A company’s health-related costs are not due simply to health problems, according to consultant and author Wendy Lynch. She contends that a rewarding job and performance-based compensation are the most cost-effective investments employers can make for employee health and performance.
Lynch, co-director of Altarum Institute’s Center for Consumer Choice in Health Care, addressed the Dallas-Fort Worth Business Group on Health luncheon May 23 at the Westin Galleria Hotel in Dallas.
Her speech—Rethinking benefits, wellness, and incentives strategies: How performance-based benefits and compensation policies improve both health and business outcomes—emphasized the role of human capital in the workplace. That capital is composed of three employee assets: skills, motivation, and health. Lynch said employees spend their capital to get something useful or satisfying, including financial and intangible rewards.
She listed 10 conditions that, if answered affirmatively, indicate that an employer has aligned incentives for its workers. They included clearly defined performance bonuses that exceed 10 percent of salary, first-dollar coverage of prevention, generous tuition or training reimbursement, pay for unused time off, and a 401(k) deposit match of 4 percent or more. Lynch said companies that satisfy at least seven of the 10 conditions have strong productivity and retention of high performers. Those with three or fewer affirmative answers have employees that underachieve by 30-40 percent and have high turnover among top performers.
Lynch said average health costs drop from more than $3,500 to less than $3,100 annually in a linear fashion as an employee’s percent of compensation rises from zero to 26 percent. She said variable pay tends to motivate lower performers to leave and motivates high performers to use and increase their human capital. Variable pay could increase output by more than a third and cuts absences by more than two-thirds, she said, and profit sharing yields a 5 percent to 9 percent increase in productivity.
On the other hand, Lynch said that performance is absent in companies that have substituted benefits for performance rewards. She cited a 2009 Wall Street Journal article that reported Belgium’s national sick leave policy resulted in 1.3 percent of its gross domestic policy being spent on worker absences. Some government departments were averaging 35 days of paid sick leave per employee annually, which is seven times the U.S. average. About half of those on sick leave said they suffered from depression, a diagnosis that is difficult to contradict.
Lynch said too many companies believe they can motivate employees to change health habits. She noted several other triggers that were much more powerful, such as the death of a loved one, a health scare or age milestone.
She pointed to a study of 700 smokers that found more than half of those who stopped did not plan to quit. They did so spontaneously, without prodding. She called this phenomenon the quantum theory of change, where energy builds over time and something suddenly happens.
Lynch said many companies spend too much time and effort blaming employees. “They say, ‘Our overall cost of healthcare, absence, and lost productivity is too great. So let’s change their behavior,” she said.
