Post 6 — Eight Is Great
Wells Fargo told its employees what the goal was. It told them, separately, how success would be measured and rewarded. The two were not the same.
Every week I take one real case — a company, a government program, a league — and show how the reward shaped the behavior. Welcome to Behavior Follows Rewards.
Wells Fargo told its employees what the goal was. It told them, separately, how they would be paid. Employees responded to the second one.
Wells Fargo asked for eight products per household and got two million accounts nobody opened.
The Strategy
In the years after the 2008 financial crisis, Wells Fargo was widely admired for a single metric: cross-sell ratio. Where other large banks were consolidating or cutting, Wells Fargo had built a model that rewarded getting more of each existing customer's banking business. The target was eight products per household — checking, savings, mortgage, credit card, auto loan, online banking, bill pay, investment. "Eight is great" became the internal shorthand.
The logic was straightforward. Customers who hold multiple products with one bank are more profitable and less likely to leave. Cross-selling reduced acquisition cost. It built loyalty. It was good strategy, well-articulated.
Between 2011 and 2016, the strategy worked — if you measured it by the numbers Wells Fargo reported.
The Incentive
Branch employees and managers were measured by the number of new accounts and products opened. Daily quotas. Monthly quotas. Real-time tracking dashboards. Financial bonuses tied to hitting the numbers. Supervisors who pressured employees to sell. Employees who pressured customers to accept.
When the reward is the number, the number becomes what employees manage. Not the outcome behind the number. Not the customer relationship the number was supposed to represent. The number.
This is not a story about rogue employees. It is a story about a reward structure that made a specific behavior rational.
The Behavior
According to the CFPB Consent Order issued September 8, 2016, Wells Fargo employees opened 1,534,280 unauthorized deposit accounts and submitted 565,443 unauthorized credit card applications during the period. Customers did not request these accounts. In many cases, they did not know the accounts existed. An expanded internal review, disclosed in an August 2017 regulatory filing, put the total at approximately 3.5 million accounts.
The mechanism was straightforward. Employees opened an account, temporarily transferred funds from a customer's existing account to generate the qualifying activity for incentive payment, then transferred the funds back before the customer noticed fees. The account would register on the sales dashboard. The metric would move. The bonus would accrue.
Approximately 85,000 of the unauthorized deposit accounts incurred fees totaling approximately $2 million before being identified. Approximately 14,000 unauthorized credit card accounts incurred fees of approximately $403,145.
Wells Fargo terminated roughly 5,300 employees for engaging in the practice over the period. That number is itself instructive. When five thousand people across an organization do the same prohibited thing, the explanation is not bad character. It is a reward structure that made the behavior rational.
What the Incentive Actually Measured
Wells Fargo designed its incentive program to grow the cross-sell ratio. What it actually measured was account openings. These are not the same thing.
A customer who holds eight products with Wells Fargo because those products meet real needs is an asset. A customer who has eight accounts they didn't request, didn't want, and will close when they find out — that is not cross-selling. That is the number without the outcome.
The incentive rewarded the countable proxy. The strategy depended on the underlying reality. The employees responded to what they were paid for, which was the proxy. The gap between proxy and reality was 3.5 million accounts.
The Design Problem
The CFPB's Consent Order is careful about this. Wells Fargo "set sales goals and implemented sales incentives, including an incentive-compensation program, in part to increase the number of banking products and services that its employees sold." That is precisely what the incentive did. It increased the number. It did not increase — and in fact undermined — the customer relationships the strategy required.
Steven Kerr named this pattern in 1975: organizations routinely reward the measurable proxy while hoping for the unmeasurable outcome. Wells Fargo is not unusual for doing this. It is unusual only for the scale at which the consequences became visible.
Let's slow down here. Kerr named this exact pattern in 1975 -- decades before a single Wells Fargo account was opened. The mechanism wasn't hidden or new. It was published, in an academic journal, with a title that says exactly what happened next. Knowing the pattern exists and building a system immune to it are two very different accomplishments.
The lesson is not about Wells Fargo. It is about what happens when the reward measures something other than the behavior you actually need.
What does your team do in the last week of the quarter that they would not do in the first week — and what does your performance system have to do with it?
Ask yourself: if every person in your organization hit their number today, would you be proud of how they did it — or would you need to look away? Wells Fargo gave branch employees a daily cross-selling target and let the incentive do the rest. The goal and the behavior it produced were not the same thing.
If you are working through an incentive design challenge in your organization — trying to understand why a policy, initiative, or team isn’t doing what you designed it to do — that is the work. Advisory Services →
Behavior Follows Rewards. The pattern shows up wherever people are measured and rewarded.
Subscribe for free. Share it with someone who needs to read it.
—Wayne
Going Deeper
If you were a Wells Fargo branch employee in 2013 — eight products per household, your hours and your job tied to hitting it, and colleagues around you already meeting the number somehow — would you have fallen short honestly? Or would you have asked how everyone else was doing it?
Last time: American Express’s executives weren’t competing against rival banks — they were competing against each other. A CEO saw it, changed what they were paid for, and put himself on the same scorecard.
Next: In Northern Ireland, a government program designed to encourage renewable heat created an incentive to waste it. Operators were paid per unit of heat generated. They ran heaters in empty buildings.
Sources
Consumer Financial Protection Bureau. “In the Matter of: Wells Fargo Bank, N.A., Consent Order.” File No. 2016-CFPB-0015. Washington, DC: CFPB, September 8, 2016.
Office of the Comptroller of the Currency. “OCC Assesses Penalty Against Wells Fargo, Orders Restitution for Unsafe or Unsound Sales Practices.” News Release 2016-106, September 8, 2016.
City of Los Angeles, Office of the City Attorney. Settlement with Wells Fargo & Co., et al. September 8, 2016.
Wells Fargo & Company. Form 8-K, Item 8.01 (Other Events) — disclosure of expanded analysis identifying approximately 3.5 million potentially unauthorized accounts. U.S. Securities and Exchange Commission, August 31, 2017.
Kerr, Steven. “On the Folly of Rewarding A, While Hoping for B.” Academy of Management Journal 18, no. 4 (December 1975): 769–783.
BFR is written to be accessible, welcomed, and celebrated by every reader — not simplified, not elevated. Just clear.