The recent Wells Fargo scandal revealed the harm that can result from flawed incentive-based compensation arrangements. Large financial institutions have both a legal and an ethical obligation to ensure that any incentive-based compensation arrangements that are in place will not encourage risky or fraudulent employee behavior. The continued existence of inappropriate and poorly structured arrangements demonstrates that existing regulations are inadequate to ensure compliance and protect consumers. Regulations should include increased penalties and should more evenly distribute the burden of oversight and compliance between the public and private sectors. In addition to regulatory reform, the government should prosecute culpable high-level executives more aggressively. Arguably, white-collar criminals are in a position to be more effectively deterred by the threat of incarceration than other types of criminals.
When Good Policies Go Bad: Controlling Risks Posed By Flawed Incentive-Based Compensation,
66 Clev. St. L. Rev.
available at https://engagedscholarship.csuohio.edu/clevstlrev/vol66/iss4/8