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Compensation Expert Says, Despite “Clawbacks”, Wells Fargo Scandal Could Have Been Avoided

October 4, 2016

INDIANAPOLIS—October 4, 2016—Employee Compensation and Benefits consultant Cassandra Faurote has advice for executives at Wells Fargo and other corporations: look beyond the bottom line to make sure your compensation plans don’t put your company and its customers at risk. “In hindsight,” Faurote says, “this was a perfect storm that made disaster inevitable – but it could have been avoided.”

Faurote, founder and principal of Total Reward Solutions, an Indianapolis-based employee compensation, benefits and performance management consulting firm, hopes other firms learn from the Wells Fargo experience. “In this case, it appears there were warning signs that company executives could have heeded and used as a catalyst to correct unfair and risky practices. Those practices, and the failure to stop them, cost too many people – including customers and Wells Fargo employees – far too much.”

Faurote believes executives should do more than keep an eye on their corporate bottom line; she says they should dig deep to learn how significant gains in  performance are being achieved. In the Wells Fargo case, she says, low-paid employees were expected to open eight accounts per customer when the industry average at the time, was three. “In almost any corporation,” Faurote says, “the reasonable fear for not meeting performance goals is getting fired. In a tough job market like the financial sector, it’s not surprising that many employees will do what it takes to keep their jobs, including cross-selling accounts without customer consent.” While recent “clawbacks” to reclaim compensation from top execs at Wells Fargo appear to signal the company is taking the situation seriously, more than 5,000 employees lost their jobs. Beyond this, the corporation almost certainly lost the trust of thousands more customers and prospective customers.

What could Wells Fargo have done differently? Faurote believes every large employer should start by asking this question: Are you setting job performance goals that are attainable? She suggests further that employers review industry standards and current performance averages. “Stretch goals are appropriate” she notes, “but unrealistic goals drive the wrong behavior.” And if a spike in goal attainment and performance appears beyond the norm, Faurote says, responsible executives need to dig deeper. “They must truly understand what is driving any extraordinary escalation in performance, especially if it affects something like a company’s stock price. They should investigate to see if new processes contributed to the superior results, or if something less positive was responsible – like the wrong behaviors or employees working far beyond a standard work week.”

Long working hours for exempt personnel at lower salary levels will soon be a thing of the past. Faurote notes that new Fair Labor Standards Act overtime rules go into effect December 1. When they do, companies will be less likely to legally classify low wage earners as exempt. The result? Most employees working over 40 hours per week must be paid overtime. “It appears most of the Wells Fargo employees who lost their jobs during this period were barely above the current threshold to qualify as exempt,” Faurote says. “Because the new baseline for overtime pay is more than twice the current level, most lower-level employees will need to be paid considerably more to avoid being eligible for overtime pay.”

One more thing Faurote believes employers need to consider to avoid regulatory compliance risk is having a periodic full and independent review of their compensation plans. “It is possible that a review of employee compensation programs could uncover job market inequities and situations that push employees to engage in unethical job behaviors,” she says. Especially for publicly traded companies hoping to avoid fines, mandated damage awards and severely tarnished public reputations, scrutiny of their compensation program designs could help them avert disaster.


About Total Reward Solutions

Total Reward Solutions is an outsourced compensation services provider, dedicated to innovating total rewards that drive people and business excellence. Led by respected and professionally certified Human Resources expert Cassandra Faurote, Total Reward Solutions offers a broad range of compensation, benefits, performance management, and reward/recognition consulting services to help organizations attract top talent, motivate employees and retain top performers. For more information, call 317.589.8529.

Cassandra Faurote

Posted Under: Compensation