting their women employees with excessive production targets and not even permitting them to have adequate bathroom breaks.

Such treatment of employees occasionally sees some employees protesting against it. However, this opposition is usually silenced the usual way — threats, dismissals and so on. Many employees do not also have permanent positions in these organizations and a fight back becomes too expensive for them. Since these employees are unable to change the circumstances in which they are working, they probably need to do things which make their lives a bit more bearable. What would they be doing?

Possibly not helping the customers adequately, or misleading customers to somehow buy a product so that they themselves could take a bathroom break. One can go on and on about instances like these. Selling pressure on insurance agents or those selling credit cards, and the consequent mis-selling, are known evils in India. People who are underinsured or who are sold due to the pressure on the employees to produce numbers is now a serious concern.  The pressure that is put on these employees is so high that they are tempted to take short-cuts like shoddy work which would just pass muster of the QC guys. These short-cuts then end up in some situations as fraud like in the case of Wells Fargo Bank.

Practicing HR managers, when they come in to classroom, often talk about the stretch targets as an essential part of the modern organizations. And anybody who dares to question this, is considered impractical as “in real life”, one has to be ready to make sacrifices. Thus, the culture of putting pressure is considered quite natural and a way of life.

The Wells Fargo bubble burst in the middle of 2016 led to the loss of bonuses and dues of millions of dollars of some of the top executives and the CEO John Stumpf retiring prematurely. Some were also fired. But the dust is yet to finally settle on the events in the bank. Wells Fargo, a popular American bank over the past five years created retail bank accounts and credit card accounts without the knowledge of the customers by using false signatures. Wells employees created more than 1.5 million unauthorized deposit accounts and issued more than 500,000 unauthorized credit card applications. 

Some of these accounts were ghost accounts opened by relatives and friends of the employees so that they could meet the quotas of new accounts to be created. Data produced before the Senate Committee indicated that employees were given targets so that each customer would have about eight accounts of various types. Such cross-selling of products is normal in the industry, but when compared to less than about three accounts per customer on an average for other banks, the Wells Fargo expectation of eight, most likely, created a pressure cooker for the employees. Allegations reveal that the unrealistic target of eight accounts per customers was set to merely show artificial growth to push up the share prices. And bolstering the share prices is seen as the overarching reason for driving employees to reach eight accounts per customer as “eight rhymes with great”! 

This whole issue has been in the courts for a long time now. But the case and the subsequent enquiry provoke us to ask the following questions.

1.  Is there a limit to stretching the targets for employees to measure their performance? Should you stop before you push your employees to follow unethical practices? How do you start recognizing the mental and physical limits? Should managers start becoming conscious of the weekends forgone, and the numbers of hours employees are forced to stay back as an indicator of the limit? It is more or less obvious that when low-level employees find the target levels unachievable, they feel their job is under threat, and they resort to short-cuts and subsequently may adopt unethical practices. 

2.  How does one limit the culpability to only the person who takes the course of unethical practices? The people who develop the system and the measurement metrics also need to be equally culpable for the errors of commission and omission on part of the employees who adopt unethical practices. In Wells case, setting a target of 8 accounts which was 250% of what was being achieved by other similarly placed organizations, senior managers were setting the stage for fraud and hence are equally culpable. 

3.  How are the incentive schemes and salary hikes linked to performance metrics?  Do such schemes force employees to resort to unethical practices to reach targets, especially when the carrot seems too luscious and the step function of the incentive scheme makes sudden jumps and too much is at stake? When does a little bit of window-dressing become downright fraud? Do incentive schemes make it attractive for that shift to happen?

4.  How do employees recover from the psychological damage of getting fired for not being able to achieve an impossible target in the name of stretch targets?

5.  What metrics should be put in place for compliance? How does one bring concurrence between what the ethics officers believe to be the breaking point for individuals, and what the top and mid-level managers want from their foot soldiers? 

Managers need to figure out answers to these questions real fast or else, corporations which have global ambitions would find that they are shackled and not able to move forward.