Structure incentives to benefit the employee (and not abuse the customer)

"There is only one way…. To get anybody to do anything. And that is by making the other person want to do it."

~ Dale Carnegie

Recently a very large bank got fined $185 million for having employees set up fictitious accounts so that employees would meet or exceed the incentives that were set up by the bank. These accounts were not authorized by the customers and funds were transferred from the actual customers’ accounts to these fraudulent accounts to make it look like the account was viable. The CFPB (Consumer Financial Protection Bureau) declared that these were unfair and abusive practices and the bank has terminated over 5,000 employees.

In this case, the bank set up an incentive system to reward employees for increasing the number of new accounts and services the bank offered to its customers. The employees were doing those things they thought would increase their incentive without being aware, or not caring, what the repercussion would be for the bank or the customer.

There is no question in my mind that the bank wanted its employees to bring in new customers and services and was willing to reward this with incentives. Now incentives work and I have seen so many firms use employee incentives but this is the biggest case that I have ever seen where such an incentive system was abused. However, you just cannot allow your business not to put in incentives, because of this terrible example.

What went wrong at this bank is that they put an incentive system in place but did not anticipate the cheating of their employees nor did they have adequate system in place to monitor the effectiveness of the incentive system. The bank just did not anticipate this wide spread cheating of their incentive system. However, they could have randomly gone in and checked on the various new accounts to insure that they were actual new accounts and not a fictitious accounts.

So what can you do with your incentive system? First, you need to make sure that behavior change that you want to have happen is being accomplished and no cheating is happening in the process. What this requires is that you monitor any all incentives for staff to insure that they are doing what they say they are doing and there is no cheating in the incentive system.

While this bank example is huge, I cannot tell you the number of firms that I have seen that tolerate cheating in the incentive system or look the other way. One firm that I was working with gave a production incentive on the number of units each employee completed. However, the employees submitted their own number of units completed and when we checked the actual data of products completed vs what employees said they completed, the employees overstated their production by about 20%. While employees are wrong for cheating on the system, management is, also, culpable for not checking on the incentive system which in essence rewards bad behavior.

Now go out and make sure that if you have an incentive system in place, that the incentive is effective and not abusing your customers and that employees are not cheating.

You can do this!

Dr. Osteryoung has directly has assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is a bestseller on Amazon.com. He can be reached by e-mail at jerry.osteryoung@gmail.com.

Tags: Florida Small Business