How Can Sales Incentive Programs Lead To Fraud?

How Can Sales Incentive Programs Lead To Fraud?

According to a Compliance Podcast Network article by Tom Fox, sales incentive programs, long used to motivate performance, have also become hotspots for ethical breaches and compliance failures.

Fox cites a Harvard Business Review article by Timothy Gardner, Colin Wong, and Rick Butler, which highlights how sales incentive systems, when poorly designed or inadequately monitored, can lead to misconduct ranging from data falsification to outright fraud. Using examples like Wells Fargo and Vivint Smart Home, the HBR article presents a framework for recognizing and mitigating these risks. 

For risk management professionals, the key takeaway is clear: Effective compliance in sales-intensive environments requires more than policy; it demands foresight, monitoring, and culture-building.

Under pressure to meet targets, sales teams may use tactics like “sandbagging” sales, fabricating customer accounts, or misleading clients to secure higher commissions. The article categorizes eight common gaming strategies, providing compliance teams with a diagnostic tool to assess vulnerabilities. However, not all tactics warrant immediate corrective action; some minor infractions may be tolerated if the cost of enforcement outweighs the impact. The emphasis is on proportional response and strategic prioritization.

To counteract these behaviors, Fox says organizations should deploy data analytics to monitor patterns, audit suspicious activities, and flag anomalies early. Proactive risk mitigation also includes refining incentive plans to close loopholes and communicating clear behavioral expectations. A culture that champions transparency and ethical conduct, reinforced through ongoing training and real-world examples, plays a pivotal role in reducing misconduct.

Incentive programs are not inherently flawed but can invite ethical risks without structured oversight. By adopting a proactive, data-informed approach and fostering an ethical sales culture, compliance teams can safeguard against manipulation, ensuring incentives drive performance without compromising integrity.