What is an “earn-out bonus”?

Q. What is an “earn-out bonus”?

A. An “earn-out bonus” is an additional advance against royalties that is paid only if the total amount of royalties and subsidiary rights income payable to the author equals or exceeds the original advance. It is generally the result of a compromise between publisher and author on the amount of the advance when they are unable to agree with finality on a specific amount. Under this arrangement, the advance is set at the amount insisted on by the publisher (e.g., $75,000) but the contract provides that if and when that advance earns out, the author will promptly be given an additional advance in an agreed-upon amount (e.g., $25,000), which is also stated in the contract.

(Originally published in the Summer 2010 issue of the Authors Guild Bulletin. © Mark L. Levine)

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