What is the difference between a clawback and a holdback?

A clawback recovers commissions that have already been paid to the rep, typically by deducting from future paychecks. A holdback withholds a portion of the commission (usually 10-25%) at the time of payment and releases it only after a qualifying condition is met, such as the customer paying their first invoice or completing onboarding.

What is a reasonable clawback window?

Most SaaS companies use a 90-day clawback window tied to customer churn or non-payment. Some extend to 6 months for annual contracts. Windows longer than 6 months create excessive uncertainty for reps and are difficult to administer. If your churn risk extends beyond 6 months, consider holdbacks instead.

Clawback Policies: How to Structure Them Without Destroying Trust

Clawbacks are the most emotionally charged element of any compensation plan. No rep wants to see a negative line item on their commission statement for a deal they closed months ago. But without some mechanism to align rep incentives with deal quality, you risk paying full commissions on customers who churn in 30 days or never pay their first invoice. The challenge is structuring clawbacks so they protect the business without poisoning your culture.

When Clawbacks Are Appropriate
Structuring a Fair Clawback Policy
The Holdback Alternative
Communication Guidelines
When to Skip Clawbacks Entirely
Key Takeaways

When Clawbacks Are Appropriate¶

Clawbacks should be reserved for scenarios where the rep’s actions (or inactions) contributed to a bad outcome. The three most defensible triggers are:

Customer cancellation within 90 days. The deal was likely mis-sold, the customer was not properly qualified, or expectations were set incorrectly during the sales process.
Non-payment. The customer signed a contract but never paid the first invoice. This often indicates a deal closed with a contact who lacked purchasing authority.
Material contract modification. The customer downgrades significantly within the clawback window - for example, a $120K deal that is renegotiated down to $40K within 60 days.

Important distinction: Clawbacks should not apply to normal churn that occurs after a reasonable period. If a customer churns at month 8 of a 12-month contract, that is a retention issue - not a sales quality issue.

Structuring a Fair Clawback Policy¶

Define the window clearly. State the exact number of days after contract execution during which clawbacks may apply. The industry standard is 90 days for monthly and annual contracts.

Use a declining scale. A full 100% clawback at day 89 feels punitive. Instead, use a time-based reduction:

Cancellation Timing	Clawback Percentage
0-30 days	100% of commission
31-60 days	75% of commission
61-90 days	50% of commission
91+ days	No clawback

Cap the deduction per paycheck. Never deduct more than 50% of a rep’s variable pay in a single pay period. If the clawback amount exceeds this threshold, spread it across multiple periods. A rep who receives a commission statement showing $0 or a negative number will immediately start interviewing.

Exclude base salary. Clawbacks should only apply to the variable commission earned on the specific deal, never to base salary or commissions on unrelated deals.

The Holdback Alternative¶

Many companies are moving away from clawbacks entirely in favor of holdbacks. A holdback withholds a percentage of commission at the time of payment and releases it after a qualifying event.

How holdbacks work:

Rep closes a $100K deal and earns $10,000 in commission
Company pays $7,500 immediately (75%) and holds $2,500 (25%)
After 90 days, if the customer is active and has paid, the remaining $2,500 is released
If the customer churns within 90 days, the held amount is forfeited - but nothing is deducted from the rep’s future earnings

Why reps prefer holdbacks: The psychological difference is significant. With a clawback, the rep received $10,000, spent it, and then had $5,000 taken back. With a holdback, the rep received $7,500 and then got a $2,500 bonus. The net economics can be identical, but the emotional experience is vastly different.

Factor	Clawback	Holdback
Rep perception	Punitive - “they took my money”	Neutral - “I earned a bonus”
Cash flow impact (rep)	Negative surprise	Predictable
Administrative burden	High - requires recovery processing	Low - standard release process
Legal risk	Moderate - some states restrict clawbacks	Low - standard deferred payment
Behavioral effect	Fear-based	Quality-focused

Communication Guidelines¶

However you structure your policy, clear communication is non-negotiable:

State the policy in the plan document with specific dollar examples. Do not bury it in fine print.
Notify reps immediately when a clawback or holdback forfeiture is triggered. Include the deal name, cancellation date, and the calculated amount.
Give reps a chance to respond. Sometimes a “cancellation” is actually a contract restructure that should not trigger a clawback. Allow 5 business days for the rep to provide context before processing.
Show the math. Every clawback notification should include the original commission calculation, the clawback percentage, and the net deduction amount.

When to Skip Clawbacks Entirely¶

Some situations call for removing clawbacks from the equation:

Multi-year prepaid deals. If the customer paid upfront for three years, there is no revenue risk to protect against.
Deals below $5,000 ACV. The administrative cost of processing a clawback on a small deal often exceeds the recovered amount.
Reps with consistently low churn. Consider exempting reps with trailing 12-month churn rates below 5% as a reward for deal quality.

Key Takeaways¶

Limit clawbacks to three triggers: early cancellation, non-payment, and material contract downgrades
Use a declining scale (100%/75%/50%) rather than a flat 100% clawback across the entire window
Consider holdbacks as a psychologically superior alternative that achieves the same financial protection
Always notify reps immediately, show the math, and give them 5 business days to respond before processing