Compensation for Loss of Article XX-B MLB Free-Agent

A club receives one compensatory draft pick between the 1st and 2nd rounds in the next First-Year Player Draft (MLB Rule 4 Draft) if an Article XX-B MLB free-agent subject to compensation signs a Major League contract with another MLB club. The MLB club that signs the player forfeits its 1st round selection in the Rule 4 Draft, unless it selects in the Top 10 of the 1st Round, in which case it will forfeit its next-highest pick. Additional draft picks will be forfeited in subsequent rounds if the club signs more than one Article XX-B MLB free-agent who is subject to compensation.

For a club to be eligible to receive compensation, an Article XX-B MLB free-agent must have spent the entire immediately-preceding MLB regular season on that club's MLB Active List (25-man roster) and/or on one or more of the club's inactive lists (7-day, 15-day, and/or 60-day Disabled List, Military List, Bereavement List, et al), the club must offer the player a guaranteed contract for the following season with a salary at least equal to the average salary of the 125 highest-paid MLB players from the previous season (expected to be about $13.5M in 2012), and the contract (known as a "Qualifying Offer") must be tendered no later than the 5th day following the conclusion of the World Series.

If a club extends a "Qualifying Offer" to an Article XX-B MLB Free-Agent subject to compensation, the player has seven days to decide whether to accept or decline the offer. If the player accepts the offer, he is considered "signed" and must be immediately added back to his club's MLB Reserve List (40-man roster). If he declines the offer, the player is free to sign with any MLB club, including his former club. MLB clubs are not permitted to extend a Qualifying Offer to an Article XX-B MLB free-agent if the player has agreed in advance to decline the offer so that the club will obtain a draft pick once the player signs with another club. 

If an Article XX-B MLB Free-Agent subject to compensation signs a minor league contract with a new club, or if the free-agent signs a Major League contract with a new club after the MLB Rule 4 Draft, the player's new club does not forfeit a Rule 4 Draft pick, and the player's former club does not receive draft pick compensation. However, MLB clubs are not permitted to sign an Article XX-B MLB Free-Agent who is subject to compensation to a minor league contract just to avoid losing a draft pick.