Abstract: A circuit compensates backlash of a shaft on an incremental encoder having a quadrature and index pulse output lines. Quadrature is represented as two signal lines phased apart by 90 degrees and an index pulse occurring once per revolution of the encoder shaft. The logical combination of the quadrature signals produce a four state condition which, through sequential examination of the signal levels, allows discriminating circuitry to determine the rotational direction of the encoder shaft. The circuit allows the definition of clockwise or counterclockwise rotation as being the forward direction. When the circuit discerns the positive forward rotational progression of the two signal lines, the circuit passes such signals unaltered to a pulse responsive system. Upon discernment of an encoder's shaft reverse rotation, the circuit causes the last forward rotational quadrature state to be latched on its output lines.