Commission holdback is a compensation mechanism where a portion of a salesperson's earned commission is temporarily withheld and only paid out when certain conditions are met. It functions as risk-sharing between the company and salesperson.
Unlike clawback, where commission is recovered after payment, holdback is never paid until conditions are met—making it administratively simpler.
Holdback solves several challenges:
Churn protection: Reduces the risk of paying full commission for customers who quickly cancel.
Payment risk: Ensures the customer actually pays before full commission is released.
Cash flow balance: Helps the company match commission expenses with actual revenue.
A percentage is withheld and released after a period:
| Timing | Payout |
|---|---|
| At deal close | 75% of commission |
| After 90 days | 25% of commission (if customer still active) |
Commission is released as the customer pays:
| Customer Payment | Commission Released |
|---|---|
| First invoice paid | 50% of commission |
| Second invoice paid | 25% of commission |
| Third invoice paid | 25% of commission |
A portion of all commission is pooled and released based on performance:
| Element | Value |
|---|---|
| Deal value (ACV) | $75,000 |
| Commission rate | 10% |
| Gross commission | $7,500 |
| Paid at close (75%) | $5,625 |
| Holdback (25%) | $1,875 |
After 90 days, if customer is still active:
Same scenario, but customer cancels after 60 days:
Compared to clawback, the company would need to recover money here.
3-year contract with annual prepayment:
| Timing | Customer Payment | Commission Released |
|---|---|---|
| Year 1 paid | $45,000 | $4,500 (10%) |
| Year 2 paid | $45,000 | $0 (already credited) |
| Year 3 paid | $45,000 | $0 |
Alternatively with holdback on TCV:
| Timing | Commission Released |
|---|---|
| At signing | $6,750 (50% of $13,500) |
| Year 2 paid | $3,375 (25%) |
| Year 3 paid | $3,375 (25%) |
| Aspect | Holdback | Clawback |
|---|---|---|
| Timing | Withheld before payment | Recovered after payment |
| Administration | Simpler | More complex |
| Rep experience | "Waiting for money" | "Must pay back" |
| Cash flow for rep | Delayed receipt | Risk of negative paycheck |
| Legal | Usually straightforward | Can be complex in some jurisdictions |
Typically 15-25%—higher holdback can demotivate.
Be specific about conditions and timing.
Let reps see their holdback balance and expected release.
Higher holdback for high-risk segments (e.g., SMB with high churn).
Holdback is an effective tool for balancing risk between company and salesperson. By withholding a portion of commission until value is realized, you avoid the administrative challenges of clawbacks.
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