The past year has been turbulent for American bank Wells Fargo: in September 2016 the company fired at least 5,300 employees, paid a $185 million fine and returned $5 million of wrongly-charged fees to customers after more than 2 million bank and credit card accounts were opened without customers’ permission.
In a testimony to the lower chamber of the US Congress, then CEO John Stumpf referred to the “wrongful” and “unethical sales practices” that led to the misselling, which was driven by targets and incentives linked to product sales. The bank is not the only firm to have recently come under scrutiny for its sales practices: in 2014 energy firm Eon was ordered to pay £12m to customers following an investigation into misselling, while Lloyds Banking Group was fined £28m in 2013 after reports of misselling by sales staff, who feared demotion or pay cuts if they failed to meet targets.
The purpose of sales targets
“There are a lot of cases which gives one the impression that everyone’s at it”, says Philippa Foster Back, director of the Institute of Business Ethics, but this poor business practice is typically the result of “unrealistic” targets and “unreasonable” pressure from senior managers.
“Targets are meant to influence behaviour. The expectation is that the new behaviours will lead to greater sales,” says Dr Monica Franco-Santos, senior lecturer at the Cranfield School of Management. This practice may not always begin as unethical, but rather as “gaming the system”, changing “behaviour to meet the requirements of the target even if that behaviour does not directly relate to the true performance expected”.
“In organisations, where the pressure is too high, this initial gaming behaviour may increase to the point that people start to manipulate data, which will then be considered unethical,” she adds.
The problem is leadership, not sales targets
Sales targets for individuals work well when the activity in question can be measured in a reliable way and a good or bad performance is the result of the individual’s work, rather than someone else’s, adds Franco-Santos. Amongst other factors, individuals need to have the skills, knowledge and ability required to meet the targets and should be motivated by appropriate rewards for meeting their goals.
Poor leadership and a target will lead to unethical behaviours and customers that are poorly treated and ill-advised
“The design of the targets and of the benefits and rewards that will accrue by reaching those targets has to be very, very carefully set out in the first place otherwise you do get unintended consequences,” adds Foster Back. If bonuses for meeting targets are too much of a proportion of an individual’s salary or too extreme as in the Lloyds case, for example, people can be tempted to break rules.
“Changes in remuneration practice are very, very difficult to do but that doesn’t mean that you don’t try. Remuneration committees and companies need to be more mindful of the consequences,” adds Foster Back.
Sales targets are not a bad thing on their own, agrees Andrew Hough, CEO of the Association of Professional Sales (APS), but the behaviour of sales staff will be affected – positively or negatively – by a company’s culture. “It’s leadership that causes issues within sales industries not targets. Poor leadership and a target will lead to unethical behaviours and customers that are poorly treated and ill-advised,” he says.
“Sales leaders and business leaders need to be very clear that there’s an ethical and right way to grow a business and there is an unethical way to do it. What’s important to a leader quickly disseminates down an organisation and becomes important to their salespeople.”
A culture focused on individual performance against professional ethics, self-development, treating customers well and guiding them through buying decisions in the right way, makes it “virtually impossible to create an environment where individual sellers will misbehave en masse”, explains Hough.
Is abandoning sales targets the answer?
Leaders need to develop a better relationship with sales managers and teams as these people are focused on one of the most important areas of any sales-driven business: customer growth and related revenue. But company leaders, who do not often have a sales background, can lack trust in their sales staff and don’t understand the people and skills required to build a successful sales operation. A previous lack of formal sales qualifications and recognition of the profession – something which the APS has worked to address – has also contributed to this poor working relationship.
Following the misselling scandal, Wells Fargo announced it would be removing product sales goals for its retail banking team members and leaders. In 2013, after allegations that doctors and health officials in China had been bribed to prescribe their drugs, GSK stopped sales targets for reps and introduced a new compensation scheme. HSBC removed sales targets from staff incentives in the same year shifting the focus and rewards package to “customer satisfaction and sales quality”.
For Hough, this removal or replacement of sales targets is tantamount to “hiding the selling process by calling it something else” and can be “detrimental” rather than beneficial to customers, especially in financial services. Wary of new legislation and government involvement or restrictions on the process, those staff dealing with customers who want to buy may no longer be considered salespeople or be able to deal with customers effectively.
The abandonment of ‘performance targets’ in areas where they are not useful requires a change in mindset.
“Everyone can tell you what the product is but no one invests in the skills training required [for salespeople] to guide customers through the services and products on offer,” he says.
Companies need to understand that the majority of salespeople are not “coin-operated”, says Hough. The skills and motivation required for short-term, profit-orientated, transactional sales will differ from more complex sales that take longer to complete and involve input from numerous people.
The focus is now on “consultative” sales
As companies transfer short-term, transactional sales online, “consultative” sales and the professionals who conduct them will become the focus. In this sales environment, “sales targets are becoming a high-risk strategy to motivate individuals”, says Franco-Santos, as they don’t meet the conditions that work for shorter term sales leading people to “react and ‘act’ on the targets in unpredictable ways”.
“The abandonment of ‘performance targets’ in areas where they are not useful requires (…) a change in mindset. It requires accepting that there are crucial aspects of the sales process that cannot be measured with objective metrics [such as relationships],” she explains.
To design better targets and more effective compensation schemes, businesses need to understand these differences as well as what drives their sales staff and how that might differ depending on the type of sales. As Franco-Santos explains: “Most organisations have a combination of transactional and consultative sales. Therefore, to minimise ‘behavioural’ risks and enhance ‘real’ performance they may have to craft hybrid practices that combine practices that address extrinsic and intrinsic motivations.”
Laura Oliver is a Freelance Journalist and Former Head of Social and Community at the Guardian.