Though incentive programs can enhance productivity, when poorly managed, they can be a drain on the enterprise. At North Fork Bancorporation ($60 billion in assets), which is in the process of being acquired by Capital One Financial, the system for calculating and administering incentives "was primarily done through a variety of [Redmond, Wash.-based Microsoft] Excel spreadsheets or homegrown databases," according to Jason Darby, VP of incentive accounting at the Melville, N.Y.-based bank holding company. "And one department calculated [incentives] based on one set of assumptions, and another department calculated it based on different assumptions," he adds.
"The fact that it was being done in a decentralized way and using different forms and procedures created a problem for us relative to knowing what exactly was being done," Darby continues. "We wanted to get our arms around the numbers, particularly in anticipation of significant company growth by way of acquisitions."
EIM Doesn't Pass Muster
In July 2004, Darby began an analysis of methods to centralize the incentive process, first considering enterprise incentive management (EIM) systems. But, he contends, the EIM vendors' solutions were not flexible enough. "It was either their way or no way," he relates. "And the implementation also seemed to be long in duration and high in cost."
So the bank turned to business intelligence software provider Business Objects (San Jose, Calif.), with which it had an existing relationship. (North Fork already used the vendor's Plan Reporting software.) Although Business Objects did not have an incentive management program to meet the bank's needs, North Fork decided in 2005 to work with the vendor to develop one. "Having experience with their financial-reporting tool, we knew exactly what we were going to get," Darby says. "That was comforting to us, because we were leaping into an area we didn't know much about."
Business Objects and North Fork collaborated closely on the new software. The upfront design work was the tough part of the process, Darby recalls -- "We had to figure out how to find all that data, get it into the system and get it to produce an accurate payment," he says. But the actual installation proved fairly simple, he adds.
The software was installed on two servers the bank purchased for the implementation: a Microsoft Windows NT application server and a Windows 2003 database server. "It did not take a lot of time to set up," Darby says. "It looked and smelled similar to the financial-reporting tool." Because of the similarities to the financial-reporting software, bank staff did not require additional training for the new software.
North Fork went live with Business Objects' Incentive Compensation Management software in October 2005. As a result, it takes 90 percent less time to process an incentive payment. "We have greatly reduced the need for manual intervention," Darby says, noting that in April, Business Objects launched the software for sale to other companies.
Now, to identify incentive payments, the bank imports data from 11 subsystems into the Business Objects software using simple query commands. The solution then tells the bank who to pay and how much. Currently, about 60 percent of the bank's nondiscretionary incentive payments are flowing through the system, according to Darby, and the bank plans to boost that percentage.
The software also can produce summary reports looking at incentive payments by products or branch. And the bank can use it to model potential changes to incentive programs. "It allows us to analyze incentive programs before we put them into play and make modifications," Darby says. * --Judy Ward
***Institution: North Fork Bancorporation (Melville, N.Y.).
***Assets: $60 billion.
***Business Challenge: Implement an automated, centralized system for calculating and administering incentives.
***Solution: Business Objects' (San Jose, Calif.) Incentive Compensation Management software.