When Donald Trump imposed sweeping tariffs on most countries in April, UK firms were left scrambling to assess and offset any impacts on trade or revenue.
Business leaders correctly predicted that the move would lead to supply chain disruptions and inflationary pressures. But the changes to US trade policy have also produced many unintended consequences. For one, the introduction of US tariffs has led UK businesses to reconsider their approach to executive compensation.
Most remuneration policies are ill-suited to rewarding executive performance during black-swan events. Executives could be unfairly penalised (or rewarded) during these times for company performance that is largely determined by factors beyond their control. To address this concern, many UK firms are adjusting their executive pay practices to fit an operating environment tarnished by tariffs.
“We’re witnessing first-hand how remuneration committees across the energy, industrials, defence, aerospace, transport and supply chain sectors are adapting their strategies to balance performance incentives with economic realities,” says Amy Speake, chief executive at Holmes Noble, a talent advisory and executive search firm.
Executive pay is becoming a strategic tool to help firms navigate persistent economic uncertainty, Speake stresses. “The businesses weathering today’s challenges most effectively are those using compensation structures to drive specific leadership behaviours that are needed in volatile environments.”
Pay structures are changing
Speake expects businesses to further refine their executive compensation strategies as the business impacts of US tariffs evolve. “The most forward-thinking remuneration committees are already planning for different tariff outcomes and building flexibility into compensation structures to adapt quickly to changing economic conditions.”
Boards must be vigilant about the optics of executive payouts
Thanks to mounting cost pressures, many firms are rebalancing executive pay schemes to increase the proportion of performance-based pay, Speake says. “Companies are becoming more cautious about raising base salaries,” she explains. “Instead, they’re focusing on variable pay that avoids fixed costs but still rewards leaders when performance goals are met, even in tough economic conditions.”
Incentive timeframes are also changing. Global trade tensions have undermined investors’ confidence in short-term financial forecasting. As a result, remuneration committees are turning to long-term incentive plans (LTIPs) tied to transformation success and operational resilience, rather than basing rewards on quarterly or annual financial metrics.
“Supply chain re-design and resilience has become a central focus, with executives rewarded for maintaining on-time delivery performance despite logistics challenges,” Speake explains. “Successful localisation and reshoring initiatives are now directly linked to compensation, as are innovation and cost-reduction programmes.”
By focusing on these metrics, companies can reward their leaders for mitigating the impacts of tariffs, rather than simply maintaining profit margins. Satisfying the performance conditions of LTIPs will not be easy, however. In the current operating environment, executives may struggle equally to hit long-term or short-term targets.
Bonuses and backlash: executive pay under the spotlight
Executive pay has always been a matter debate. But the issue is increasingly contentious in times of economic difficulties, when so many employees face stagnant wages and job insecurity.
According to John Dady, associate partner specialising in executive compensation at Aon, a consultancy, businesses affected by US tariffs should consider adjusting pay rewards or improving transparency around how executive reward packages are figured. “Boards must be vigilant about the optics of executive payouts at this time,” he says. “They will want to avoid handing big bonuses to bosses while the rest of the workforce suffers from layoffs or cost cuts. It’s all about ensuring that executive pay aligns with what everyone else in the company is experiencing.”
Problems can arise when remuneration committees become misaligned with investors or other stakeholders. Take the English Rugby Football Union (RFU), for instance: executives recently received significant payouts from an LTIP at the same time that the organisation was making staff redundant. The payouts may have been based on reasonable metrics, but a lack of communication and transparency about the process led to backlash from fans and employees.
“The days of opaque executive compensation are over,” says Speake. “Today’s boards recognise that clearly communicating how executive pay decisions reflect both company performance and broader economic realities is essential for maintaining stakeholder confidence.”
Adjusting pay can be a risky move
Boards often struggle to adjust executive pay schemes during periods of economic uncertainty. But Dady says that remuneration practices are less flexible now than during other black swan events, including the Covid pandemic.
“This is because there is no clear direction – the tariff situation could change overnight,” he says. Businesses cannot know with certainty what will happen in six months, let alone in three years – the typical length of LTIPs.
The most forward-thinking remuneration committees are already planning for different tariff outcomes
Economic uncertainty aside, altering executive reward practices is always fraught with difficulties, Dady adds. “While boards can adjust payouts when LTIPs vest, this must not be perceived as moving the goalposts. That could lead to both internal and external backlash.”
Publicly listed companies are particularly vulnerable to public criticism of their pay practices, as they are required to disclose extensive information on their executive’s remuneration. Private companies on the other hand can more easily adjust their incentive plans without public or investor scrutiny but may still face internal backlash if .
Boards should also take care when granting new shares to executives in periods of economic uncertainty. If a company’s share price drops, executives under a share-award scheme may receive additional shares to meet a monetary award target agreed in their remuneration package. If the share price rebounds, however, those additional shares could bring huge payouts, thus perpetuating the perception that executives are overpaid and opening the company to criticism.
Companies must tread carefully, Dady warns, and undertake a comprehensive review of any new pay structures and bonus awards before they are introduced. “Balancing the need to retain and motivate top talent with the pressure to control costs and avoid public criticism requires careful judgment and clear communication,” he says.
Holding on to top talent
Economic volatility typically increases the risk of leadership attrition. Companies must remain conscious of how their executive pay schemes are perceived by investors and other stakeholders in the face of rising costs. However, they cannot allow their pay practices to become uncompetitive, lest they lose their top brass.
Speake says: “Boards might want to strengthen retention mechanisms through deferred bonuses, equity incentives and targeted retention awards, particularly for executives with critical transformation expertise or supply chain knowledge.”
Over the years, UK boards have faced relentless pressure to match the outsized salaries offered in the US as a way to keep hold of top talent. But Dady believes that the UK market is now a “much safer bet for executives” given the political environment in the US. Boards therefore might feel less pressure to use high pay as a way to attract and retain talented leaders.
Executive pay in the current business environment is more than a tool to attract and retain talented executives. It is increasingly being used to incentivise leaders to drive organisational success and resilience.
When Donald Trump imposed sweeping tariffs on most countries in April, UK firms were left scrambling to assess and offset any impacts on trade or revenue.
Business leaders correctly predicted that the move would lead to supply chain disruptions and inflationary pressures. But the changes to US trade policy have also produced many unintended consequences. For one, the introduction of US tariffs has led UK businesses to reconsider their approach to executive compensation.
Most remuneration policies are ill-suited to rewarding executive performance during black-swan events. Executives could be unfairly penalised (or rewarded) during these times for company performance that is largely determined by factors beyond their control. To address this concern, many UK firms are adjusting their executive pay practices to fit an operating environment tarnished by tariffs.
