Last month, Wells Fargo agreed to pay US$185 million in settlements to US regulators over admissions that, in order to meet sales targets, employees of the bank had created around two million unauthorised customer accounts and credit card applications since 2011. About 5,300 employees were fired for their involvement in the scheme. Wells Fargo’s Chairman and CEO, John Stumpf, appeared before the Senate Banking Committee amidst calls by Democrat Senators for the bank to claw back executive pay tied to profits derived from the illicit activities.

The unfolding scandal has received widespread coverage. What does it tell us about what drives unethical behaviour in organisations?

• Incentives are a key driver of corrupt behaviour

At the heart of the scandal is the bank’s aggressive sales culture, which resulted in huge pressure on employees to meet unrealistic sales quotas by any means necessary.

The result: bank staff created and operated around two million fraudulent customer accounts and credit card applications – without the customers’ permission.

• Senior executives are too quick to blame “rotten apples” and too slow to acknowledge systemic, cultural failings

In media interviews and in a Senate Banking Committee hearing, Wells Fargo’s Chairman and CEO, John Stumpf, blamed 1% of employees for wrongdoing at the bank, arguing that their actions did not reflect the bank’s culture or the behaviour of the vast majority of staff.

He was subsequently criticised for failing to acknowledge systemic and governance failures at the bank, refusing to hold senior executives to account and deferring the decision to abolish the very incentive scheme that drove the misconduct until 2017.

• These arguments won’t wash with regulators

Within a week of the bank agreeing to pay US$185 million in settlements to US regulators, Stumpf was facing calls by Democrat Senators for the bank to claw back executive pay tied to profits derived from the illicit activities.

After the Senate hearing, Wells Fargo announced it would be recovering US$41 million in bonuses from Stumpf, marking the first time a major US financial institution has forced its chief executive to pay back previously earned compensation.

And there may be more to come. Senator Elizabeth Warren has set out the case for the SEC and DoJ to conduct criminal investigations into the bank.

• Aggressive sales targets – and peer pressure – trump “tone at the top”

Early analysis of the allegations indicates that “tone at the top” was not lacking at Wells Fargo. In fact, it appears employees were explicitly told in ethics training not to open fraudulent accounts. But this messaging was overruled by pressure to cross-sell from managers whose bonuses were at stake.

So what can be done?

Changing company culture to incentivise ethical behaviour while continuing to drive performance is a major challenge to which there are no easy answers.

Here are five suggestions from TI-UK’s newly published guidance on managing incentives:

1. Ensure the board understands and, where necessary, drives change in the company culture
2. Align business objectives and company values, and ensure any misalignment is detected and corrected.
3. Set achievable targets and check your ratios of fixed to variable pay to make sure staff are not relying on incentives to get by.
4. Set ethical targets and/or “values thresholds” to ensure that no employee is rewarded having contravened the company’s values.
5. Listen to staff – use surveys, exit interviews and workshops to find out where things are going wrong and provide confidential channels for staff to report incidents and concerns.