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Incentive scheme

An incentive scheme links some remuneration to an agreed performance measure, such as acceptable output, time saved, team results or profit. Define the measurement period, baseline, eligibility and sharing rule before calculating earnings. Well-designed measures encourage desirable behaviour; narrow targets can lead to rushed work, hidden defects or manipulation. Distinguish the employee’s bonus from the employer’s total labour cost and from a distribution to an owner.

Worked example

Basic weekly pay is $600 plus 20% of the $200 standard labour cost saved. The bonus is $40 and total gross pay $640 under this rule.

Common mistake

Do not assume every productivity saving is caused by employees or award bonuses without checking quality and the scheme’s exclusions.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027