With significant changes to U.S. economic policy taking effect this year, companies are carefully reassessing their human capital strategies, particularly regarding short- and long-term incentive plans. And 2025 tariffs are one of the most consequential shifts affecting these programs.
More than one-in-four (28%) participants in a WTW October pulse survey identified tariffs as a primary driver affecting compensation strategies. Almost half (49%) cited related market volatility and economic uncertainty. Nearly six out of 10 of the 68 responding companies (59%) anticipate tariff policy to have a direct impact on their organizations, whether that’s a large impact (24%) or some impact (35%). In contrast, only one in 10 companies foresee no impact from tariffs.
In response, many companies will adjust their programs. For current cycle short-term incentives (STIs), nearly half of respondents (45%) already have taken or plan to take action to adjust their incentive payouts.
Of those companies planning to act, nearly eight in 10 (79%) believe adjustments will lead to an increased payout of less than 20%, while 15% expect to increase payouts by more than 20% of the calculated score.
Almost half of those with a calculated payout below threshold are contemplating making an adjustment to threshold or higher. Half of respondents anticipate a corporate payout factor below target — both pre and post any anticipated adjustments.
For the next incentive cycle, 66% of participants aren’t planning any changes to STI plans. Of the 34% that are planning changes, 57% are planning wider performance-goal ranges and 30% are planning to adjust their performance metrics.
Actions to override long-term incentive (LTI) outcomes for the current cycle are less likely than actions for STIs, with only 31% having taken or considering action. Among this minority, only 14% are planning adjustments for the cycle ending in 2025 to account for the impact of tariffs. Clearly tariffs are having a larger effect on STIs. Yet, similarly to STIs, actions to adjust LTI payouts are expected to move the payout upward by 20% or less in most cases.
For the next LTI grant, most companies (59%) are not planning any changes. Among the 41% that are, 39% are considering wider performance goal ranges and 32% are considering adding or removing performance metrics, among other less cited actions.
While the data shows that most companies haven’t proactively changed their programs yet, we expect to see increased use of compensation committee discretion to adjust formulaic payouts at year end.
As tariff policies continue to frequently change, it becomes difficult for compensation committees to make definitive decisions before the end of the performance period. We recommend that, at this time, adjustments to calculated scores should wait until the end of the performance period, when the benefit of a more complete picture is available.
For companies most directly affected by tariffs, more urgent action might be needed to give faith that some bonus will still be earnable. This will help incentive plan participants to model the right behaviors and take the right actions to drive results.
When it’s time for a decision, compensation committees are likely to focus on management’s efforts to mitigate and manage against tariffs. The effort and impact of those actions likely will be a significant determinant of discretionary relief on STI outcomes.
From our work with boards in all industries, we see the discussions taking place now pertain to:
Each of these topics connects to broader governance questions on human capital, which we predict will become more nuanced — and critical — in the next three years.
This article was initially published in WorldatWork’s Workspan Daily on Nov. 20, 2025.
