This week I begin a five-part series on compliance as seen through the lens of Winnie the Pooh and the characters who live in the Hundred Acre Woods: Pooh, Eeyore, Tigger, Kanga & Roo, and Piglet. Winnie-the-Pooh, also called Pooh Bear and Pooh, was created by English author A. A. Milne. Pooh first appeared in a collection of stories about him and his friends in the book Winnie-the-Pooh in 1926, and this was followed by The House at Pooh Corner in 1928. Milne also included a poem about the bear in the children’s verse book When We Were Very Young (1924) and many more in Now We Are Six (1927). All four volumes were illustrated by E. H. Shepard. Many Americans were introduced to Pooh through the Walt Disney features Winnie the Pooh and the Honey Tree released in 1966, Winnie the Pooh and the Blustery Day, released in 1968, and Winnie the Pooh and Tigger Too, which was released in 1974. Today, we begin with Tigger and the sales function role in compliance.
Tigger first appeared in the House at Pooh Corner, when he arrives at Pooh’s doorstep in the middle of the night. Tigger takes up residence with Kanga and Roo. He becomes great friends with Roo and Kanga treats him in much the same way she does her own son. Tigger seems to have boundless energy, often too much energy for some of the other denizens of the Hundred Acre Wood. Rabbit, who is constantly exasperated by Tigger’s constant bouncing; Eeyore, who is once bounced into the river by Tigger, and, finally, there is Pooh’s good friend Piglet, who always seems a little nervous about the new, large, bouncy animal in the Hundred Acre Wood.
Tigger seems like the epitome of a top salesperson. He is very confident and has quite an ego and he has a high opinion of himself. He always seems to have great energy and optimism, and though always well-meaning, he can also be mischievous, and his actions have sometimes led to chaos and trouble for himself and his friends. Tigger often undertakes tasks with gusto, only to later realize they were not as easy as he had originally imagined. Tigger, unique as ever, refers to himself not as a tiger, but as a “Tigger” and when he introduces himself, he announces the proper way to spell his name and that is “T-I-double-Guh-Er”, which spells “Tigger”.
Tigger seems like a great way to think about sales incentives from the compliance perspective. Much like Tigger, most sales folks have their hearts in the right place even if their actions cause trouble for themselves and others. The Department of Justice (DOJ) seems to have recognized this when in the 2020 Update to the Evaluation of Corporate Compliance Programs, it stated:
Incentive System – Has the company considered the implications of its incentives and rewards on compliance? How does the company incentivize compliance and ethical behavior? Have there been specific examples of actions taken (e.g., promotions or awards denied) as a result of compliance and ethics considerations? Who determines the compensation, including bonuses, as well as discipline and promotion of compliance personnel?
When considering how a company could use incentives to further a compliance program, consider how incentives might lead to the converse, as they did in the now-infamous Wells Fargo fraudulent-accounts scandal. When you misalign these two concepts with a faulty sales strategy it can lead to a catastrophic failure, literally costing the company millions of dollars in fines, loss of business and depreciation of shareholder value.
The sales incentives under which Wells Fargo came to such grief is a simple, and even benign, cross-selling of products. After all, large banks cross-sell their clients all the time, and nobody seems to blink an eye at the cross-selling McDonalds engages in every time you buy a Big Mac when the representative asks if you would like fries with it. Yet there are other reasons for engaging in this type of business practice. Each and every time a company has a touchpoint, particularly a commercial touchpoint, with a business, it strengthens the relationship.
At Wells Fargo, however, what started off as a legitimate, legal and beneficial business strategy became not only high-risk, but illegal because of the manner in which Wells Fargo administered its approach to cross-selling. As with any sales initiative, if a company wants to push it, it will set up incentives for the sales team to engage in such behavior. This can be done by increasing commissions around the service or product being emphasized, such as the banks products. Companies can also increase sales by making clear that you will be evaluated on how much you sell a product or service. In other words, whether you receive a bonus, pay raise or even keep your job will be evaluated, in some part, on how much you cross-sell.
What about variable compensation? That is compensation based on alterable factors such as total sales, sales relative to a region, product line or other group. Some of the questions you might ask are: What does your bonus program consist of? Is it corporate performance based? Is it group performance based? Personal as in “eat what you kill”? Or is it some combination of all of the above?
A variable system can also lead to ethics and compliance failures. One reason could be similar to Wells Fargo; very high goals but no direction for employees on how to get there; A lack of communications between management and line employees, meaning there was raw fear from employees to inform their immediate supervisor of bad news. Conversely, it could be the supervisors who do not want to hear such bad news; and, lastly, if your company has singular focus on numbers, meaning that is the single judge of your worth as an employee. Answering some of these questions if they arise can help you to understand the design of incentive plans and allow monitoring of incentive plans to identify underlying links that may arise through compliance violations.
At the end of the day, Tigger is good-hearted, even if his over-exuberance can sometimes lead to misadventures. If you properly incentivize your sales team, you will hopefully keep their over-exuberance into being simply good-hearted as well.
Join me tomorrow when I consider Kanga, Roo and HR in compliance.
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