Clawbacks in economic development

Clawbacks In Economic Development

Clawbacks in economic development

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In finance economics, a clawback is when an organization (typically a financial firm) that is attempting to recover from a catastrophic shift and/or collapse (e.g., the current worldwide financial crisis) attempts to essentially "tame" its past practices by giving its most highly-paid employees bonuses in pay that are deferred rather than bonuses that are able to be spent by an individual immediately.

These deferred bonuses are, in a clawback scheme, intentionally held by the firm away from the employee(s) for years, and are tied specifically to the performance (or lack thereof) of the financial product(s) the individual(s) may have created and/or sold as part of his or her job expecting a high profit. If the product does indeed do well over a long period of time, and permanently improves the nature of the firm, the deferred bonuses are then paid out to the individual. However, if the product fails, and damages the nature of the firm -- even years down the line from the product's inception -- then the firm has the inherent right to revoke some or all of the bonus amount(s).

According to a December 2010 New Yorker magazine article, the clawback phenomenon pursued by banks and other financial groups directly and/or indirectly responsible for the financial crisis has been used by the chief...
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