Clawback

What is a clawback?

A clawback is a comp plan clause that recovers commission already paid when a deal cancels or a customer does not pay. The plan states in advance which events trigger recovery, such as a cancellation inside a set period or an invoice written off, and how the money comes back, usually as a deduction from future commission. More broadly, a clawback is any provision that requires money already paid out to be returned.

Why it matters to a revenue leader

Paying commission at signing rewards speed. A clawback keeps that speed from rewarding bad business. Without one, a seller can book an agreement the customer cancels in 60 days and keep the full commission, while the company carries the cost of mobilizing the crew. Clawbacks only work when sellers know the rules before they sell, and when finance and sales agree on what counts as cancelled or unpaid. Recovering pay already issued also raises employment and wage law questions, so get counsel to review the clause before you write or enforce it.

A security monitoring company pays $1,200 in commission when a three-year agreement is signed. The plan claws back the full amount if the customer cancels within 90 days and half if it cancels within six months. A customer cancels in month two, and $1,200 comes off the seller's next commission payment.