With the Wells Fargo cross-selling scandal a recent memory that continues to resonate at companies, the Consumer Financial Protection Bureau (the "CFPB") issued a compliance bulletin addressing the path to proper oversight over incentive plans which tie compensation to various benchmarks, thus posing "risks to consumers, especially when they create an unrealistic culture of high-pressure targets." Corporate culture is a major theme of the bulletin and the CFPB notes that it has an expectation that companies which have incentive programs also have effective controls and oversight. Specifically, it states that "An entity’s [customer management system] should reflect the risk, nature, and significance of the incentive programs to which they apply. Accordingly, the strictest controls will be necessary where incentives concern products or services less likely to benefit consumers or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant proportion of employee compensation. Consistent with that objective, the bulletin provides a non-exhaustive list of examples of components of an effective oversight regimen, including:
- Board and Management Oversight: Charging the Board and management with "fostering a culture of strong customer services related to incentives", the bulletin calls for consideration to how incentives drive both program outcomes as well as incidentally incentivized outcomes which may harm customers. Setting the "tone from the top" with regard to the reporting of incidents is also said to be fundamentally important.
- Policies and Procedures: Companies should create transparent and reasonably attainable goals for employees to reach to avoid creating pressure situations where employees may be tempted to try to game the system. Additionally, companies should have mechanisms to identify potential conflicts for managers who are both covered by incentives and expected to monitor customer satisfaction, as well as a fair process for investigating reported issues.
- Training: Training is a key part of creating good culture and should emphasize setting expectations for incentives including ethical standards.
- Monitoring: The monitoring of key metrics, including spikes in trends of sales by offices, units and/or individuals, is of vital importance to identify trends and outliers which may indicate that incentives are leading to inappropriate or unethical behavior by employees.
- Corrective Action: Prompt investigation and implementation of corrective action after discovery of illegal behavior or behavior that violates company policies should address the root causes of deficiencies and findings should be brought to the Board and Management's attention particularly when they are pervasive or pose significant risk to consumers.