A clawback is how a commission plan handles deals that don't stick. The rep was paid for a deal in March, the customer cancelled in May, and now the company recovers that commission, usually by deducting it from a future payout.
When clawbacks are used
- The customer cancels within a set window, for example the first 90 days.
- The customer never pays the invoice.
- The deal is refunded or heavily discounted after signing.
- The deal turns out to be booked by mistake, for example a duplicate in the CRM.
Example
A rep earns 10% commission. In March they close a $12,000 annual contract and are paid $1,200. In May the customer cancels under a 90-day cancellation clause.
The plan has a 90-day clawback, so $1,200 is deducted from the rep's June commission. If June's commission is $3,000, the rep is paid $1,800.
Mistakes to watch for
- Clawbacks nobody knew about. If the rule isn't written in the plan and explained at hiring, it will feel like theft when it happens.
- No time limit. A clawback with no end date means a rep is never sure any commission is really theirs.
- Clawing back for things the rep can't control. If the customer leaves because of a product or support problem, a clawback punishes the wrong person.
- No record. Every clawback should show the original deal, the reason and the amount, next to the payout it reduced.
FAQ
Are commission clawbacks legal?
In many places they are, if they're written in the commission agreement and the rep agreed to them. Rules differ by country and state, so check with an employment lawyer before adding one.
How long should a clawback period be?
Long enough to cover the period when cancellations really happen, and no longer. Common choices are 60 or 90 days, or tying the clawback to the first payment instead.
How do I record a clawback in Delta Drive?
As a manual deduction on the rep's month, with a note on which deal it relates to. In Delta Drive, adjustments sit next to the calculated commission and are locked with the month once it's approved.