As much as 70% of costs and 80% of the incidence of chronic disease are preventable (per The New England Journal of Medicine and the World Health Organization, respectively). So it makes sense for companies to invest in prevention to save avoidable employee suffering and business costs. Incentives motivate or encourage a person to take action, and research shows they can improve lifestyle behaviours.

Incentives have been part of workplace compensation strategies for a long time. Particularly for sales professionals and executives, well-designed bonus structures drive effort, performance and alignment with corporate goals. Done well, incentives in workplace health promotion can influence and change behaviour and may improve outcomes, at least in the short term. As a result, more companies are implementing them—but expectations of success may have outrun the evidence.

Knowledge is only half the battle

Improving lifestyle behaviours has traditionally revolved around education. Consider the success of public health campaigns, particularly against tobacco use. In 1963, Canada’s federal Minister of National Health and Welfare declared, “cigarette smoking is a contributory cause of lung cancer.” At that time, about half of Canadian adults smoked: 61% of men and 38% of women. Fifty years later, just 16% smoke.

Read: 3 factors to consider before launching a wellness program

But education alone isn’t enough to get many to quit smoking, stop eating doughnuts or visit the gym. In 2008, economist Richard Thaler and lawyer Cass Sunstein published Nudge, which says there are many cognitive tendencies that make people’s behaviour both predictable and, often, irrational. For example, present bias suggests people tend to value immediate gratification over long-term gains. And framing is a nudging technique using the connotations of language to help people see options in a different light.


  1. Consider your corporate philosophy toward compensation, benefits and health promotion. Align and link these elements to present a clear and complete message to employees.
  2. Consult and communicate with employees and their representatives. Incentive design should help support both employer and employee goals and reflect the workplace environment.
  3. Set an initial budget. Understand it will be easier to see the costs than the benefits. Many benefits are intangible. Be patient—results may take two or more years to appear.
  4. Do your homework to avoid a trial-and-error approach, and monitor your incentive program to determine where adjustments may be needed.
  5. Use penalties selectively, given the potential risks to the company’s reputation with employees, unions and the outside community.

How incentives work

Incentives come in two forms: extrinsic (external) and intrinsic (internal). The premise is, extrinsic motivators—such as cash, discounts, gift cards and financial penalties—can cause people to adopt healthy behaviours. Then internal motivation kicks in, and those nudges are no longer needed. However, poorly designed external rewards can harm self-esteem and crowd out the intrinsic motivation a person might otherwise develop.

In the U.S., employers bet heavily on incentives to influence and direct employee behaviour. Towers Watson, Aon Hewitt and the Kaiser Family Foundation all report the majority of U.S. employers offer their employees positive incentives to participate in health programs, and most extend these programs to dependents as well. The cost is significant, averaging almost US$50 per month per employee.

Increasingly, employers are basing incentives on outcomes rather than just participation. And the use of penalties is growing. However, Towers Watson reports very few employers communicate the underlying strategy behind these tactics, so employees may not understand the purpose of the payments and charges.

Designing your incentive program

How can employers use incentives most effectively? In 2013, Marc Mitchell, a PhD candidate at the University of Toronto and president of Incentive Avenue Inc., published a systematic review of the links between financial incentives and exercise. The review suggests incentivizing behaviours linked to long-term gains may be better than recognizing short-term outcomes. “One example,” he said, “is to reward employees for weighing in, rather than paying for weight loss that may not last.” In other words, employers should track and pay for the “stepping-stone” behaviours more likely to accomplish a long-term goal.

Read: Corporate wellness incentives to increase

Here are some important considerations in planning, implementing and evaluating an incentive program.

• Incentives are more effective when they’re awarded immediately after achieving a goal and when they are certain (e.g., a gift card) rather than left to chance (e.g., a draw or lottery). Also, rewards and punishments may be less visible and effective when they’re part of an expensive benefits program. It’s better to separately identify the incentive so it isn’t lost in the cost and complexity of the benefits plan.

