More companies are using incentives to motivate employees to stay fit and healthy. The result? They’re saving money and reducing absenteeism. Here’s how you can follow their lead.

Feel the burn? No pain, no gain? Anyone who works for IBM can throw away those time-honored motivational mantras for working out. The company has an incentive program that gives merchandise and cash bonuses to employees who maintain a frequent exercise regimen or stop smoking. IBM has spent $25 million on such rewards for U.S. employees since 2003, using gifts such as pedometers, books and towels to encourage participation.

While most similar programs have participation rates around 20%, adding incentives has helped IBM achieve an 80% registration rate for the exercise program, says Dr. Joyce Young, director of well-being for IBM in the United States.

Benefits for IBM include happier workers and lower health care costs. Young says employees of IBM who exercise file about $350 less in claims annually than those who don’t.

That makes IBM’s initiative something quite rare in the world of non-sales incentives – a program with a built-in matrix to measure ROI. At the moment, it’s still somewhat unique for companies to offer incentives to employees for simply choosing a healthy lifestyle. But as health care costs continue to rise, the impact that motivating employees to stay healthy can have on the bottom line has many organizations looking into these types of incentives to keep their costs under control.

Is Health Care a Motivator?

In a 2004 survey by the Alexandria, VA-based Society of Human Resource Management (SHRM), human resources professionals ranked the rise in health care costs as their top economic concern and the most important overall workplace trend. It’s an issue that’s problematic for both employees and management. Employers don’t have the option of ceasing to offer health benefits or cutting off workers’ dependents; in multiple surveys, employees rank health care as their most important benefit. Instead, employers are offsetting costs by carefully adjusting plans, often increasing the burden on workers in the form of higher premiums, deductibles and co-pays. According to the Families and Work Institute, 40% of companies increased the employee-paid portion of health care premiums over the past two years. “We’ve found cutbacks in the kind of benefits that cost money,” says Ellen Galinsky, president of the New York-based Families and Work Institute. “Fewer are providing full coverage, and there’s been an increase in the amount that they’re asking employees to pay.”

The rising cost of health care is a leading cause of tension between workers and their employers; the AFL-CIO lists it as one of the most common key issues in union bargaining talks. As companies approach the limit of how much they can afford to contribute to an employee’s health care package, they’re also reaching the limit of how much they can ask workers to pay. The convergence of these two limits has created the environment where health care can actually become a powerful motivator. Which is why more organizations are turning toward a solution that’s much easier to put a positive spin on: company-sponsored wellness programs. “Preventive health care programs are the number-one way organizations are dealing with health care cost increases,” says Jen Schramm, SHRM’s manager of workplace trends and forecasting.

Companies of all sizes (not just the IBMs of the world) are beginning to use wellness incentives, rewarding workers for making healthy lifestyle choices. And the trend is attracting suppliers: Last year, the Carlson Marketing Group (CMG) in Minneapolis rolled out a Web-based wellness incentive solution called MyHealthLink. The online Health and Wellness Management Solution is designed to cut illness and the costs associated with absenteeism and health care coverage.

CMG’s foray into this arena came about for a simple reason, says Anne Pryor, Carlson’s senior strategist, health and welfare management. “We saw a gap,” she says. “Wellness initiatives are becoming more and more popular in Corporate America, but employees are not engaged. And we are the experts in engaging employees.”

Pryor says in the typical wellness plan, only 9% to 20% of employees regularly participate beyond the initial health assessment. Carlson’s program, centered on its Web-based MyHealthLink technology, aims to increase that. Pryor says Carlson’s model expects 65% of employees to take the initial assessment, and 70% of that group (around 45% of the total employee population) to continue with interventions – meaning any action, from joining a walking club to undertaking a disease management regimen.

What MyHealthLink does is add a points-based incentive component to the typical wellness program, allowing participants to earn points for everything from joining Weight Watchers to eating the recommended number of servings of fruits and vegetables a day, Pryor says. MyHealthLink manages all communication, branding and measurement in a wellness program, as well as handling the individual incentives. It can be integrated into an existing wellness program, but Carlson can provide a soup-to-nuts solution, having partnered with companies that have the expertise to do health risk assessments and provide various health care professionals like nurses and nutritionists. Even the rewards are wellness-oriented, Pryor says, pointing to items like exercise equipment and spa experiences.

Pumping Them Up

With costs rising, communication and employee empowerment are key ways companies are enhancing benefits. According to recent research from the Arlington, VA-based consulting firm Watson Wyatt Worldwide, top-performing companies “engage employees through information and tools, and focus on health management and lifestyle behavior change.”

According to the research, companies that provide employees with the tools and information to take care of their health and manage their costs can realize financial benefits. A company with a well-executed wellness program should expect a median health cost increase of 5% the year after the program is in place, compared to an increase of 15% for companies that don’t take a proactive role in employee wellness. “A wellness program needs constant communication to be successful,” says Pryor. “Employees should be constantly reminded and rewarded so the program will always be top of mind.”

One unique form of communication took place last year among a group of companies in Ohio. More than 300 employees from 11 northeast Ohio companies found their motivation to “Weigh-In to Better Health” through a bit of friendly competition with employees outside of their own organization. In the program, co-sponsored by the Employer’s Research Council (ERC) in Mayfield Village, OH, and Oswald Companies, an insurance brokerage in Cleveland, teams from different companies competed with each other in a battle against the bulge.

