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Are Performance Goals Motivating or Demoralizing Your Employees?

Are Performance Goals Motivating or Demoralizing My Employees?

In the last post, we heard from a Logistics Flow Analyst who was losing her motivation to meet a deadline after a deadline. I agreed that constant deadlines suck and that she had the right to feel the way she was feeling.

What about performance goals? Do they help employees focus and deliver superior results? Or do they add pressure and subtract motivation? Do they give meaning to our work or take it away?

If you know me or if you’ve read Who the Hell Wants to Work for You? Chapter 4, Set Goals, then you know I am a big fan of goals. It may even be the main reason I own a business. A business is a moving target, and I love chasing it.

Of course, I can’t do it alone. My partner Vivek and I rely on every one of our employees to play the game with us. It has to be the same game. The same end goals divided up according to each employee’s job and skills. We want them to feel the ownership over their part of the collective goal.

But if there’s one thing we want to avoid, it’s pressure.

In sports, pressure is something you want your opponent to feel. Not your teammates. Tactics like “full-court pressure” or “pressure on the quarterback” are directed against the other team. The goal is to get them to crack, lose their concentration, and make stupid mistakes.

Hardly something you wish for the people you manage, yet there’s a belief that bullying people into accepting a “stretch goal” will somehow get you closer to it. I’ve heard this especially from managers of public companies who live and die by their quarterly numbers.

The goals come all the way from the top, and the managers feel they have no choice but to pass them down the chain of command. Once the pressure has reached the rank-and-file, where can it go next? Of course! The customers.

Do the words “channel stuffing” mean anything to you? They come from the manufacturing sector and refer to a practice of forcing distributors to accept product shipments for which there’s no demand. Channel stuffing creates the illusion of moving inventories, and, with some creative accounting, can mimic sales.

Accounting is the last stop for the corporate pressure-cooker. When nothing else gives, there’s always cooking the books. Creative accounting aims to shift the pressure from the company to investors. When there’s too much pressure on the investors, the stock price falls, and the pressure comes back full-circle to the top management.

If the manager keeps pushing the pressure down the line, eventually it will backfire. We all know what comes next: bankruptcies, resignations, lawsuits, even suicides. And if the story goes public, we learn the names of the guilty parties. We learn about their families. We learn too much.

But we don’t always realize that we are walking the same slippery slope.

Corporate scandals have become almost as commonplace as corporate pressure. Every year “another one bites the dust.” In 2016 we saw a handful of surprise resignations, but nothing like the media circus and political fanfare surrounding Wells Fargo Chairman and CEO John Stumpf.

Stumpf retired abruptly in October, forfeiting his 2016 bonus and $41 million in unvested shares. Earlier that year, investment research firm Morningstar had named him CEO of the Year. And in 2013, Fortune magazine readers picked him as their Businessperson of the Year. Wall Street regularly praised Stumpf for his company’s earnings and stock performance. Until recently, Wells Fargo was the only major bank to have regained its market cap since the 2008 financial crisis.

The reason for his fall from grace was the massive fraud Wells Fargo employees perpetrated under his command. Between 2011 and 2016, retail banking employees opened over 1.5 million deposit accounts and issued over 500,000 credit card applications on behalf of customers who never asked for or knew about it. The employees also transferred money from the customers’ legitimate accounts into the phony ones, causing overdraft and insufficient-funds fees. Wells Fargo charged $2.6 million in fees related to unauthorized accounts.

In 2013, the LA Times got hold of several Wells Fargo customers and former employees who filed lawsuits against the company. The complaints dated all the way back to 2009. In December 2013, the newspaper ran the story by E. Scott Reckard under the headline, “Wells Fargo’s pressure-cooker sales culture comes at a cost." The article caught the attention of the City of Los Angeles and federal regulators. On September 8, 2016, the regulators fined Wells Fargo $185 million. John Stumpf was called to testify in front of the Senate Banking Committee, and the calls for his resignation poured in.

