7 Hard Rounds of Questions for John Stumpf, Wells Fargo CEO

"There was no incentive to do bad things," said Wells Fargo CEO John Stumpf, after his bank was hit with $190 million in fines and restitution because employees fraudulently opened more than 2 million accounts over a five-year period without customers' knowledge or consent.

Then he sent an email to bank customers saying he had changed the employees' incentive plan "to insure that (employees) are compensated on what matters most."

That's called "trying to have it both ways." After the Consumer Financial Protection Bureau (CFPB) revealed this pattern of fraud, Wells Fargo announced it has fired approximately 5,300 employees for this practice over the last five years. Clearly something was wrong with their incentives.

Stumpf is about to testify before the Senate Banking Committee, thanks to a request from five Democratic senators: Elizabeth Warren (Mass.), Sherrod Brown (Ohio), Jack Reed (R.I.), Robert Menendez (N.J.) and Jeff Merkley (Ore.). (It's scheduled for Tuesday, September 18.)

Will this be another softball hearing, like the ones Republicans have orchestrated for bank CEOs in the past? Will committee members go through the motions of pretending to grill Stumpf, playing their scripted parts with the thinly disguised boredom of Wild West vaudevillians who have played one cow town too many?

Some almost certainly will. But others will undoubtedly ask pointed questions about Wells Fargo's fraud - questions Stumpf has dodged for years. Here are seven concerns, and seven sets of questions, that should be posed to him, either at Tuesday's hearing or as part of a more rigorous investigation.

1. There was an incentive to cheat.

Wells Fargo has been telling investors for years that its cross-selling practices - where bankers are pressured to sign customers up for new products - is key to its success. Wells Fargo employees have been complaining privately for years about the combination of incentives and threats the bank employed to get them to foist products on their customers even when they're not needed.

But despite that five-year history of complaints and firings, and although reports about this practice began appearing in the press three years ago, CEO Stumpf is shocked - shocked! - to find that this has been going on in his establishment.

If Stumpf is to be believed, they've been firing employees at an average rate of more than 1,000 per year but never saw a systematic problem or connected it to the bank's incentive package.

Mr. Stumpf, why didn't you or any of your executives make the connection between your employee incentive package and this behavior? It doesn't seem very difficult, since ...

2. Wells Fargo had all the information it needed to identify the problem.

This "see no evil, hear no evil" posture becomes even more puzzling after a review of Wells Fargo's 2015 annual report, which boasts at length about the bank's sophisticated metrics for measuring cross-selling. A discussion of its "methodology for measuring cross-sell for each of our operating segments," beginning on page 45, states that "products included in our retail banking household cross-sell metrics must be retail ... and have the potential for revenue generation and long-term viability."

These metrics were tracked by division ("operating segment") and product line, and were also undoubtedly tracked by employee, location, city or region, and other indices as well.

Mr. Stumpf, why didn't you compare cross-selling rates for dishonest employees with those of honest employees in order to a) flag potentially dishonest employees and b) design an incentive system that would not lead to cheating?

3. Bonuses were a big part of banker pay.

It's possible to estimate Wells Fargo's banker compensation with publicly available information. Salaries for Wells Fargo personal bankers start at $24,216 per year, according to survey data from approximately 950 users at the Glassdoor website (as of September 17, 2016). That's less than $12 per hour, assuming an eight-hour day and a 52-week year.

Those are working people's wages. As one former employee said, "they needed a paycheck."

Average compensation is approximately $40,900 per year. That includes an average commission share of $5,470, an average cash bonus of $5,522, an average stock bonus of $3,199, and profit sharing of $1,097. Commissions account for more than 13 percent of the typical personal banker's total income, and other bonuses (presumably based on performance) typically comprise more than 21 percent.

If these numbers are correct, cross-selling directly or indirectly affects more than one-third of the typical personal banker's income - and most people at these income levels are struggling to get by. Wells Fargo's "warnings to employees" and occasional firings seem pro forma, given the structure of its compensation plan.

Another former employee explained: "The branch managers were always asking, 'How many solutions did you sell today?' ... They wanted three to four a day. In my mind, that was crazy -- that's not how people's financial lives work."

