Wells Fargo loses its ground to peers in revenue per employee

WellsFargo & Co’s leaders have repeatedly assured the public itsaggressive sales culture is gone after quotas led workers to foistunwanted products on clients. Now another problem is festering: lowproductivity.The bank, which employs more people than any other inthe US, generated about $330,000 of net revenue per employee last year,sliding behind most major peers. By the end of last year, WellsFargo ranked 15th among the 24 companies in the KBW Bank Index, whichtracks big US commercial lenders. Five regional banks have surpassedWells Fargo by that measure since the company scrapped sales targets andincentive programs in 2016 that fuelled both growth and abuses.“Iwould almost guarantee that the people running it would like to improvethose numbers,” said Bill Smead, chief executive officer of SmeadCapital Management, which owns 1.3mn Wells Fargo shares.Thesituation helps explain why Wells Fargo is working to pare its workforceof 259,000 – enough to employ most of Alaska. CEO Tim Sloan announcedplans in September to trim as many as 10% of jobs within three years tohelp meet customer needs “in a more streamlined and efficient manner.”He’s already made progress: Headcount shrank by 3,700 in 2018.Publicpressure on Wells Fargo was on full display this week as Democrats andRepublicans took turns chastising Sloan at a hearing on Capitol Hill. Atleast five members of the House Financial Services Committee grilledSloan on whether the firm has done enough to unwind programs thatunderpinned its push to sell more products.“It’s my job as CEO tomake sure things change, and they are changing,” Sloan assuredlawmakers. A Wells Fargo spokesman declined to comment for this article.In2015, Wells Fargo ranked 10th by revenue per employee in the KBW indexbefore its scandals began emerging the next year. The firm eliminatedits old sales system, which tracked the performance of individualworkers, sometimes sanctioning them for missing quotas or offeringrewards to those who achieved certain targets.Now the bank rewards staff based on customer experience, customer loyalty and team performance.Bythe end of last year, Wells Fargo’s revenue per employee had climbedjust 2.6% from its pre-scandal level, slower than at its biggestcompetitors. At JPMorgan Chase & Co and Bank of America Corp, thatnumber climbed nearly 15% over the period, and at Citigroup Inc it rose8%.Wells Fargo’s high headcount comes at a cost. Its compensationratio, a measure of how much the bank pays to employees as a percentageof revenue, is the highest among the 10 biggest commercial US banks.Bringing down that spending could help Sloan control expenses followingyears of scandal-related costs.The scandals are forcing Wells Fargoto develop new ways to motivate staff while spending more on compliance.And that means making other adjustments to sustain earnings.“They’retrying to go from hyper-productivity, where people were more productivethan what the law or company would want,” Smead said. “There’s going tobe a stretch of time when you’ve cleaned the deck where people are justnot 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.Bankof America ranked last by revenue per employee among the biggest fourin September 2011 when it announced a plan to cut 30,000 jobs from whatwas then the industry’s largest workforce. It reached the target, thenkept cutting as it shut branches and promoted mobile apps.By the endof last year, the Charlotte-based lender had eliminated 84,000 jobsfrom 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’sjob-cutting binge, its stock returned 96%.“Just think about movingthat many people,” CEO Brian Moynihan said of job cuts while lookingback at his tenure during a CNBC interview last year. “That’s, I think,more employees than Delta has.” Citigroup ranked as the least efficientof the four banks in October 2012. It, too, took action, paringunderperforming businesses overseas.A similar emphasis on efficiency will probably be a theme at Wells Fargo for some time.“It’swhere you are in your life cycle of repairing yourself for regulatoryand profitability reasons,” veteran bank analyst Charles Peabody said inan interview. “Citi and BofA are on the improving side of that, whereasWells is on the ramping-up costs side.”