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A clawback clause, or clawback provision, refers to a “contractual obligation to return money under special circumstances or events,” according to the Corporate Finance Institute.
For sales organizations, this type of clause or provision enables a business to reclaim commission or other performance-based compensation paid to a salesperson under specific circumstances. Most clawbacks require a salesperson to return previously paid commission when a customer churns or cancels their purchase within a designated time period. For example, an afghanistan phone number list organization may institute a three-month clawback, which states that a sales rep must return any earned commission if a customer cancels their plan within three months of signing up.
Clawbacks have been widely used as part of employment contracts across many industries, particularly since the financial crash of 2008, as a means to protect a business against fraudulent activity. In fact, research shows that between 2005 and 2010, the percentage of Fortune 500 companies that used clawbacks rose from fewer than 3% to a whopping 82%.
Why should you include clawback clauses in your sales commission plans?
A sales clawback clause is more than just a financial insurance policy for an organization. Though it mainly serves a protective function, when implemented correctly, this type of provision can deliver a variety of benefits.
Here are the key reasons why companies use sales clawback clauses.