Clawback

Clawback is a contractual provision or legal mechanism which gives an employer, the right to recover money or benefits that were already paid to the employee under certain conditions; like misconduct, contract violation, or financial restatements. Clawback clauses are frequently incorporated in employee contracts, incentive programs, or equity grants to safeguard the interests of the business and make the management answerable to employees' actions. The most prevalent situations where the clawback applies include executive wrongdoing, financial dishonesty, or performance misstating, where the employer attempts to reclaim bonuses, stock options, or any other type of cash benefits paid to the employee.

Example of Clawback:

What if a senior executive of the public traded company commits the acts of fraud that cause the financial losses or the violations of the regulatory norms? In the context, the company's board of directors may apply clawback provisions in the executive's employment contract or incentive compensation plan to take back bonuses or stock awards previously awarded to the executive. Similarly, if an employee is gifted with a signing bonus or relocation assistance but leaves the company voluntarily within a period stated, the company may claim back a fraction of the amount to recover the incurred expenses. The clawback conditions work as a deterrent for unethical behavior and ensure that the organization assets and reputation are protected by holding the employees accountable for their actions.