Incentives

In this lesson

1. 0:00 Introduction to incentive schemes
2. 0:26 Profit sharing schemes explained
3. 1:10 Drawbacks of profit sharing schemes
4. 2:26 Share option schemes and long-term alignment
5. 3:18 Value added schemes overview
6. 4:05 Key considerations for incentive design

About this lesson

Understanding their strengths and pitfalls—particularly how profit sharing can encourage short-term thinking at the expense of long-term growth—is essential for Performance Management and strategic decision-making in your CIMA or ACCA studies. The video walks you through how each incentive scheme works in practice. Profit sharing rewards employees when the business performs well, but it can backfire if external factors harm profits through no fault of staff, or if managers prioritise quick cost cuts over sustainable practices. Share option schemes align employee and business interests by tying rewards to long-term share price growth, encouraging sensible strategic decisions. Value added schemes reward productivity based on the additional value generated rather than just output, offering a more nuanced approach to motivation. The key takeaway is that incentives are a powerful motivational tool, but they must be carefully designed. Setting achievable targets and focusing on the right metrics—whether profit, share value, or added value—ensures your incentive scheme drives the behaviours and outcomes you actually want. This concept appears across Performance Management modules and case study scenarios where you'll need to evaluate whether a company's incentive structure supports its strategic objectives.

Duration: 5m