In hindsight, everyone, including Stumpf, agreed that insane pressure to meet sales targets pushed employees over the edge. Stumpf became CEO in 2007, and in 2008, Wells Fargo acquired insolvent Wachovia Bank. Stumpf saw aggressive cross-selling as his chance to create growth in the distressed financial sector. “Eight is great” became his call to action, pushing employees to sell every customer into eight Wells Fargo products.

This is how one Wachovia branch employee from Allentown, Pennsylvania remembers it:

“Wells Fargo doubled our goals and decreased our performance pay. Every year the goals went up more and more. Everyone was on anti-anxiety medication.” 1

At the time of the LA Times investigation, management held branch employees to a minimum of four products per customer for 80% of the customers, with the stretch goal of eight products per household. Regional bosses passed down daily quotas for new accounts and cross-selling. Branch managers had to commit to 120% of the quotas and report the results at the end of each day.

The reporting took place during a region-wide conference call. The managers who came up short were humiliated in front of sixty of their peers. Anticipating the nightly drills and worse, branch managers took desperate measures:

“If we didn’t hit our numbers, branch managers would make us stay after work for an hour, with no pay, to cold call customers and try to sell accounts,” said a former Charlotte, North Carolina employee.

And the result?

“A lot of people would make up accounts so they could leave.” 2

The LA Times points out that fake accounts were not the first line of defense. Employees begged their families and friends to open new accounts. When that wasn’t enough, they found creative solutions. Canoga Park, California, employees opened premium accounts for Latino immigrants. The premium status allowed the immigrants to send money back across the border free of charge but required a minimum balance of $25,000 within three months of opening the account—or a $30 monthly fee. To meet sales quotas and keep the customers happy, branch employees would downgrade the original accounts and open new premium ones before the fees kicked in.

Short of any sales opportunities, employees turned to their loved ones to open ghost accounts. And short of that, they forged signatures of strangers to request credit cards and equity lines. They added overdraft protection, PIN numbers, online access, and other features that counted as “products.”

When customers discovered these unwanted services, employees blamed a computer error. Another trick was to change the customer’s address to the employee’s to hide from the customer the credit card opened in his name. Many customers had no idea until the new credit card showed up on their credit report.

Wells Fargo tried to keep these problems under wraps by settling the lawsuits and firing branch-level employees. Between 2011 and 2016, 5,300 employees lost their jobs for cheating to meet goals. And some got fired for blowing the whistle on the company. In 2016, when the story went worldwide, John Stumpf finally admitted that the goals were to blame for abusive practices. On September 13, 2016, he put an end to cross-selling:

“We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers.”

Stumpf’s announcement did not silence his critics. Half a dozen federal agencies investigated Wells Fargo. Among them is the Securities and Exchange Commission (SEC), which took a keen interest in the bank’s loan accounting practices.

For most of his life, John Stumpf was an all-American success story. He grew up on a farm in a family of eleven kids. Stumpf has credited his upbringing with his work ethic and his reliance on teamwork. So, where did he go wrong?

There’s nothing wrong with stretch goals. Nor with asking employees to pitch in.

However...

If pressure is your only strategy, you won’t likely get the result you want. If you leave your employees with no room to fail, you cannot expect them to learn and grow.

Pressure doesn’t strengthen your company.

Pressure looks for the weakest link. And it always finds one.

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If you’re tired of pressure, you might like my book, because it gives you better options

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[1] 5 things to know about Wells Fargo CEO John Stumpf by Aimee Picchi, CBS MoneyWatch, September 14, 2016

[2] Wells Fargo made me work overtime—without extra pay by Matt Egan, CNNMoney, September 30, 2016

Tim Eisenhauer
Written by Tim Eisenhauer

Tim is president and co-founder of Axero Solutions, a leading intranet software vendor. He's also a bestselling author of Who the Hell Wants to Work for You? Mastering Employee Engagement. Tim’s been featured in Fortune, Forbes, TIME, Inc Magazine, Entrepreneur, CNBC, Today, and other leading publications.

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