Definition
Variable Pay Clawback
A clawback clause lets an employer recover already-paid bonuses or variable pay under specified conditions, such as early exit, misconduct or restated performance.
A clawback provision allows an employer to reclaim incentive pay — sign-on bonus, retention bonus, performance bonus or even vested equity in some cases — if conditions are triggered, such as leaving within a minimum period, breach of contract, or later discovery of misconduct or inflated results.
Clawbacks are common in sign-on and retention bonuses and increasingly in senior and regulated-sector compensation. Repaying clawed-back amounts can create tax mismatches, since tax was deducted on the original gross payout.
Employees should read clawback terms carefully before accepting incentives, understanding the trigger events, repayment amount and tax implications of any return.
Related terms
- Sign-on BonusA sign-on (joining) bonus is a one-time payment offered to attract a new employee, often with a clawback clause requiring repayment if you leave within a minimum period.
- Retention BonusA retention bonus is an incentive paid to keep an employee from leaving, typically conditional on staying for a defined period, and is fully taxable as salary.
- Variable PayVariable pay is the part of your compensation linked to performance — individual, team or company — that is not guaranteed and can range from zero to the full target amount.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.