Clawback policy.
In plain English
A clawback policy recovers compensation that should never have been paid, requiring an executive to hand back bonus or equity awards that were sized using financial results the company later has to correct. The usual trigger is an accounting restatement: if incentive pay was calculated on reported numbers that turn out to be materially wrong, the excess must come back. Listing standards require listed companies to adopt and disclose such a policy covering current and former executive officers, applying to incentive-based pay received during a defined lookback period. Some policies go further and cover misconduct even without a restatement. Recovery does not require proving the executive caused the error.
01Why it matters
Without a clawback, an executive keeps a bonus earned on numbers that were later corrected, and shareholders absorb both the restatement and the overpayment.
02The math, step by step
A $3 million bonus was based on reported earnings later restated downward. If the corrected figures would have produced $1.1 million, the policy recovers the $1.9 million difference.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
In private equity and hedge funds, a clawback provision returns carried interest to limited partners when later losses show the manager was paid too much profit share. Same word, different setting: one covers executive pay after a restatement, the other covers profit splits over a fund's life.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice