Incentives vs. Penalties: Which is Better?

The answer to that question is not as easy as one would think! Although there is broad access to wellness and wellbeing programming, participation and engagement are limited, leaving employers with a trial and error process for incentives to try and drive more participation and engagement. Many employers are somewhat resistant to experiment too much with incentives in fear of violating EEOC policies. As controversial as they may be, having the “right” incentive in place has been proven to increase participation and engagement and is a critical component of any wellness and wellbeing program.

According to a recent RAND study, employers who did not include incentives as part of their wellness program had 20% lower participation rates than those that did. When using a “reward” type of incentive, like access to a richer health plan option or monetary pay out at the end of the program, the study showed a median participation rate of 40 percent. Those employers who instituted a “penalty” like higher health coverage premiums for smokers had a relatively higher participation rate of 73%. However, it is important to realize that the overall structure of the program and the manner in which those penalties are communicated and implemented also affect participation rates.

Many companies that have implemented financial reward incentives have experienced employees tiring quickly of the “carrot” unless there is a consistent and ongoing increase or additional carrot offered, thus becoming completely ineffective. In many cases, offering a reward for completing a wellness activity attracts mainly employees who wanted to do it anyway and consider it free money. Those companies who have moved forward with a “penalty” approach have succeeded in driving higher participation rates but not without some significant backlash from their employees. It’s finding the delicate balance between the reward and penalty options and possibly implementing a variation of both that affects participation and sustainability.

So, although both types of incentives have proven to increase participation, offering a comprehensive, versatile and well-designed wellness program has nearly the same impact on participation and engagement rates.  It is important to begin a program with creating a culture of wellness and wellbeing. Coupling a well thought out program with an incentive that is designed to fit the population will the drive the most favorable results.

At Alyfe, we take a fully tailored approach when designing incentives while still being in compliance with all relevant regulations. Our goal at every step of the incentive design process is to maximize outcomes for our clients. As always, we are open to hearing about your organization’s experiences and successes with incentives and wellness programs. Talk to us in the comments section!

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