Scandals like that at E.ON won't be solved by regulation: they're caused by a structural reliance on targets and incentives
Anyone who imagined mis-selling was an aberration peculiar to Wall Street in the frenzy leading up to the 2008 financial crash should think again. Mis-selling of individual mortgages up to the worthless derivatives knowingly foisted on to customers by cynical investment banks certainly featured large in the scandals. But payment protection insurance (PPI), the granddaddy of the reckless hard-sell (cost so far: £22bn), predated the crash by half a decade, while energy giant E.ON's £12m fine, following £28m levied on Lloyds Banking Group earlier in the year, suggests the practice is as hard to root out as Japanese knotweed.
Contrary to perceptions, however, the persistence of rogue selling is primarily not an ethical but a design problem. The conventional way of paying sales staff is wholly or usually partly by commission. Without commission, why would they perform? Unfortunately, incentives of any kind are a double-edged sword, and in sales, as the fines show, they can come back to bite those that use them in a uniquely painful way.
Continue reading... Reported by guardian.co.uk 8 hours ago.
Anyone who imagined mis-selling was an aberration peculiar to Wall Street in the frenzy leading up to the 2008 financial crash should think again. Mis-selling of individual mortgages up to the worthless derivatives knowingly foisted on to customers by cynical investment banks certainly featured large in the scandals. But payment protection insurance (PPI), the granddaddy of the reckless hard-sell (cost so far: £22bn), predated the crash by half a decade, while energy giant E.ON's £12m fine, following £28m levied on Lloyds Banking Group earlier in the year, suggests the practice is as hard to root out as Japanese knotweed.
Contrary to perceptions, however, the persistence of rogue selling is primarily not an ethical but a design problem. The conventional way of paying sales staff is wholly or usually partly by commission. Without commission, why would they perform? Unfortunately, incentives of any kind are a double-edged sword, and in sales, as the fines show, they can come back to bite those that use them in a uniquely painful way.
Continue reading... Reported by guardian.co.uk 8 hours ago.