This week, Wells Fargo will launch new compensation packages for its employees that aim to reward customer satisfaction. And 25,000 entry-level workers, including tellers and customer-service reps, received raises on Sunday that bring minimum pay from $12 to $13.50 per hour.
These are positive steps towards digging out from a badly mismanaged scandal. In September, the bank was fined $185 million after employees under pressure to boost sales opened as many as two million accounts that customers didn’t request.
Yet Wells Fargo doesn’t appear poised to capitalize on the full public relations potential of these changes: to position its new chief executive as a thought leader on compensation in the financial industry.
The bank has been quick to claim that this week’s pay hike is, in the words of a spokeswoman, “completely unrelated” to the scandal.
That’s hard to take seriously. However, it’s understandable, said Helio Fred Garcia, who as president of the crisis management firm the Logos Consulting Group has advised hundreds of Fortune 500 chief executives. “You shouldn’t tell employees you’ll pay them more so they won’t cheat customers,” he said. “You should tell them not to cheat customers.”
But the announcements open an opportunity for Timothy Sloan, who became chief executive in October, to take a public leadership position on the issue of financial industry compensation.
The concept of “CEO activism” – chief executives taking public stances on controversial topics – has recently been popularized by corporate leaders. For example, Apple chief executive Timothy Cook publicly opposed an Indiana bill that he argued discriminated against gay and transgender people, and Starbucks chief executive Howard Schultz asked Americans not to bring guns to his stores.
CEO activism is often associated with topics outside the core business of executives. But, in the Wells Fargo case, Sloan has an opportunity to reap reputational dividends by exercising leadership on an important issue in his industry.
Research shows that this is the kind of advocacy that improves leaders’ reputations. A 2016 study by the global public relations firm Weber Shandwick and KRC Research found that 31 percent of Americans have more favorable views of chief executives when they take positions on hot issues, but the number drops to 20 percent when the issues are not tied to the business of their companies.
Specifically, Sloan should become an activist on two issues related to compensation in the financial industry: eliminating incentives for financial risks and crimes, and closing the gap between the highest- and lowest-paid workers.
It’s easy to spot the dangers of excessive risk-taking on Wall Street, which contributed to the 2008 financial crisis.
And according to the Economic Policy Institute, there is an “easy-to-understand root of rising income inequality, slow living-standards growth, and a host of other key economic challenges: the near stagnation of hourly wage growth for the vast majority of American workers over the past generation.”
A 2016 survey found that 74 percent of Americans say that chief executives aren’t paid fairly compared to average workers. David Larcker, a professor at Stanford University’s Graduate School of Business, said “there is a general sense of outrage” over the issue.
So, leading on this topic stands to improve Wells Fargo’s public image.
The bank is not alone in raising employee compensation. In December, Bank of America announced that it would increase minimum pay to $15 per hour. JPMorgan Chase will implement an 18 percent pay hike in February, bringing hourly pay for frontline workers to $12.
However, what Sloan does next can set Wells Fargo apart.
First, he should document the results of the bank’s new compensation packages. In op-eds, congressional testimony and public speeches, he should explain what he learns about how to structure compensation to provide disincentives to financial crimes and excessive risk-taking.
A September report by S&P Global Market Intelligence found that consumers at many other banks are complaining about unauthorized accounts, so other chief executives would be wise to take notes.
Second, he should lobby Congress and the Trump administration for legislation limiting and regulating executive compensation. For starters, he can vociferously oppose proposals in the Financial CHOICE Act, a bill that would repeal a requirement that companies make public the ratio of pay between chief executives and median employees. It would also require shareholder advisory votes on executive compensation only when salaries change (instead of every three years), repeal a rule requiring disclosure of some types of incentive-based compensation, and limit compensation clawbacks.
Sloan should also take a pay cut.
According to Wells Fargo’s 2016 proxy, he made $11 million in total compensation in 2015. (He was chief operating officer until that November, when he became president). A spokesperson for Wells Fargo told me that his compensation hasn’t changed since the proxy was filed, even though he later became chief executive.
However, $8 million of his salary came in the form of long-term equity incentives, which are tied to the company’s stock performance. Sloan should re-direct a quarter of those incentives to employees who provide superior customer service. In doing so, he would lead on both implementing disincentives to financial crimes and reducing income inequality. Over time, improved public sentiment towards the bank could increase profits – and thus Sloan’s compensation.
Garcia warned that it will appear phony if the bank focuses on compensation at the expense of the core problem that got it into this mess: lack of integrity. But by both fixing the problem and leading on an issue with which Americans widely agree, Wells Fargo can start to restore its battered reputation.