Why did Wells Fargo, United behave so badly? Look at perverse incentives

CEO Oscar Munoz

After 24 hours of public and stock market pummeling, not quite equal to the pummeling the airline doled out on its most famous passenger Sunday, United has finally conceded. A day after blaming that passenger for his bloody removal from the flight, CEO Oscar Munez issued a new mistakes-were-made apology.

But many observers keep wondering: How could all the supposed adult employees on that plane have let this happen?

I have a hunch: Perverse incentives.

Federal law caps mandatory airline payouts at $1,350 during boarding denial situations. Several reports say the airline did raise its offer to $800, or even $1,000, but not up to the cap. And of course, there's nothing stopping an airline from sweetening the pot even more in dire circumstances.

So before calling the cops and quite literally dragging a person off a plane, in full view of dozens of cameras, why didn't any employee think to make a more enticing offer? After all, that would be the, ahem, free market way to solve this problem.

I don't know. It could be utter stupidity. But I do know that perverse incentives are often at the root of such corporate misbehavior. Did someone's bonus structure communicate a message that dragging was the better option here? Not directly, of course, but through perverse incentives?

I know that sounds absurd, but then, companies encourage criminal behavior all the time via perverse incentives. Take Wells Fargo. The bank trained thousands of employees to steal consumers' identities and open fake accounts to win bonus money. Or worse, under threat of losing their job if they under-performed other co-workers.

It's sort of fitting that on the day a single man's horrific experience as a consumer dominated the news agenda, Wells Fargo finished published its internal report on one of the biggest scams ever perpetrated. And...no one noticed. Sure, two executives have to give back some of the millions they made, but the report is sure to make clear they were rogue actors, lone wolves. The New York Times story on the incident repeatedly stresses the finding that Wells Fargo was "decentralized" -- meaning no one else at the bank could have possibly known what was going on.

Sure.

Perverse incentives bake crime and misbehavior right into business model. They get workers to do all kinds of terrible things. Sign people up for products they don't want, and didn't ask for. Talk them in to insurance that doesn't work. Sell them mortgages that have hidden costs, like pre-payment fees. We've seen this over and over. I've heard from many guilt-ridden employees who've performed such tasks, but don't know what else to do. (I'd love to hear from someone who works at an airline and can explain what kind of incentives are in place to keep down airline bumping costs. Email me! Bob at Bob Sullivan dot net)

It's easy to think, "Well, that's wrong! How can another person knowingly scam a fellow human being and sleep at night?" I've thought that. But pause for a moment to consider: how many of the 5,300 now-fired Wells Fargo employees really needed the job? When the choice is follow your boss' order or wreck your career and have trouble feeding the kids, you'd probably pick door No. 2, also.

So when Congress holds hearings on the United incident, I implore anyone involved to find out what kind of incentives are hovering over its workers as they try to deal with situations like this.

What I do know is that airlines in general aren't offering enough to compensation to consumers in these situations. How do I know? I ran the numbers yesterday. Voluntary bumps are down by about 50 percent since the year 2000, while "involuntary" bumps are about flat. Something's wrong there.

I once had an editor who would say that no single person in a newsroom could make a mistake -- "It takes a whole team," he would joke. That's true at all companies. Mistreatment of consumers is the result of a system, and a culture. In America, we have made things very comfortable to misbehaving corporations. As long as they can endure a few days of bad social media press, they can pretty much get away with anything. This should be our focus now.

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