Definition
Clawback (Compensation)
A clawback provision lets a company recover compensation already paid to executives if results are later restated or misconduct is found.
Clawback clauses require senior executives to return bonuses, incentives or share-based pay if the financial results on which they were based are revised, or if fraud or a breach of policy comes to light. They deter manipulation of short-term results to inflate pay.
In the fund context, a GP-level clawback ensures that if early deals paid out carry but later losses mean the GP was overpaid, it must return the excess to LPs. Both forms aim to align pay with genuine, durable performance.
Related terms
- Distribution WaterfallA distribution waterfall is the order in which a fund's proceeds are split between LPs and the GP.
- Nomination and Remuneration CommitteeThe NRC is a board committee that decides on board appointments and the pay of directors and senior management.
- Say-on-PaySay-on-pay is the principle that shareholders should be able to vote on the remuneration of a company's senior executives and directors.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.