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Glossary Terms
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Clawback allows an organization to recover previously disbursed compensation or benefits under specific circumstances. Implementing effective clawback provisions involves following best practices to ensure they are fair, transparent, and enforceable.
Clawback refers to a contractual provision that enables an organization to reclaim previously disbursed compensation or benefits from an employee under certain circumstances. The purpose of clawback provisions is to hold individuals accountable for their actions and ensure that they do not receive financial rewards for behavior that is detrimental to the organization or violates agreed-upon terms.
A clawback in sales refers to the recovery of previously paid commissions from sales professionals. This happens when a sale is canceled, a client churns early, or the customer fails to meet payment obligations within a certain timeframe.
Sales clawbacks are commonly included in incentive plans to align earnings with long-term customer success and revenue retention. For instance, if a salesperson earns a bonus for a deal that’s later refunded or reversed, the company may reclaim that commission under a clawback clause.
A clawback policy is a formal set of rules or guidelines established by an organization to govern the implementation and enforcement of clawback provisions. A clawback policy typically outlines the circumstances under which clawback provisions may be triggered, the process for invoking clawbacks, and the consequences for non-compliance or misconduct.
The policy may specify the types of compensation or benefits subject to clawback, such as bonuses, incentives, stock options, or other forms of compensation.
A clawback clause is a specific provision included in a contract, agreement, or policy that establishes the conditions under which clawback provisions may be triggered and the process for reclaiming previously disbursed compensation or benefits.
Clawback clauses are commonly found in employment contracts, executive compensation agreements, incentive plans, or corporate governance policies.
A clawback clause in employment contracts is a legal provision that allows an employer to reclaim previously paid compensation—such as bonuses, stock options, or commissions—if specific conditions are violated. These conditions might include unethical behavior, policy breaches, or financial misstatements.
The enforceability of clawbacks depends on state laws and the clarity of the contract language. While clawback provisions are widely used and generally upheld in the U.S., their enforceability varies:
To ensure compliance, companies must draft clawback clauses carefully and stay updated on relevant state and federal laws.
Clawbacks are used to protect a company’s financial interests and ethical standards. They ensure accountability by allowing the recovery of payments made based on incorrect data, misconduct, or unmet performance targets. Clawback clauses are particularly valuable in executive compensation, sales commissions, and legal settlements.
A clawback typically applies when:
These triggers are often predefined in employment or contractual agreements.
Clawbacks allow organizations to reclaim previously given compensation or benefits when specific conditions such as misconduct, financial errors, or unmet performance goals are met. The process typically includes:
The Old Age Security (OAS) clawback, also known as the OAS Recovery Tax, is a provision in the Canadian tax system that requires high-income seniors to repay a portion of their OAS pension if their annual income exceeds a certain threshold.
The OAS clawback threshold is adjusted annually and is based on the income level at which OAS benefits are fully phased out. As of 2022, the OAS clawback threshold is set at $79,845 CAD. The OAS clawback is calculated based on a formula that determines the repayment amount owed by the individual.
For every dollar of income above the threshold, a portion of the OAS pension is clawed back at a rate of 15%. This clawback rate is applied to the individual's net income above the threshold to calculate the total amount of OAS benefits subject to recovery.
The maximum OAS pension amount that can be clawed back is equivalent to the total OAS pension received for the year. The OAS clawback is calculated and reconciled annually when individuals file their income tax returns with the Canada Revenue Agency (CRA).
