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When the scandal broke around Wells Fargo’s sales incentive manipulation, it became clear that incentive structures weren’t just about motivating employees but also fertile ground for ethical missteps and compliance failures. The recent article by Timothy Gardner, Colin Wong, and Rick Butler, entitled How Salespeople Game the System in Harvard Business Review, sheds crucial light on this, offering a timely reminder for compliance professionals about the latent risks embedded in incentive-driven strategies.

Salespeople often exploit incentive programs to maximize their gain through various schemes, damaging company performance and putting the company at legal risk. The authors identify common cheating tactics, including sandbagging, falsifying data, and giving excessive discounts or incentives to close deals quickly. To counter these practices, companies should use data to detect irregularities, revise incentive plans to close loopholes and establish ongoing monitoring. Communication and education about acceptable behaviors are also crucial. Not all gaming tactics need immediate action; however, some may be tolerated if they have a minimal impact on performance and would cause undue disruption to the sales organization. Compliance professionals should adopt a continuous process to identify and mitigate cheating while balancing the need to maintain sales productivity and motivation.

Understanding the Landscape

From Wells Fargo’s notorious misconduct to Vivint Smart Home’s identity theft case, examples abound of sales incentives fostering environments ripe for unethical practices. Sales professionals, driven by quotas and commissions, employ an array of tactics—from sandbagging, where sales are delayed strategically to maximize later bonuses, to outright fraud, such as creating faux customer accounts.

The authors identified eight incentive gaming categories, offering corporate compliance teams a powerful diagnostic tool. These include:

1. Sandbagging. This technique involves postponing the completion of sales to a later measurement period to optimize incentive earnings. The authors found that “some sales reps at his company would hold as many orders as possible from October through December and submit them in January. The extra sales translated into outstanding sales performance and a very high commission for far exceeding established quotas.”
2. Partners in profit. This is a particularly dangerous fraud in which the BD folks will “team up with customers to manipulate company processes to secure a better deal for the customer and a higher bonus for themselves.” The authors heard “about personal bankers who coached customers to sign up for accounts to take advantage of promotional deals (earning the bankers a commission) and then close the accounts at the end of the promotion.” This was similar to the Petrobras FCPA bribery scheme.
3. Squandering sales. This tactic involves misleading customers in ways that benefit the salesperson but not the organization or the customer. The authors cited the following example: “Sales reps would give customers discounts to upsell them to unneeded service levels to earn the higher commission associated with the higher service tier. Though the salespeople came out ahead, the upsell hurt the organization’s bottom line and the customers: The company paid out a higher commission as a result of the upsell, and the customers ended up paying more for unwanted, higher-tier services, possibly resulting in customer dissatisfaction and defection.”
4. Lost in segmentation. Another FCPA latent risk is where BD folks will “game the system by focusing their efforts on buyer segments that provide greater opportunities for incentive payouts instead of the targeted segments favored by the company. One interviewee told us that this was common among customer service associates (CSAs) who were responsible for both inbound sales-and-service calls and outbound sales-only calls. The CSAs would avoid accepting the incoming calls to maximize the time they could devote to the outbound calls, thereby earning more commissions.”
5. Carrot and stick. Salespeople may use rewards, promises, threats, or punishments to encourage customer behavior that maximizes incentive payouts. At one airline, “some agents offered to waive baggage fees for customers during check-in if they signed up for the airline’s credit card, thus earning themselves a generous bonus.” This was a Wells Fargo tactic.
6. Misleading customers. This tactic involves misleading prospective customers or withholding information to move the sales process forward. An example cited by the authors was where sales “reps would falsely tell call-in customers that the transaction couldn’t be completed on the phone and encouraged them to meet with a financial adviser, which yielded them higher bonuses for in-house referrals.”
7. Falsifying data. Another tactic with criminal overtones. Under this scheme, a “sales management system is fed false information or information is omitted to maximize incentive payouts. In one interview, we heard that sales reps often log in to sales management systems and add their names to deals they did not participate in to increase their bonuses.”
8. Faux customers. Well Fargo redux. Here, sales folks create “fake customer accounts with the help of friends, relatives, or coworkers.” Simply fabricating accounts is also a common gaming tactic. Some sales reps ask friends to pose as buyers, one interviewer told us. After the rep receives the commission for the “sales,” the phony customers cancel their service.

