Here’s Everything You Need To Know About Clawback

What Is The Meaning Of Clawback In Legal And Contractual Terms?

A “clawback” refers to a legal or contractual provision that allows a party to recover or take back previously distributed funds, benefits, or assets in specific circumstances. It is often used to rectify overpayments or to address situations where certain conditions or obligations are not met.

An example of one can be found in the financial industry, where executives of a company might receive performance-based bonuses or stock options. If it is later discovered that the financial results that led to these bonuses were misrepresented or fraudulent, the company may invoke a clawback provision to recover the bonuses or options granted to the individuals involved.

Are Clawback Clauses Applicable To Salaried Employees?

Yes. A clawback clause in salary or compensation is a contractual provision that allows an employer to recover part of an employee’s compensation under specific circumstances.

For instance, if an employee receives an advance payment or a signing bonus but leaves the company before fulfilling certain obligations, it might enable the employer to recoup a portion of the paid amount.

Is Clawback Legal In India?

Its provisions can be legally enforced in India, but their applicability and legality depend on specific terms of employment contracts, company policies, and relevant labour laws.

Indian companies may include its clauses in employment agreements to protect their interests in cases of non-compliance or financial impropriety.

What Is A Clawback Policy?

It is a formalised set of rules and procedures governing the application of its provisions within an organisation.

This policy outlines the conditions under which it can be triggered, the methods for calculation and recovery, and the responsibilities of all parties involved, including employees, employers, or stakeholders.

Who Pays Clawback?

The responsibility for paying it typically falls on the party seeking the recovery — an employer or a financial institution.

They initiate the process to recover funds or previously disbursed benefits. This process may involve legal action, negotiations, or regulatory authorities, depending on specific circumstances.

What Is Clawback Provision As Per The RBI?

The Reserve Bank of India (RBI) has introduced clawback provisions to regulate the compensation practices of banks and financial institutions in the country. These provisions aim to ensure that a portion of the variable pay given to CXOs is subject to clawback in cases of poor performance, misconduct, or risk-related issues.

The RBI’s clawback regulations are designed to promote sound risk management practices and protect the financial stability of institutions.