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Employers favor carrot over stick

Employers favor carrot over stick

Businesses use incentives to spark participation, but few focus on outcomes

Two-thirds of surveyed employers are offering their employees incentive programs to improve health, but the businesses’ focus is still on participation and hasn’t progressed to improving health, according to an Integrated Benefits Institute (IBI) study.

The San Francisco–based nonprofit recently released Employer Incentives for Workforce Health and Productivity, a report that examines the incentives and disincentives offered by more than 500 employers that affect about 5 million employees.

Rather than pay attention to health-related outcomes, the study found that employers are focused on employee participation, which shows that most businesses are still in the first phase of incentives, says Thomas Parry, PhD, president of IBI. (See Figure 14 at right.)

Incentives to participate are seen as positive and easier to implement than disincentives, which are viewed as draconian. However, as programs progress, employers are more apt to move into disincentives, according to the report.

“The research indicates that it’s still pretty early for employers looking at incentives. Given that, it’s much easier to focus on participation as a goal,” says Parry.

Sander Domaszewicz, principal at Mercer in Newport Beach, CA, says participation goals are an early step for employers down the pathway of wellness incentives, adding that rewarding employees for taking part in wellness is a better option than “trying to go from zero to 60 in one shot.”

Parry says today’s wellness programs are not the feel-good offerings of the 1980s. Financial leaders now view employee health as a business issue, and chief financial officers understand the business relevance of outcomes, productivity, absenteeism, and presenteeism.

Although outcomes of health programs have historically been viewed as a clinical or quality matter, Parry says outcomes are important to gauge an incentive’s value.

“I think as this goes forward, employers are going to be in a position to have to justify from a business standpoint why they’re doing this,” says Parry.

IBI and Harris Interactive, which assisted in the research, found the following:

  • For the 28% of respondents who said they don’t offer incentives or disincentives, the most popular reasons were the corporate culture, financial resources, staffing resources, and too little information. (See Figure 15 on p. 20 of the PDF.)
  • Employers commonly provide incentives to promote employee health and productivity. A total of 73% of employers surveyed offer at least one incentive program. Those businesses offer an average of 4.8 incentives. The most popular incentives are discounted services and nonmonetary gifts. (See Figure 16 on p. 20 of the PDF.)
  • A mere 19% of those surveyed have implemented disincentives, with cash-based and benefits-related strategies the most popular. Those employers implement an average of 1.7 disincentives. The most popular disincentives are premium and copay increases. Salary penalties and job sanctions are used the least. (See Figure 17 at right.) Employers that utilize disincentives are also more likely to focus the results on outcomes.
  • Cash-based and benefit-based strategies are most pop-ular, whereas only 3% said that wellness program adherence affects salaries and/or jobs. (See Figure 18 on p. 21 of the PDF.)
  • Employers said encouraging employee participation is the most important goal. However, this goal of merely showing up does not help businesses gauge outcomes such as weight loss, fewer health risks, and heightened productivity, which would help defend health promotion as a business case, according to the study.
  • Corporate culture is a “significant determinant of employer behavior,” the study states. Employees have to believe that their health is important to themselves and their employers, says Parry.
  • Employers often don’t view their incentives as the most effective. (See Figures 19, 20, and 21 on p. 21 of the PDF.)
  • Substantial sums are invested in incentive and disincentive programs, with about 50% of respondents investing more than $200 per participant per year and more than 20% spending more than $400 per participant annually. Additionally, more than 40% said they would spend more money on incentive-based programs.
  • More than 70% of those surveyed said they need to improve communication as a way to boost participation, and nearly half said they plan to reward a different set of activities. (See Figure 22 on p. 22 of the PDF.) A mere 8% surveyed said their approach was working and they would not change anything. The researchers wrote that this shows employers are still experimenting with incentives and disincentives.

A key conclusion was that employers “often aren’t strategic in connecting the incentive and the disincentives they actually use with their own views about which ones are most effective,” the researchers wrote. “Similarly, employers’ most frequent program goals are to encourage employee participation in health and productivity programs instead of seeking improved health-related outcomes, a target far more important to their bottom-line needs.”

One issue with focusing on health outcomes, such as weight goals, is that they sometimes don’t pass muster with such laws as the Americans with Disabilities Act. Japan has implemented a policy that charges employees and employers for workers with a larger-than-desired waistline. Those goals can be problematic for American companies, says Domaszewicz.

Parry says health promotion programs that take into account a person’s full health work best. For example, rather than focus on tobacco cessation, an employer should broaden programs to promote overall health improvement.

The survey found that the highest percentage of disincentives involved smoking, which, along with heavy alcohol use, is considered more appropriate than penalizing those who are overweight.

“The more employees understand these basic drivers of ill health, the more likely they may be to understand and embrace employer efforts to change these factors and improve work health and productivity. For now, however, given such attitudes, employers are less likely to risk the wrath of their employees by initiating unpopular disincentives that may not fit the corporate culture,” the study states.

However, healthier employees bring lower medical costs and improve productivity, which is a win for workers and businesses.

“That’s where this thing has to move, and we have to be able to measure it so we can justify that this is worth the money,” says Parry.

When separating incentives and disincentives, researchers found businesses believe benefits-related incentives work best, whereas job sanctions have the greatest effect among disincentives. The latter shows the disconnect between what employers believe is most effective and what they are actually implementing, the survey states.

Domaszewicz says two important things to remember about incentive programs is to make sure they are consistent with your wellness goals—for example, don’t give employees $100 gift certificates to a steakhouse if they are trying to get fit—and avoid making employees jump through hoops to cash in on the incentives.

Although employers used cash-based and benefit-based incentives and disincentives the most, Liz Boehm, principal analyst at Forrester Research, Inc., in Cambridge, MA, says noncash rewards can create a more memorable association with the employer. For example, an iPod or vacation is more memorable than money. On the other hand, it’s pointless to give an employee an iPod or a television that he or she doesn’t want or need, and everyone can use a little extra money.

The important thing to remember is to build an incentive program that best suits your population, says Boehm. “I don’t mean to say that noncash rewards are better—because the studies don’t show that—but that they have a different value, and you should be considering the value of the behavior you’re trying to change, why you are trying to change it, and align the incentives accordingly,” she says.

Parry says health insurers are a relatively new partic-ipant to incentives. They are interested in wellness incentives because they understand that employee health improves their clients’ business value.

“I think health plans are a key part of this, and I think we will see more and more health plans seeing this as an opportunity to really drive value with their employer clients,” says Parry.