Fallout from the Wells Fargo account opening scandal is still reverberating throughout the banking industry, as bankers field questions over their incentive programs and ponder how else they might measure and reward performance among their branch staff.

Laura Hay, managing director at Pearl Meyer and head of its national banking group, said the scandal at Wells Fargo, just one of several surrounding the mega-bank in recent days, has prompted many bankers to reexamine their own incentive programs for front line employees.

That may be in part because stakeholders have questions about those incentive programs. A recent survey out of Pearl Meyer found the majority of respondents had fielded questions from executive management (72 percent), the board of directors (51 percent) and employees (32 percent).

Large percentages of Pearl Meyer’s respondents also said they’re still using volume and cross-selling metrics (55 and 47 percent, respectively) to reward their branch staff.

Hay said that those volume and cross-selling metrics, combined with a high-pressure sales culture, were part of the problem at Wells.

“Are expectations reasonable? I think that’s where Wells Fargo got into trouble. They had really high pressure on the retail staff,” she said. “When you do that, if you have a culture where it’s really not about the incentive but about keeping your job. For many of those bank tellers, if they lose their job, it’s financially devastating. That was really part of why you probably saw some of that.”

Wells itself is said to be retooling its incentive compensation program, moving toward a program that rewards bankers based on customer experience, growth metrics and team performance. Variable incentive pay will also make up a smaller percentage of bankers’ take home pay.

Those types of metrics are much more difficult to manipulate, Hay said, and moreover, they more closely resemble the incentive plans that community banks already have in place.

Middlesex Savings Bank, for instance, rewards branch staff based on the performance of the overall team, branch or business line, said Bryan Christensen, the bank’s director of community banking and administration. The bank looks at the unique market in which each branch is situated and adjusts goals based on the needs of that market. One branch may be in a market where home equity lines are in high demand, while another branch may be serving customers who are mostly interested in CDs.

“By measuring a lot of different things, you give the branch the opportunity to be successful by meeting their customers’ needs, as opposed to saying ‘This is the brand or product we’re going to push this week,’” he said.

Balance Is Best  

But as far as teachable moments go, the Wells Fargo incident may not be the best example, said Kenneth F. Ehrlich, partner at Nutter McClennen and Fish and co-chair of the firm’s banking and financial services practice. Federal regulators issued interagency guidance on incentive compensation programs a number of years ago, not long after the birth of the Dodd-Frank Act, and as long as a bank that offers an incentive compensation program is faithful to those guidelines, the bank should not wind up in any kind of trouble.

“What Wells was doing was way, way, outside the scope of the incentive compensation guidelines and rules,” Ehrlich said. “If you’re a community bank and you pay incentive compensation, you stay within the guidelines and you shouldn’t have a problem.”

Those guidelines require that incentive compensation programs appropriately balance risk and reward and that they be supported by strong corporate governance and oversight.

Besides corporate governance and executive oversight, a robust customer complaint process can also complement a bank’s incentive program, Hay said.

For its part, Middlesex Savings Bank tracks customer complaints and runs them through its compliance departments and senior management, Christensen said. If the bank were to see two or three complaints about the same issue, that might warrant further investigation.

The bank would like to better incorporate overall customer feedback into its incentives, he said. For instance, how satisfied is a customer and how loyal? Does this person have a good mix of products and services, and do they think of you as their primary bank? That’s a complicated question, of course, but the answer has a great deal of relevance and importance for the industry.

For the most part variable incentives make up a relatively small percentage of a Middlesex Savings Bank employee’s overall pay, Christensen said. But he added that the top three branches that have met their team goals for the year get invited to a special year-end recognition dinner with senior management.

“They love it,” he said. “People talk about it from the beginning of the year. They want to be invited to the team dinner. Something as simple as that does go a long way.”