Mr. Stumpf, are these numbers essentially correct? If not, please provide the actual numbers.

If they are correct, how could you and your colleagues fail to understand that this placed employees under enormous pressure to break the rules - especially since you knew they had been doing it for years?

And how could Wells Fargo miss the effect this compensation plan was having on these workers? You claim to be experts in personal finance.

4. Wells Fargo isn't really "making it right."

A mass email to the bank's customers entitled "An Important Message From John Stumpf, Wells Fargo CEO" said "we are making it right" and added: "The first step is to fully reimburse any customers who were affected by these actions."

Mr. Stumpf, you have known of this wrongdoing for at least five years. Were all affected customers promptly notified of misdeeds and given proper restitution at that time? If so, why is it necessary to "fully reimburse" them at this late date?

If they were not notified and given restitution when their banker was fired, why not?

Stumpf's email includes some frequently asked questions, one of which says that the bank takes "full responsibility" for the wrongdoing and has "refunded those customers who incurred fees." It does not mention the other costs or losses they may have incurred, including denied loans or higher borrowing costs stemming from the lower credit ratings many customers received as the result of these actions.

Does your definition of "full reimbursement" include the indirect financial harm your customers suffered as the result of your bank's actions?

If not, why not?

5. This is not Wells Fargo's first violation of law and fair play.

A quick recap of some recent settlements: Last month Wells Fargo was ordered to pay $3.6 million for misleading student loan borrowers and fraudulently charging them fees that weren't owed. It was fined $1.2 billion earlier this year for foreclosure fraud. A Justice Department press release said, "to maximize its loan volume (and profits), Wells Fargo elected to hire temporary staff to churn out and approve an ever-increasing quantity of FHA loans ..."

This isn't the first time that Wells Fargo has created the incentive to cheat.

Mr. Stumpf, there appears to be a pattern here, and it is not one that shows respect for the rule of law. Don't you agree that authorities should determine how far up in your organization the problem went?

6. Wells Fargo is too big to fail ...

Wells Fargo, along with four other big banks, failed to pass a critical test earlier this year. As Bloomberg News reported, the banks "failed to persuade regulators they could go bankrupt without disrupting the broader financial system."

The test is called a "living will," and it's required of any bank that has been deemed a systemic threat. In other words, Wells Fargo is "too big to fail" - and it doesn't have an acceptable plan in place for winding itself down quickly during a financial emergency. Wells Fargo must submit a new plan by October 1.

Mr. Stumpf, Your bank is too big to fail. You have not yet submitted an acceptable "living will," and there have been a great many misdeeds in your organization - which at best suggests a breakdown in management.

Given these ongoing concerns, why shouldn't your bank be broken up right now?

7. ... and appears to lack proper management controls.

About those management issues: If Wells Fargo's professions of innocence and dismay are true - if John Stumpf and his senior managers were really unaware of this ongoing behavior - he and his team failed to implement basic management controls.

That would be singularly unimpressive for any senior executive and his team. It would be especially disturbing for someone of Mr. Stumpf's stature, since he and his bank have won accolades and management awards that include American Banker's Banker of the Year award for 2013, Euromoney's Best Global Bank award, Morningstar's CEO of the Year Award for 2015, and the Association to Advance Collegiate Schools of Business "Influential Leaders" Award for 2015.

If we are to believe you, Mr. Stumpf, then how did the award-winning leader of an award-winning bank failed to spot these clear breakdowns in management?

The senior executive who directly managed these employees, Carrie Tolstedt, recently retired with a $125 million payout. Wells Fargo can "claw back" improperly obtained executive payments. The five senators who called for this hearing sent a letter on September 15 asking if "the board of directors will invoke Wells Fargo's clawback authority to recover any of the compensation the company has provided to its senior executives, including Carrie Tolstedt."

Mr. Stumpf, will you recommend to the board that it "claw back" Ms. Tolstedt's pay? If not, why not?

And a final question:

Should Wells Fargo shareholders be concerned about the competence, or the ethics, of its management team? ("Competence" or "ethics": Please choose one.)