Claw back is the specific kind of a clause which is added at the time of signing a contract. This is a typical one and is added frequently in the major employment contracts of firms and companies.
Clauses of employment contract
There are several provisions and clauses especially when it comes to the designing of the clauses of the employment contracts of firms and financial organizations. It is important to formulate proper clauses which are both friendly to the firm as well as to the employee. Among these provisions and clauses, the claw back provision is the major one. The major purpose of this clause addition in the employment contract is to make the option of bonus limitation safe for the employee.
Benefit of the claw back agreement
In this way the bonuses can be limited and this is very helpful especially in the times of devastation of business when the firm is not left with any revenue. This actually happened during the time period from 2007 to 2010 when there was a time of global financial crunch and the whole suffered a lot due to the economic losses in all the major firms. The idea of claw back was then exercised and it minimized the losses to firms as well as employees to the great extent.
Bonus in claw back scheme
Many of the bonuses of the employees are in the claw back scheme. At the moment they seem to be trapped but they will come to know of the importance of this claw back clause in the employment contract only if their firm faces any loss. It is then this claw back clause which will give them a chance to stick to their jobs.
Incentive based scheme
Basically the claw back scheme is tied to the performance of the employee in the firm. In this way they will be provided incentives and will be encouraged further to enhance the working efficiency of the firm. Hence it will be profitable for the company as well. The claw back policy is so much important that it can help the firm and its employees to get back even if the product and capital production is lowered down. Then the employee goes to an offset and claims the bonus on the base salary.