Clawback – Key Words & Phrases

Key Words

What is the meaning of: “CLAWBACK”?

In the employment context, “clawback” means exactly what it sounds like: “an employer taking back from the employee monies, benefits, stock or other things of value in the event certain conditions or circumstances take place.” 

“Clawback” provisions are found in many bonus plans, stock plans, benefit plans and severance plans. Recently some laws have required “clawbacks.”    

A common example of a “clawback” would be the following provision in a bonus plan: 

“If an employee receives a bonus, and within two years it is determined that he or she engaged in financial wrongdoing of any kind, while employed by the company, the employer has the right to ‘claw back’ from the employee the entire bonus paid, without any credit to the employee for taxes paid on the bonus.”

A second example of a “clawback” would be a law that provided, “A senior executive of a public company who has engaged in behavior that resulted in a restatement of earnings shall have his or her entire bonus and stock awards for five previous years clawed back in their entirety.”

A “clawback” refers to a return of monies or benefits already paid or delivered, while a “forfeiture” refers to a loss of the right to later receive the monies or benefits.                                                              

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