Navigating Pay During Economic Disruption
As director confidence plummets amid tariffs, imports, deportations and conflict in the Middle East , executive compensation planning has never been trickier. While some boards are tempted to dust off their pandemic playbooks when it comes to decision-making, today’s challenges are unique.
Mercer and Teneo have both weighed in with timely advice, and we’ve boiled it down to five action items compensation committees and HR leaders can take for a smooth second half of the year.
1. Keep an Eye on In-Flight Awards. Avoid surprises and eleventh hour scrambling on the impact of tariffs and market volatility by providing frequent updates on award projections.
Assess the holding power of awards by tracking performance against goals.
Determine if incentive plans will require an adjustment to account for a material issue. Weigh the pros and cons of exercising judgment or modifying goals.
Revisit established criteria for applying discretion.
2. Run the Numbers on Your Share Pool. Examine share needs for 2026 and 2027 grants and for the anticipated needs of new hires, promotions and retention.
Perform a sensitivity analysis to determine if there a sufficient buffer in the event of declining prices. If not, start talking about a backup plan.
3. Start Scenario Planning for 2026. Start goal setting discussions early and assess all the various levers to get to an appropriate pay outcome.
Mercer warns that tariff adjustments will be “tricky” as investors may believe that management should be able to predict its business impact.
Be prepared to use negative discretion if the impact is less than expected.
4. Rethink Stock Ownership Guidelines. Stock price volatility can create compliance issues for those subject to value-based ownership requirements.
Consider testing using an average stock price instead of a point in time.
Grandfather executives to a “once met, always met” approach as long as they do not sell shares.
5. Get in front of your Proxy Narrative. If you’ve used discretion, especially the positive kind—be ready to explain it. Be prepared to show how management earned its pay.
Investors will want to understand how management reduced its exposure to tariffs or other “uncontrollable” scenarios and risks.
Megan Wolf
Director, Practice, HR Policy Association and Center On Executive Compensation
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