Why Financial Incentives Backfire and What to Do Instead

Many organizations tie wellness incentives to money. The format and structure vary, but the bottom line is participants can earn cash, or credit toward health benefits, if they achieve certain participation and/or physiologic goals. The more we talk to managers who have been at it a while (3 years or longer) the more we’re persuaded these are misspent resources. Here’s why:

  • Money gets spent on bills, fast food, gas, and other consumables. Once it’s gone, there’s no visible reminder of the accomplishment.
  • Over time, cash incentives are viewed as part of normal compensation. The first year it’s a novelty, a chance for extra dollars. But then there’s not a lot of motivation to do more, and the money is expected.
  • Once in place, systems are hard to change without upsetting those who liked them in the past — there’s nothing more demotivating than money out of your pocket. So if the program isn’t working, you have to up the ante to get them to buy in.
  • It creates a do this, get that mentality, so that any future push at self-improvement — whether health, safety, or job skills — comes with the built-in expectation of cash… creating extrinsic vs. intrinsic motivation, where people want the improvement for its own sake.
  • It’s difficult to recognize or celebrate the awarding of money tastefully and without making some people feel slighted.

Does that mean there’s no room for ongoing or annual incentives? Not necessarily. With the right approach, we think they can be very motivating. Some key components:

  • A big goal and a big event. In addition to individual goals, the incentive program needs a big organization goal. It should be something for everyone to rally around, such as 95% participation in a core feature. The goal also needs to be tied to a big event like an annual party or stockholder meeting to close the loop on achievement.
  • Interim rewards. Personal and group milestones should be rewarded and celebrated along the way – not with cash but with a tangible, visible reminder of the accomplishment and the bigger reward to come. It’s built-in reinforcement for the goal and provides a pull for those who could fall off along the way.
  • Regular communication on progress. Personal as well as group feedback is vital to maintain the sense of belonging to a program, not just going it alone. Each piece should include comments from organization leadership to reinforce the initiative’s importance.
  • Hoopla. Recognition, celebration, a pat on the back are things that almost can’t be overdone. Everyone feels good about being acknowledged for their efforts.

The ultimate objective of any incentive program is to have people practice healthy behaviors long enough for the intrinsic rewards to take over — more energy, better outlook, less illness, greater productivity, etc.; then extrinsic rewards become unneeded. In other words, people sustain healthy habits because it feels good, not because of the promise of a reward.