Wells
Fargo & Co’s leaders have repeatedly assured the public its
aggressive sales culture is gone after quotas led workers to foist
unwanted products on clients. Now another problem is festering: low
productivity.
The bank, which employs more people than any other in
the US, generated about $330,000 of net revenue per employee last year,
sliding behind most major peers.
By the end of last year, Wells
Fargo ranked 15th among the 24 companies in the KBW Bank Index, which
tracks big US commercial lenders. Five regional banks have surpassed
Wells Fargo by that measure since the company scrapped sales targets and
incentive programs in 2016 that fuelled both growth and abuses.
“I
would almost guarantee that the people running it would like to improve
those numbers,” said Bill Smead, chief executive officer of Smead
Capital Management, which owns 1.3mn Wells Fargo shares.
The
situation helps explain why Wells Fargo is working to pare its workforce
of 259,000 – enough to employ most of Alaska. CEO Tim Sloan announced
plans in September to trim as many as 10% of jobs within three years to
help meet customer needs “in a more streamlined and efficient manner.”
He’s already made progress: Headcount shrank by 3,700 in 2018.
Public
pressure on Wells Fargo was on full display this week as Democrats and
Republicans took turns chastising Sloan at a hearing on Capitol Hill.
At
least five members of the House Financial Services Committee grilled
Sloan on whether the firm has done enough to unwind programs that
underpinned its push to sell more products.
“It’s my job as CEO to
make sure things change, and they are changing,” Sloan assured
lawmakers. A Wells Fargo spokesman declined to comment for this article.
In
2015, Wells Fargo ranked 10th by revenue per employee in the KBW index
before its scandals began emerging the next year. The firm eliminated
its old sales system, which tracked the performance of individual
workers, sometimes sanctioning them for missing quotas or offering
rewards to those who achieved certain targets.
Now the bank rewards staff based on customer experience, customer loyalty and team performance.
By
the end of last year, Wells Fargo’s revenue per employee had climbed
just 2.6% from its pre-scandal level, slower than at its biggest
competitors. At JPMorgan Chase & Co and Bank of America Corp, that
number climbed nearly 15% over the period, and at Citigroup Inc it rose
8%.
Wells Fargo’s high headcount comes at a cost. Its compensation
ratio, a measure of how much the bank pays to employees as a percentage
of revenue, is the highest among the 10 biggest commercial US banks.
Bringing down that spending could help Sloan control expenses following
years of scandal-related costs.
The scandals are forcing Wells Fargo
to develop new ways to motivate staff while spending more on compliance.
And that means making other adjustments to sustain earnings.
“They’re
trying to go from hyper-productivity, where people were more productive
than what the law or company would want,” Smead said. “There’s going to
be a stretch of time when you’ve cleaned the deck where people are just
not going to be as aggressive.”
In past years, being the least productive bank among the titans has proven to be a harbinger of transformational change.
Bank
of America ranked last by revenue per employee among the biggest four
in September 2011 when it announced a plan to cut 30,000 jobs from what
was then the industry’s largest workforce. It reached the target, then
kept cutting as it shut branches and promoted mobile apps.
By the end
of last year, the Charlotte-based lender had eliminated 84,000 jobs
from a year-end peak of 288,000 in 2010. Revenue per employee rose 17%
in that time and earnings improved. From the start of Bank of America’s
job-cutting binge, its stock returned 96%.
“Just think about moving
that many people,” CEO Brian Moynihan said of job cuts while looking
back at his tenure during a CNBC interview last year. “That’s, I think,
more employees than Delta has.” Citigroup ranked as the least efficient
of the four banks in October 2012. It, too, took action, paring
underperforming businesses overseas.
A similar emphasis on efficiency will probably be a theme at Wells Fargo for some time.
“It’s
where you are in your life cycle of repairing yourself for regulatory
and profitability reasons,” veteran bank analyst Charles Peabody said in
an interview. “Citi and BofA are on the improving side of that, whereas
Wells is on the ramping-up costs side.”
Pedestrians pass in front of a Wells Fargo & Co bank branch in New York. The bank, which employs more people than any other in the US, generated about $330,000 of net revenue per employee last year, sliding behind most major peers.