At Clinical Specialty Inc. (CSI), a home health care services company in Brecksville, OH, 24 out of 90 employees are participating in the program. Team results were posted in weekly company e-mails. “They like being recognized for what they’re doing and others in the company are curious, which spurs more participation later,” says Valerie Kanzler, human relations specialist at CSI.

Companies that participate in programs like this often see single-digit or zero renewals, according to Pat Perry, president of ERC, a health insurance program underwritten by Anthem Blue Cross & Blue Shield. “It’s not so much about managing health care costs as it is reducing health risks, which will in the end manage health care costs better,” says Robert Klonk, executive vice president of Oswald Companies, ERC’s insurance brokerage partner.

The Weigh-In’s grand prize rewarded the winning team’s company with a Healthy Award luncheon, the waiver of certain membership fees, and work site health classes. “We didn’t want to drive this incentive with an iPod, a new laptop or a vacation somewhere,” Perry says. Weight management is a vital part of any individuals’ health management, but the leading category of proactive health services is smoking cessation programs, with more than a quarter of companies offering help in this area, according to SHRM. “Clearly you can increase productivity and decrease absenteeism by helping workers quit smoking,” says Sharon Carothers, vice president of program development for the American Legacy Foundation in Washington. “It’s a relatively cheap benefit with huge rewards.” Programs that help smokers quit, she says, have historically faced the challenge of passing the short-term return-on-investment test. While it’s generally accepted that habitual smoking is likely to decrease life span, the more immediate risks – and by extension the more immediate impact on the bottom line – have been more slowly accepted. A 2004 study by the Health Enhancement Research Organization, based in Birmingham, AL, confirms that a short-term effect exists, with smokers’ annual medical expenses 15% higher than nonsmokers’.

Carothers notes that companies’ needs vary, and points out there are a variety of choices in smoking cessation programs, ranging from coverage for medications like Zyban, to call-in support or counselor-led group programs.

Organizations offering free help via phone, like the North American Quitline or the Mayo Clinic’s hotline, can offer more robust services, like coordination with a traditional health care program, to employees of companies that purchase a plan.

Retention Booster

The rising cost of health care isn’t the only issue that has companies turning to wellness programs for their employees. Indeed, at a time of lean staffing, having the means to retain top people is vital. One way companies are trying to crank up productivity is through lower absenteeism and fewer sick days. As companies start to truly recognize the extreme costs associated with turnover, yet can’t afford huge salary and bonus increases, they’re looking for alternative tactics to keep their employees loyal.

Enter the corporate wellness program. Designed to take a preventative approach to health care and stave off potential problems before they start, these programs do much more than reduce employee insurance claims – they keep employees healthy enough to remain productive as well. In fact, 56% of firms offer them now, along with ancillary benefits like the fitness-club reimbursement now offered by 30% of companies, according to SHRM. Thanks to such health programs, the New Brunswick, NJ-headquartered Johnson & Johnson saved $225 per employee every year in hospital costs; Steelcase, the Grand Rapids, MI-based worldwide supplier of office furniture, saw employee medical claims drop by 55%; and participants at Applied Materials Inc., a Santa Clara, CA-based semiconductor manufacturer, cut back medical payments by 20%, disability costs by 33%, and workers’ comp by a full 79%. Work/life initiatives also bring down absenteeism: Johnson & Johnson found that employees who took advantage of the firm’s programs were away from the job less than half the time that other employees were.

“Some programs have a quick payback in productivity, while others, like health and wellness, are longer-term,” says Kathie Lingle, director of the Alliance for Work-Life Progress (AWLP), an association of human resource professionals based in Scottsdale, AZ. “We’re just now getting research in from experiments that have been going on for five to 10 years, showing the impact on productivity when people feel better, when they’re not taking sick time.” One large study of 24,000 Canadian users of EAPs, or employee assistance programs, found that 70% had improved concentration on the job, and more than half would have missed work if the programs hadn’t existed.

There’s another benefit to a supportive company culture: Less employee turnover, which cuts down the time and resources required to replace and train new employees. Innovative work/life arrangements led to a 15% turnover reduction at financial services firm Merrill Lynch, while it fell from 50% to 6% at United Parcel Service. “Another example is the software company SAS,” says Mark Ellwood, founder of consulting firm Pace Productivity in Toronto, ON.

“They’ve got a gym facility, an onsite doctor, and day care, which costs them,” says Ellwood. But their turnover rate was reduced, and they spent a lot less on recruiting new employees “so the investment was actually great for their bottom line.”

Indeed, increased productivity has the result of boosting a company’s market value, studies have discovered. According to Watson Wyatt, companies that offer flextime working arrangements actually have a 3% higher worth than those that don’t extend that option. It’s not surprising to Sandy Burud, who sifted through 550 studies to determine a causal link between best practices and ultimate company value. “These beliefs and practices lead to better employee performance,” she says, “which leads to better operating performance, which leads to an organization’s earnings and growth, which leads to shareholder value.”

Reprinted with permission of Successful Promotions, copyright 2006