A provision in a contract that allows your company to recover compensation if you violate certain related terms of that contract. For example, a clawback provision may require you to pay NQDC back to the company and forfeit future distributions if you leave to work for a direct competitor within a certain period; or a clawback may become effective if the company must make a financial restatement. Legal victories by companies and new legal requirements (e.g. the Dodd-Frank Act) have boosted the popularity of these recoupment provisions and also noncompetes, especially for unearned incentive compensation.

To avoid violations of the anti-acceleration rule and related penalties under Section 409A, companies should draft clawback policies so that clawbacks are not funded with money from NQDC accounts.