Recently, 5,300 Wells Fargo employees were fired for cheating. They set up millions of phony bank accounts earning the bank millions of dollars – dollars that were, essentially, stolen from their customers. It was all part of a cross-selling scheme that financially rewarded employees for getting customers to add accounts to their portfolios. Actually, this is a fairly common and legitimate business practice; like offering fries with a Big Mac at McDonald’s. Unfortunately, the targeted sales goals for this scheme were set too high for many employees to achieve. The psychological pressure placed on them was so intense, that they simply started creating fake accounts to meet their individual sales goals.
After being grilled before congress on his role in creating a culture that resulted in this behavior, Wells Fargo chairman, and Chief Executive Officer, John Stumpf was forced to resign and the bank had to pay $185 million in a settlement with the Consumer Financial Protection Bureau, the federal Office of the Comptroller of the Currency, and the Los Angeles City Attorney’s Office.
Culture Can Create Cheating
>>>This mess reminds me of the danger inherent in combining financial rewards with high psychological pressure to motivate employee performance. You may get the results you want in the short run, but you may also encourage cheating and unethical behavior in the long run.
In a study described in the Harvard Business Review, researchers Colm Healy and Karen Niven found that when clear goals are set and incentivized with tangible rewards and high pressure, a certain portion of your workforce will almost certainly cheat to achieve the goals. It depends, not surprisingly, on the employee’s individual personalities. In the study, participants took a test to measure their tendency to use “moral justification” to rationalize behaving in a questionable manner. They were asked to rate statements like, “It is all right to exaggerate the truth to keep your company out of trouble,” on a scale of one (strongly disagree) to five (strongly agree). The higher one’s score was, the more likely the person was to apply “moral justification” in questionable situations to rationalize bad behavior.
The researchers then had the participants (106 full-time workers of varying seniority levels from different industries) complete an anagram test and self-report their scores. They gave half the participants a challenging, specific performance goal to strive toward while they told the rest to simply do their best.
It turned out that those given specific goals were more likely to cheat than those who were just told to do their best. (No big surprise. Why cheat unless there’s a reason to do so?) Noteworthy, however, was that those who were given specific goals and also had high “moral justification” scores, were significantly more likely to cheat. So it seems, if you have the kind of personality or value set that says it’s ok to cheat for a morally justifiable cause, you’re more likely to cheat for your own gain.
So what does this have to do with managing people?
Should you never set goals or offer incentives for your people to achieve them? Of course not. There’s loads of research and anecdotal evidence to support just the opposite. I would suggest, however, that you do so carefully, knowing that there is also research to show that when specific goals, combined with financial incentives and high pressure are applied to an endeavor, there will be a certain number who will give in to the temptation to cheat – and that can give you a distorted picture of your results and may even get you into the same hot water John Stumpf is now bathing in.