Think Twice & Use Proper Safeguards When Developing Sales Incentives

Sales incentives are a great way to motivate sales teams, and they can be a boon to corporate bottom lines, but without the proper safeguards, they can also be ripe for fraud and abuse. Here’s one such tale of woe:

A large company, Gree D, Inc., implements a sales plan designed to drive more revenue to the bottom line. The CEO of Gree D declares that: “eight is great,” imploring his sales team to sign up each customer for eight of the company’s products. The company created a written sales incentive plan to reward those sales people who meet or exceed the eight-products threshold.

After a few months, the Gree D sales team returned astounding results. The company reported increased earnings and the sales people brought home more sales incentives. Everybody was happy, especially the CEO.

Joe A. Garza, Jr.

Joe A. Garza, Jr.

After a while, some customers complained to the company that accounts had been started in their name without their authorization. Each complaining customer’s false account was adjusted or corrected, but the root cause of the “errors” was never investigated.

One company employee, Whist L. Blower, hired a class action law firm after he reported to them that some of the company’s salespeople were falsifying customer signatures to sign up more accounts and earn more sales incentives. The law firm filed a class action lawsuit against the company in a plaintiff-friendly venue. State and Federal regulators and state attorneys general have notified the company that it is under investigation.

In Texas, the head of the Consumer Protection Division of the Attorney General’s office issued a civil investigative demand to the company, citing Tex. Bus. & Com. Code Ann § 17.61, (there are similar provisions in other states).

Complying with Consumer Protection Laws

Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.”

— Sherlock Holmes (Sir Arthur Conan Doyle)

If Sherlock Holmes had been called in by Gree D management when those stellar sales reports started coming in, he would have certainly known something strange was afoot. He would have asked how a previously lackluster sales team had achieved such astounding results, and whether the sales incentive policy included any controls or monitoring to ensure only legitimate sales were made.

Fortunately for 21st century businesses, no fictional characters are needed to set up an effective, ethical and legally compliant sales incentive program. A qualified, experienced lawyer could have helped the company understand and mitigate the risks of an aggressive incentive program while also helping them meet their revenue goals.

Large companies that sell to consumers regularly have their attorneys review sales incentive policies to make sure they don’t violate or lead to violations of consumer protection laws. Had Gree D consulted with their legal team, they would have recommended checking the veracity of the sales process, such as instituting a brief call to the customer a few days after the sale to thank them for their purchase. After one or two of those customers responded with “What purchase?,” it’s a safe bet that the entire scheme would have been cut significantly short.

There are other reasons to do such follow-up calls. Had the sales been legitimate, the company would have been able to identify their sales team’s best practices and replicate them throughout the sales force.

Most employees have no intention of ever being a whistleblower who turns in their employer (which can result in a significant monetary award to the whistleblower, by the way); however, when they see their customers being bilked, ethical employees feel they have no choice but to speak up.

Gree D’s predicament could have been prevented – and the cost and PR damage of the ensuing investigation been avoided – had management consulted with counsel before instituting their sales incentive program to ensure it complied with consumer protection laws (of which there are many) and included safeguards to protect against fraud and abuse.

The cost to run such a procedure would have been far less than even a single lawsuit, let alone far-reaching government investigations.

 

This update is for informational purposes only and should not be considered legal advice. Each situation is different, could change any time, and should be analyzed by an attorney.

By | 2017-12-20T15:27:03+00:00 December 20th, 2017|

About the Author:

Joe A. Garza, Jr.
Joe Garza is an attorney with significant in-house counsel experience who is passionate about dispute avoidance and dispute resolutions. He can be reached at 817-602-5815 or jgarza@gchub.com.