While varying in severity and potential impact, each of these strategies has the potential to compromise organizational integrity and compliance standards. Therefore, compliance leaders must remain vigilant in recognizing these behaviors and preemptively addressing the conditions that allow them to flourish.

Anticipating Incentive Program Vulnerabilities

Compliance teams can learn from these sales incentive pitfalls by proactively thinking like unethical sales professionals—an approach Gardner, Wong, and Butler dub cultivating an “immoral imagination.” Such foresight enables compliance leaders to anticipate and identify incentive plan vulnerabilities before they manifest into actual misconduct.

For instance, organizations should routinely engage trusted leaders and experienced sales professionals to evaluate incentive plans critically. Using the typology as a checklist can spur proactive identification of potential loopholes and gaming opportunities, informing targeted policy enhancements and strengthened monitoring protocols.

Data-Driven Monitoring and Audits

A robust compliance monitoring infrastructure is central to preventing sales incentive exploitation. Auditing systems for irregularities is critical. This includes tracking sales timing, examining customer account patterns, and monitoring behavior like customer misdirection or misinformation. Companies that successfully curtail gaming implement sophisticated tracking and analysis systems capable of flagging suspicious activities for further investigation.

The authors highlighted instances where systematic auditing effectively detected fraudulent behaviors. A notable example includes a financial institution auditing deposit account closures to identify employees creating fake accounts to artificially boost commissions. The swift identification and termination of those involved prevented further ethical breaches and preserved organizational integrity.

Refining Incentive Plans with Clear Guidelines

Beyond monitoring, refining incentive plans to eliminate ambiguities and clearly articulate acceptable behaviors is imperative. Policies must explicitly outline ethical boundaries and the consequences of transgressions, including incentive clawbacks, disciplinary actions, and potential termination.

Gardner and his co-authors advise that companies embed explicit language prohibiting unethical behaviors and reinforce these through regular training and communication, emphasizing transparency and accountability. The case they presented, involving airline agents improperly waiving baggage fees in exchange for credit card sign-ups, underscores the importance of clear, enforceable policies and vigilant enforcement.

Strategic Communication and Ethical Culture

Communication is the bedrock of any robust compliance strategy. Sales teams need ongoing messaging about ethical standards and incentive program expectations. Establishing an open dialogue around compliance and ethics, including discussing discovered instances of misconduct, helps embed integrity deeply into organizational culture.

Leaders must foster a culture where ethical conduct is the norm rather than the exception. Regular compliance training, reinforced by real-world case studies like those discussed in the Harvard Business Review article, can significantly enhance sales teams’ ethical vigilance and deter potential gaming behaviors.

The Decision to Act or Tolerate

The authors noted that not all incentive gaming is equally damaging or requires immediate rectification. Some minor gaming activities, such as strategic timing of sales submissions, may present minimal risk or impact, suggesting that addressing these issues aggressively could inadvertently disrupt sales operations or morale. Hence, compliance professionals must judiciously evaluate the potential ramifications of intervention versus strategic tolerance.

Concluding Thoughts for Compliance Leaders

Incentive-driven environments inherently contain risks. The complexities and competitive pressures on sales professionals often create scenarios tempting unethical shortcuts. However, compliance leaders can significantly reduce opportunities for unethical behavior with strategic vigilance—anticipating risks, implementing rigorous monitoring, maintaining clear and enforceable incentive guidelines, and fostering an ethical culture.

The insights from this article offer a timely, instructive framework for compliance professionals tasked with overseeing incentive-driven business units. Understanding how incentive systems can be exploited becomes a powerful asset in our ongoing mission to uphold ethical standards, protect corporate integrity, and ensure sustainable business success as we continually adapt and refine our compliance strategies.