2025 was a year of significant political and economic uncertainty. In this article, we look to 2026 and the economic outlook in Canada as well as share our thoughts on key issues for the compensation committee agendas among large Canadian companies.
Canada’s economy proved more resilient in 2025 than trade headlines suggested, despite tariffs weighing on exports and manufacturing in the spring.
Equity markets looked past the turbulence: The S&P/TSX 60 returned nearly 30%, outperforming the S&P 500 by more than 10 points and driven by heavy financial and energy/materials exposure. For 2026, consensus targets point to more normalized returns — analysts project 9% to 12% growth for the S&P 500 versus muted expectations of 5% growth in the S&P/TSX Composite.
On the macro side, the Bank of Canada has emphasized that tariffs and policy uncertainty are likely to remain a drag with a cooling labor market and forecasted GDP growth of 1.1% in 2026 (a reduction from its January 2025 forecast of 1.8% growth in 2026).
Canadian companies are forecasting 2026 salary budgets of 3.4% at median, based on WTW’s 2025 Salary Budget Planning Survey ¬— Global (December edition). We have seen some downward pressure on this figure from last summer’s estimate of 3.5%, driven by the relatively cool labor market. Consistent with historical precedents, U.S. companies are forecasting slightly higher salary budgets of 3.5% at median.
We anticipate bonuses in respect of 2025 performance to be above target — as high as 125% at median with variation by sector — for S&P/TSX 60 companies. These bonuses are driven by strong years from two pillars of Canada’s economy: large financial institutions and the resource sector (materials, mining, oil and gas, and utilities). For reference, the median STIP payout in respect of 2024 performance was 111% of target (paid in 2025) compared to 101% the year prior.
The likely payout outcomes for PSU awards made in 2023 and vested at the end of 2025 are more difficult to predict. Strong total shareholder return (TSR) performance is expected to drive actual outcomes above the median 104% of target multiplier in respect of 2022 PSUs (115% of target for 2021 PSUs) given the high prevalence and weighting of relative TSR in S&P / TSX 60 PSU plans.
In 2025, many companies broadened performance ranges for bottom-line financial metrics to account for tariff-related uncertainties, and we expect similar approaches in 2026. Establishing a lower threshold alongside a higher bar for maximum payout helps maintain program relevance throughout the year, motivating participants to pursue incremental earnings gains (continued incentive for every marginal dollar of earnings). Taken together, the likelihood of some minimum payout increases with corresponding less potential for a windfall outcome.
In 2025, Canadian companies largely adopted a wait-and-see approach to compensation program design amid geopolitical and economic volatility — outside of selective adjustments to financial performance ranges. Looking ahead to 2026, we anticipate refinements to both short-term and long-term incentive plans, building on discussions between boards and management in recent years.
Balancing affordability with participant engagement will remain a priority for compensation committees in 2026. A primary focus will be determining the most optimal weighting between financial and operational performance metrics within annual scorecards. Canadian companies’ annual scorecards typically allocate 25% to 50% to profitability metrics as a form of profit sharing, with the remainder assigned to operational, health and safety, and individual performance measures to ensure accountability for controllable outcomes.
Striking the right balance will vary by organization, but our consulting experience suggests a growing willingness to reduce emphasis on bottom-line financial metrics and/or adopt more extensive adjustments to profitability metrics given the current economic and political climate.
We expect Canadian companies to continue revisiting and refining their mix of LTI vehicles, influenced in part by upcoming changes to Institutional Shareholder Services’ (ISS) proxy voting guidelines for U.S. companies in 2026.
Under the new U.S. guidelines, ISS will view time-based LTI awards — such as restricted stock units and stock options — with a minimum five-year vesting period or post-vesting retention requirement positively, effectively placing these vehicles on equal footing with PSUs in ISS’s compensation program assessment.
This marks a significant shift. Historically, ISS and Glass Lewis have advocated for at least 50% of equity awards to be tied to performance conditions (i.e., PSUs). Canadian companies will monitor these developments closely, as North American peer groups are common in Canada, and it is reasonable to anticipate similar policy changes for Canadian issuers over time.
While we do not anticipate companies making major changes to their current LTI mix, the policy update from ISS creates an opportunity for more innovative plan design — particularly for organizations seeking better alignment between LTI structure, corporate strategy and compensation philosophy. Potential vehicles to explore include:
As the most common and heavily weighted PSU metric, relative TSR requires a robust and relevant peer group, which is becoming increasingly challenging given market consolidation in North America. Furthermore, the increasingly fractious political environment is raising questions about whether Canadian and U.S. performance peers are competing on an equal footing.
All else equal, this dynamic may limit award opportunities for Canadian companies with cross border operations and multiple U.S. performance peers. In 2026, we anticipate companies will look for more creative ways to assess relative TSR performance by assigning higher weightings to Canadian peers within North American performance peer groups and making greater use of Canadian competitors for capital that fall outside their industry (e.g., companies favored by dividend investors).
Because extraordinary events are impossible to predict, we expect more companies to develop formal frameworks that guide compensation committees on when and how to apply structured discretionary adjustments to incentive plan outcomes. These frameworks foster shared understanding between boards and management, reducing confusion and ensuring alignment with key principles such as affordability and shareholder interests.
While compensation program design will remain at the forefront of compensation committee agendas in 2026, we expect boards and compensation committees to continue seeking a refined role on human capital oversight, fostering constructive partnerships with management.
The board’s role of stewardship on human capital requires prioritizing the most impactful areas from both financial and strategic perspective against the current backdrop of emerging and interconnected risks, a less dynamic labor market and regulatory pressures (e.g. pay transparency legislation).
We know that highly engaged, healthy, safe, motivated and purpose-driven people perform better and ultimately drive greater financial results and value creation. As such, key areas of focus for 2026 will be senior management succession planning, assessing workforce planning from a critical future-skills perspective and the overall cost of total rewards and employee wellbeing.
