Clawback Mechanics

Clawbacks recover commissions when a deal is reversed — the customer cancels within a defined period, the payment is not collected, or the deal terms are materially changed post-close. Without clawbacks, reps are incentivized to close deals at any cost and let post-sale teams handle the fallout. With poorly designed clawbacks, reps avoid deals that might churn — even good ones. The financial design of the clawback mechanism determines whether it protects the company or paralyzes the sales team.

1. Time-Decayed Clawback Commission clawback decreases over time: 100% recovery if cancelled in month 1-3, 75% in months 4-6, 50% in months 7-9, 0% after 9 months. This aligns the rep's risk with the company's — early churn (which often reflects a bad deal) has full consequences, while later churn (which may reflect product or support issues) has reduced consequences.
2. Non-Collection Clawback If the customer does not pay, the commission is recovered. This is straightforward — you cannot pay commission on revenue that was never collected. Set a reasonable collection window (90 days past due) before triggering the clawback. Net-60 payment terms should not trigger clawback at day 61.
3. Material Change Clawback If the deal is restructured within 90 days — downsized, retermed, or discounted — the commission is recalculated based on the new terms and the difference is recovered. This prevents the "close big, renegotiate small" pattern where reps book inflated deals that are restructured post-signature.