Clawback is a mechanism in commission models where previously paid commission can be reclaimed if the underlying deal falls through. This typically occurs when a customer churns (cancels), a contract is voided, or payment defaults. According to SaaS Capital (2024), 73% of B2B SaaS companies use clawback clauses in their commission agreements.
Clawback protects companies from paying commission on value that never materializes:
According to Pavilion's Compensation Report (2024), companies with clawback policies reduce their churn-related losses by an average of 18%.
| Type | Description | Example |
|---|---|---|
| Full clawback | Entire commission returned | 100% back if churn within 90 days |
| Pro rata clawback | Repayment decreases over time | 75% month 1, 50% month 2, 25% month 3 |
| Time-based clawback | Only active during defined period | Clawback applies only for first 6 months |
| Condition-based | Triggered by specific events | Clawback on payment default |
Rep closes a deal worth $15,000 ARR with 10% commission ($1,500). Clawback period is 6 months with pro rata reduction:
| Churn Timing | Clawback % | Repayment | Commission Retained |
|---|---|---|---|
| Month 1 | 100% | $1,500 | $0 |
| Month 2 | 83% | $1,250 | $250 |
| Month 3 | 67% | $1,000 | $500 |
| Month 4 | 50% | $750 | $750 |
| Month 5 | 33% | $500 | $1,000 |
| Month 6 | 17% | $250 | $1,250 |
| Month 7+ | 0% | $0 | $1,500 |
Commission paid at contract signature, but customer never pays:
| Event | Commission |
|---|---|
| Contract signed ($10,000 ARR) | +$1,000 paid |
| Invoice 1 unpaid after 60 days | Clawback triggered |
| Contract voided | -$1,000 (full repayment) |
| Aspect | Clawback | Holdback |
|---|---|---|
| Timing | After payment | Before payment |
| Mechanism | Requires repayment | Withholds portion of commission |
| Rep experience | Can feel punitive | Less controversial |
| Administration | Requires reversals | Simpler to manage |
Communicate clearly: Reps must understand exactly when and how clawback triggers. Unclear rules create frustration and disputes.
Keep periods reasonable: According to Alexander Group (2024), 3-6 months is the most common clawback period. Longer periods demotivate.
Use pro rata: Graduated reduction is fairer than full repayment. It acknowledges the value the rep created in the customer relationship.
Automate calculations: Manual clawback tracking is error-prone and time-consuming. Use systems that automatically calculate and display potential clawback in real-time.
The most common triggers are: customer churn (cancellation), contract voiding, payment default, and contract downgrades. Specific rules vary between organizations.
Yes, clawback is legal when clearly defined in the employment contract or commission agreement. It's important to have written documentation that the employee has accepted.
Focus on customer quality over quick closes. Qualify leads thoroughly, set realistic expectations, and follow up after the sale to ensure successful onboarding.
Clawback is a legitimate tool to protect the company and ensure alignment between commission and actual value. But it requires clear communication and fair implementation to avoid demotivation.
With Prowi, you can set up clawback rules that are automatically calculated and displayed to reps in real-time. This creates transparency and eliminates surprises at payout.