The Supreme Court heard arguments last week on whether President Donald Trump is allowed to impose tariffs unilaterally under a law granting him emergency powers. Under the tariffs, a cornerstone of the president's economic policy, companies have seen duties seesaw from single to triple digits and back again in the past six months, making it challenging to forecast cost and revenue figures or make strategic determinations like supply chain planning for the year ahead.
How the Trump administration might respond to any ruling by the court is unknown, and uncertainty in trade and economic policy shows no sign of abating. Yet hidden in the chaos lie clues on how directors can cope with ongoing trade wars and other challenges as they finalize executive compensation plans for 2026.
Indeed, much of this year's uncertainty stems from business leaders' lack of certainty on how tariff negotiations will unfold, Amy Cappellanti-Wolf, executive vice president and chief people officer at Dayforce, a global human capital management platform, told Agenda. Cappellanti-Wolf was a board member and compensation committee chair at IT solutions provider Softchoice from 2020 to 2025. Tariff impacts largely depend on what type of industry a company is in, she noted.
Still, while tariff impacts can create problems for some U.S. companies and windfalls for others, the larger issue is how directors and other business leaders can find a sense of predictability in the markets amid other ongoing challenges, said Cappellanti-Wolf.
For instance, companies are also dealing with questions about inflation and whether there will be further reductions in interest rates from the Federal Reserve, Cappellanti-Wolf noted, adding that uncertainty is creating a "perfect storm" of emerging issues. The Fed's most recent cut on Oct. 29 brought its rate to the lowest level in several years.
Uncertainty in the marketplace has become a new normal, Matt Turner, president of executive compensation at Pearl Meyer, told Agenda. Usually, he explained, adjustments to compensation plans are hammered out at the start of the plan so that executives understand the parameters, but the nature of this market uncertainty is that one cannot fully plan for it at that level, said Turner.
Board members have made an effort to stay in better touch with management in recent months in order to best understand what's going on and what the company is doing to mitigate potential negative impacts, said Turner.
In order to create a sense of certainty going into 2026, directors should map out how new tariffs might impact different pieces of the business and consider changes from that perspective, Cappellanti-Wolf explained. For instance, amid tariff headwinds, some companies might strive to reduce operating costs, divest certain elements from the overall company, or find different markets to break into for the purpose of making up for losses from tariffs, she explained. Any of those considerations could affect compensation goals.
Given the market uncertainty, directors shouldn't consider incentive plan details to be set "in stone" at the start of the year, according to Turner. Compensation committees should allow some flexibility if new information emerges, he said.
Meanwhile, since the U.S. economy hasn't been as robust as some anticipated this year, 2026 will likely see modest pay increases for named executive officers in terms of base salary, said Turner. After all, organizations are sensitive to outsize increases for executives at a time when the employee base's purchasing power has eroded with continued inflation, he said.
Compensation Impacts
Still, in the current economic environment, discretionary adjustments to executive pay "have to be on the table," Turner said. But they just have to be handled in the appropriate way. If a company has a track record of using discretion in a conservative manner and with an even hand, meaning both upward and downward, any particular adjustment is more likely to be acceptable by proxy advisors and shareholders, said Turner.
Further, discretionary adjustments are also more likely to be acceptable if directors are adjusting a low- or no-value award up to something modest, as opposed to a target or above-target payout, said Turner.
Investors are far more amenable to adjustments to annual incentive plans than long-term plans, Turner warned.
Market tumult is also shaping executive plan design, said Turner. For instance, it has prompted directors to widen performance ranges for executives and urged them to rethink targets as ranges, as opposed to points, said Turner.
Tariff uncertainty has also caused boards to rethink the metrics they're implementing, because some market-centric metrics are more susceptible to "external buffeting," while other metrics might coincide more with operational results and may be more insulated from external economic factors, Turner explained.
Directors are also taking another look at relative performance measurements, said Turner. While companies have used relative total shareholder return for a long time, it's harder to implement profit- and growth-related measures on a relative basis, he said. Yet companies see the difficulty of setting nonrelative targets over a three-year and even one-year time horizon amid the uncertainty. That's prompting them to think about where relative performance comparisons to peers, other than TSR, might make sense in an executive's compensation plan, said Turner.