This report examines how governments use financial incentives to promote a better alignment between labour market needs, on the one hand, and the supply of skills, on the other. In doing so, it identifies: (1) innovative models that countries may be interested in learning from; (2) best practice in the design and use of financial incentives; (3) framework conditions for their effective use; and (4) limitations and risks in the use of financial incentives. This report contains the following chapters: (1) Aligning Skill Supply and Skill Demand: The Challenges; (2) Financial Incentives for Steering Education and Training; and (3) Best Practice, Framework Conditions, Limitations and Risks in the Use of Financial Incentives for Education and Training. A glossary is included. Individual chapters contain references. [This report was produced with the financial assistance of the European Union Programme for Employment and Social Innovation "EaSI" (2014-2010).]