The Advisors' Blog

Compensation Advisory Partners recently analyzed how 2026 proxy disclosures on goal-setting and earned compensation addressed the impact of tariffs. They specifically surveyed 22 companies that had filed proxies by April 17 and depend on imported goods, manufacture overseas or source key materials from countries impacted by tariffs. Here are their key findings:

– Of the 22 companies reviewed, 11 (50 percent) did not reference tariffs impact on incentive plan metrics in their proxy statements.
– Of the remaining 11 companies (50 percent), 8 disclosed an impact on their annual incentive (AI) plan, while 3 disclosed impacts on both annual and long-term incentive (LTI) plan payouts.
– Therefore, 8 out of 22 companies (36 percent) made adjustments to annual and/or long-term incentive payouts.

They found that the disclosures had a consistent theme:

[P]erformance goals for both AI and LTI plans had been established prior to the implementation of tariffs. Once tariffs were introduced, companies experienced a period of volatility during ongoing negotiations between the Trump Administration and the impacted countries. As a result, many companies characterized the negative financial impact as an unforeseen, extraordinary event and applied upward adjustments to incentive plan payouts.

Not surprisingly, that was the cited rationale when adjustments were made:

[T]ariffs are external, unpredictable shocks that were not included in the original target setting process, so adjusting helps isolate true operational performance and ensures executives are evaluated and compensated based on factors within their control. Adjustments also prevent key financial metrics such as EBIT, EBITDA, Free Cash Flow, and EPS from being distorted and help maintain a consistent pay-for-performance framework.

When companies made adjustments, here’s what they observed about their disclosures:

The impacts on payouts were disclosed as adjustments to their plan payouts in percentage points. In comparing annual versus long-term incentive plan adjustments, ICU Medical was the only company to disclose a quantitative adjustment to its long-term incentive plan, applying an upward adjustment of +50% to the payout percentage. Adjustments were more common for annual incentive plans, with reported increases ranging from +6% to +43% of the actual payout. Among the seven companies that disclosed a specific adjustment, the median increase was +13%, and the average was +12% to the actual payout.

Finally, companies adjusted annual and long-term incentive plans in different ways. Of the eleven companies that made adjustments, 5 companies modified adjusted EBITDA to exclude all or a portion of the tariff expense to increase incentive plan payouts. In addition, three companies adjusted multiple performance metrics rather than a single measure.

Companies that discussed tariffs but declined to make adjustments explained that they did so for purposes of:

– Ensuring performance metrics do not fully exclude real economic impacts of tariffs on profitability
– Maintaining accountability for management’s response to tariff pressures
– Avoiding overstatement of performance by fully removing a real cost
– Preserving credibility with shareholders and consistency in reporting

CAP goes on to make some future predictions:

Companies are likely to continue adopting hybrid approaches to tariff treatment, with a growing emphasis on partial and rule-based adjustments rather than fully excluding or fully including tariff impacts. The evidence suggests companies will increasingly distinguish between anticipated tariffs, which are treated as normal economic costs, and unforeseen or newly imposed tariffs, which may be adjusted out using predefined mechanisms such as cutoff dates or specific cost factors.

This reflects an effort to balance fairness in performance evaluation with accountability for real business outcomes, while also enhancing transparency and consistency in incentive design. As tariff volatility persists, companies are expected to formalize these practices further, embedding clearer guidelines into incentive plans to ensure that performance metrics remain both economically meaningful and aligned with shareholder value creation.

Speaking of balancing fairness and accountability, they also note that companies “will need to evaluate whether and how to adjust performance metrics to exclude or normalize the impact of refunds, ensuring that executive compensation reflects underlying operating performance rather than a one-time boost.”

– Meredith Ervine