I think that the current situation isn't ideal, but I haven't really heard a better solution to improving attendance either.
You can't just exclude the times off sick, as some parents claim their child is off sick when in fact they are not (probably even more so now fines for holidays in term time are more prevalent).
Schools are being pressured to incentivise parents & children to attend school as much as possible, so how to do it without making the children who get sick feel left out?
Partly, by making sure the reward is proportional, and that it is seen as a bonus to be won, not something to be lost. At our primary school maybe only 10% have full attendance for a whole year, so most children would not get the certificate / reward or whatever. Rewards have normally been a certificate / book, but last year it was a water fight for an hour whilst others were doing other golden time stuff. Certainly never a trip to the pantomime, or a special disco.
At secondary they send home certificates of different colours depending on attendance, e.g. 100% >98% >95%, so you aren't penalised for the odd day. (Attendance and Lates are also used as a measure for becoming a prefect).
On the other hand, my DD2 is not one of the best at anything. She isn't great at academics, nor sport, nor music, nor art, nor drama. So she often gets overlooked for praise / certificates, and has no chance to shine.
But she often gets 100% attendance in a term and has at least twice had 100% for the year and so got rewarded. Is that really so bad? She gets up nicely for me, doesn't fuss about so isn't late. She will go in if feeling slightly off colour to see if she feels better later, rather than winging to stay at home.
Of course you could say that getting a good education is its own reward. But then you would have to do away with all those other certificates for good maths, winning a race etc. too.
I don't know what to do about children with clear medical issues. How to make it possible for them? Maybe they have their own lower target. (In the same way that children who have difficultly behaving get their own behaviour rewards system).