• Behaviour changes usually revert to previous levels shortly after the incentive is withdrawn.

• The vast majority of available evidence is for interventions of six months or less. The effectiveness of longer-term incentives or those for complex behaviours, such as smoking cessation, is inconclusive.

• Not all health issues are related to a person’s lifestyle, and incentives shouldn’t be reserved just for the able-bodied. Everyone should have a roughly equal chance to gain rewards and minimize losses.

• Incentives should be as simple as possible, tailored to the age, gender, income, education and activity of the targeted employees.

• The incentive amount should be perceived as about equal to, or perhaps slightly more than, the required effort or risk. When rewards are too small, people assume the desired behaviour isn’t very important. If the incentive is too high, they may perceive the goal as too risky or difficult.

• Incentives are more appropriate for rewarding simple or one-time behaviours (e.g., completing a health risk assessment or getting vaccinated). This also makes it easier to validate what’s been done.

Read: Use of workplace wellness incentives on rise


Even a serious medical condition may not be enough to change behaviour. A recent Statistics Canada study looked at changes in smoking, physical activity, alcohol consumption and diet among 5,404 Canadians age 50 or older with heart disease, cancer, stroke, respiratory disease or diabetes. Participants were questioned every two years between 1994/95 and 2006/07.

After being diagnosed, participants made surprisingly few behaviour changes. Three-quarters of smokers didn’t quit, few people changed their diet, and the number who were physically active didn’t change (except among those with diabetes). Alcohol consumption declined, but the reductions were rarely statistically significant.

Employers have traditionally used incentives to spark participation in an activity (e.g., offering cash for enrolling in a fitness program). Increasingly, they’re implementing rewards based on accomplishment, and practice may evolve again to reward adherence over time. A combination of the three A’s works best.

What about penalties? They may be more efficient because they specifically target those with an unwanted behaviour. However, they present several challenges that may outweigh the benefits.

Penalties can seem manipulative—even coercive—if an entitlement, such as health benefits, is at risk. Penalties can be unfairly onerous, breed resentment and even trigger union grievances. They can reinforce personal failure rather than build confidence. They can also increase the risks of stigma and discrimination (e.g., when targeting overweight employees). In the U.S., penalties communicated outside a workplace have created reputational, media and legal issues for employers. (See “Employers May Pay for Pushing Penalties,” below.)

Read: Five steps to workplace wellness

Employers should work to make healthy choices simpler, easier, more available and less expensive. In the meantime, positive incentives are an effective tool to encourage behaviour change. Their high penetration rate and rapid growth suggest U.S. employers generally find them useful, but implementation among Canadian employers isn’t widespread. And context matters: organizations should first have a culture and work environment supporting trust, fairness, progressive management, reasonable workloads and strong peer relations.

As Mitchell notes, “Incentives are an incredibly promising approach if they’re thoughtfully designed and delivered. And just like drugs and exercise, everyone’s prescription should be a little different.”

To be successful, incentives need to reflect both experience and evidence as part of a comprehensive health promotion and HR strategy.

Read: How well is your wellness program?


A large lawn-care company in the U.S. made the cover of Businessweek (now Bloomberg Business) in 2007 when one of its newly hired employees sued the company after being terminated for violating that company’s no smoking policy. (That lawsuit was eventually dismissed in 2009.) The U.S. Equal Employment Opportunity Commission has sued two employers for alleged violations of the federal Americans with Disabilities Act. One of the defendants had a wellness program that required employees to have medical examinations and asked a disability-related question on a health risk assessment (HRA). The other defendant required medical testing and a mandatory HRA. Those who refused faced disciplinary action and a requirement to pay the full cost of their medical insurance.

Looking for related articles? Check out our Health/Wellness section.

Chris Bonnett is president of H3 Consulting.

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Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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Norman Richter:

My message is simple. Holistic medical practices must be part of the solution.

Saturday, March 14 at 8:52 pm | Reply

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