Benefits and Compensation

More Pitfalls of Cash Wellness Incentives

In yesterday’s Advisor, Sonic Boom Wellness cofounder Bryan Van Noy provided the first three of his six reasons why cash is not as effective as a wellness incentive. Today, Van Noy provides his final three arguments against cash incentives, and provides a few alternatives for employers.

4. It’s Indistinguishable from Ordinary Income

Cash incentives must be reported as ordinary income (and are taxed as such). It’s no surprise, then, that employees view cash incentives as compensation (as does the IRS). What’s more, employees often perceive these one-time cash incentives as a permanent raise. Removal of the cash incentive ends up being viewed as a pay cut—met with hostility and resentment.

5. It’s Unimaginative ( … Did We Say, ‘Common’?)

Come on, employers—get creative! The best news for employers of any budget is that the most powerful rewards are recognition-based, not financial. Think about it. After you lose 10 pounds, hearing someone say, “Wow! You look fantastic. Have you lost some weight?” is more gratifying and inspirational than someone from HR giving you a $50 gift card for doing so. Peer-to-peer recognition and the “social” rewards that result from interpersonal interaction and influence drives more success than any form of financial incentive.

In fact, up to 60 percent of our decision to adopt a new health habit is under the direct control or influence of the people who surround us. So, if we’re trying to figure out why people exercised today, it usually has less to do with their personal motivation or ability (or someone paying them to do so) and more to do with the habits of those who surround them (e.g., a workout buddy, a spouse …).


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6. It’s Coercive and Manipulative

For employers hoping to change employee health habits (permanently) and produce a positive return on investment, the misapplication of aggressive cash rewards is often a disappointment. Nothing makes employees feel more manipulated than a hefty cash “bribe” that coerces them into an activity they wouldn’t do of their own volition.

Our experience has shown that incentives are effective at changing short-term or one-time behaviors, but not at changing long-term health habits. For example, someone may give up smoking under the influence of a cash reward.

If you remove the force of the cash reward and that old habit resurfaces, you weren’t actually successful at changing the long-term habit. While financial rewards have proven to be quite effective at changing behaviors (e.g., quitting smoking for the interim), they are quite poor at changing habits (e.g., quitting smoking for life).


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So, Which Incentives Actually Work?

This is a loaded question that depends on your employee demographics, company culture, compensation ranges, and types of wellness activities in place. But, here’s a general recap that applies to pretty much all groups:

One step up from cash is gift cards, albeit an imperceptibly small step. Gift cards are tantamount to cash in that they have a true cash value, usually printed right on the card (and may often be redeemed for cash). The only advantage to gift cards over cash is that there is some sense of trophy value. These cards can be branded, and every time the person pulls it out they’ll see a reminder of a healthy accomplishment (until it’s spent, of course).

But the best rewards instill a sense of trophy value, have high perceived value (without a high cost), and stem from social recognition rather than financial recognition. Employees want to feel recognized and prefer their recognition to be in the form of permanent reminders of their achievements. Avoid costly bribes that fizzle away after a single “healthy” behavior. Focus instead on celebrating employees’ accomplishments and fostering a culture of improved health habits.