I don't even have to ask if you've heard about the Wells Fargo account scam, in which employees, trying to achieve bonuses, signed customers up for accounts and products they never requested. As my colleague Geoffrey James put is, "Is Wells Fargo management crooked or clueless? "

Oh, what a tough question. Much of the discussion -- and the grilling that CEO John Stumpf received from Senator Elizabeth Warren -- has gone down the ethical path. After all, how could anyone get to be top management in a major company without knowing how to control everything below them?

Geoffrey, I have a request. Can we have a "both" option? Because at the heart of this whole debacle is a fundamental problem in management that appears time and again in companies small and large.

Assume for a second that no CEO wants a major disaster to blow up like this. It's bad for business and for one's career. It's a no win, and if you're the one in charge, you're going to pay, one way or the other.

Want to be the topic of whispers and snickering every time you walk into a room? Of course not. Neither does Stumpf or anyone else.

But you'd be hard pressed to find a company that didn't fall prey to this basic mistake: Compensation is badly designed and doesn't support strategic goals.

That sounds simplistic, but it's such a big problem and has been for longer than anyone tried to study corporate management as a discipline. The active principle is that people want to make the money they need to live, and tend to do whatever it takes to fulfill the conditions for getting paid. They don't focus on your strategy, or your image, or brand, or anything else. They need that paycheck and reasonably assume that you've laid out what it necessary to care about.

Unfortunately, the design of compensation is often utterly stupid. Upper management will set strategic goals but may not consider how compensation has to change to motivate employees. Because, if it comes to following your orders and doing what is still required to get paid, guess which people do?

Or they do change compensation but play the stupid game of assuming that just because they think something is possible, it must be. If goals and quotas are too high, you put people in danger of not making a living. So they will make sure they meet the goals and quotas by doing questionable deals. It might be outright fraud, as seen here. Or it could be pricing that's too low to be profitable, or selling to companies that have a sketchy credit history.

Much of the subprime component of the housing crisis was based on salespeople trying to make more money. Because they were compensated on the number and size of deals, not on their quality.

Usually the available choices include something legal and, from a business view, dumb. So people do that. In the case of Wells Fargo, my bet would be that the employees who opened these unauthorized accounts had no other route to goose the results. So they did what they thought they had to. Who wants to work their hardest and not get paid?

I once interviewed Scott Adams of Dilbert fame. He explained that the entire concept of the strip was based on a principle he learned in an introductory psychology class. Cognitive dissonance is a condition where people have contradictory beliefs or thoughts and try to manage the pain of their clash. In business, companies often require employees to achieve results and, at the same time, refuse to give the employees the tools or latitude to take the necessary steps.

Yup, that's the whole of Dilbert. Make employees crazy by making the success management demands impossible. That's what Wells Fargo did.

But the bank is only an example that became so extreme it was impossible to hide. Usually poor compensation gets glossed over. Like demanding employees treat customers well but then forbidding them to solve the problems customers have. A company I once worked at demanded that inbound salespeople close more and better deals but then pushed them through compensation to get off the phone as quickly as possible. No time to develop, no time to close.

This happens constantly, and I'd bet that every single entrepreneur does this at times. If you want better results, and a better company, take a hard look at what you ask people to do through compensation. Otherwise, you'll get what you keep asking for.

Published on: Sep 29, 2016
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