WFC Wells Fargo and Company

By Rachel Louise Ensign 

A top banking regulator has rebuked Wells Fargo & Co.'s human-resources department, citing a massive backlog of employee complaints and compensation structures that don't do enough to prevent the kind of behavior that led to its 2016 fake-account scandal.

In a July letter, the Office of the Comptroller of the Currency laid out a lengthy to-do list for the bank's HR department, people familiar with the matter said. Among the issues it needed to address, the regulator said, are thousands of employee complaints, an inadequate policy for clawing back compensation from executives and poor controls around pay, the people said.

"We do not comment on specific regulatory matters, however, Wells Fargo is making progress on our regulatory obligations but more work needs to be done," a bank spokeswoman said.

The regulator's HR complaints add to a long list of issues confronting Chief Executive Charles Scharf in his first months on the job. Mr. Scharf, who started as CEO in October, has been tasked with resolving the many problems that mushroomed after it came to light in September 2016 that branch employees had opened perhaps millions of accounts without customer knowledge or consent.

Mr. Scharf is "already making significant changes," including this week hiring Santander Holdings USA Inc. CEO Scott Powell as chief operating officer to "focus on regulatory priorities and improve our control and operations functions," said Arati Randolph, the Wells Fargo spokeswoman.

Late last year, the bank put a top executive whose responsibilities included HR on a leave of absence after the OCC sent her and another executive letters accusing them of oversight failures.

The OCC earlier this year considered the unprecedented step of forcing changes to Wells Fargo's senior management or board, The Wall Street Journal reported, power it has under a $1 billion settlement it reached with the bank in 2018. The bank's previous CEO, Timothy Sloan, stepped down in March, following a rare public rebuke by the OCC.

In May, Wells Fargo's top OCC examiner spoke to a gathering of hundreds of the bank's in-house lawyers, people familiar with the matter said, and offered a blunt critique of the bank's progress.

Wells Fargo's HR practices came under regulatory scrutiny following the 2016 scandal, but the OCC raised the pressure earlier this year, people familiar with the matter said. In the assessment that followed, the regulator added new warnings known as "matters requiring attention" to existing ones targeting the HR operation.

In the letter outlining the warnings, examiners said the bank had made some progress in fixing issues with compensation and performance management that were the subject of an outstanding MRA, the people said. But the regulator didn't lift the warning, saying the bank failed to put in place adequate controls to ensure pay practices didn't encourage wrongdoing, the people said.

Wells Fargo also lacked adequate procedures to claw back compensation from executives suspected of wrongdoing, they said.

Incentive pay and clawbacks were major issues in the sales scandal. The lender's board determined that bonuses paid to low-level employees for product sales encouraged them to open fake accounts. The bank also was criticized for not forcing top executives to give up pay when the scandal broke. (Two senior executives eventually forfeited millions of dollars in compensation.)

The OCC also called out the bank's backlog of 3,000 employee complaints, the people said. These likely include complaints from employees who say they were wrongfully terminated, which HR staffers are supposed to investigate, one of the people said.

The bank has fired thousands of low-level branch employees as part of its effort to get the fake-account problem under control. Many say they were unfairly terminated and have since been effectively blacklisted from the banking industry.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

December 04, 2019 12:50 ET (17:50 GMT)

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