Incentive alignment

A well-designed incentive can focus attention and support cooperation, but measures also signal what the organization considers valuable. Shared goals can encourage cross-functional results; individual measures may clarify ownership but create local optimization. Use a small number of understandable measures and pair them with qualitative review, especially for decisions with long-term or hard-to-measure consequences.

The CFPB’s September 2016 Wells Fargo consent order describes sales targets and incentive compensation, then employees temporarily funding unauthorized accounts with transfers from authorized accounts to obtain reward credit. The findings connect the rewarded proxy to conduct that could satisfy it while defeating customer consent. Wells agreed to the order without admitting or denying the findings except jurisdiction.

This failure also concerns oversight. In February 2018 the Federal Reserve restricted Wells Fargo’s growth pending governance and risk-control improvements. In June 2025 it removed the asset growth restriction after required third-party and Federal Reserve review; other provisions of that action remained at that date. Those are dated supervisory decisions, not proof that changing a sales bonus alone solved the problem.

A narrow target can invite gaming: maximizing booked sales before returns, cutting support that protects retention, or taking risks whose costs arrive after the measurement period. Thresholds and caps can create cliffs, while subjective measures can weaken trust if criteria are unclear. Simulate likely responses before launch and inspect both the metric and downstream outcomes.

Alignment is constrained by information and control. A worker may not be able to affect a company-level result, while external shocks can overwhelm individual contribution. Allocate responsibility at the lowest level with meaningful influence, distinguish controllable process measures from lagging results, and provide a fair review when conditions change. Incentives should complement purpose, capability, and good management rather than compensate for their absence.

Adding metrics is not sufficient if warnings are not escalated or the reviewer cannot challenge the business owner. Inspect who verifies the evidence, who can stop a payout or activity and what happens when a guardrail is breached. A design claim of “balanced incentives” needs behavioral evidence under pressure, not only a formula.