WFC Wells Fargo and Company

By Rachel Louise Ensign 

Wells Fargo & Co.'s principal regulator has said the bank has a massive backlog of employee human-resources complaints and poor controls around pay, a rebuke that adds to the long list of problems facing the lender's new chief executive.

The bank has been at pains to demonstrate since the October hiring of Charles Scharf as CEO that it is making progress repairing the regulatory messes that emerged after a 2016 fake-account scandal, which upended Wells Fargo's reputation as a staid mortgage lender and forced out some of its top executives.

The HR complaints came in a July letter from the Office of the Comptroller of the Currency and laid out a lengthy to-do list, people familiar with the matter said. Among the issues the HR department needs to address, the regulator said, are thousands of employee complaints, an inadequate policy for clawing back compensation from executives and controls around pay that aren't tight enough to ward off potential misconduct, 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.

Authorities said in September 2016 that Wells Fargo bankers opened perhaps millions of accounts without customer knowledge or consent. The scandal revealed an aggressive sales culture coupled with incentives to push more products on customers.

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 18:29 ET (23:29 GMT)

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