Eleanor Viney, Neil McCarthy, and Emily Drazan Chapman at DragonGC analyze the profound impact of recent tariffs on executive compensation plans, as documented in their latest DragonGC memorandum. Their report, based on an extensive review of 406 proxy (DEF 14A) statements filed between January 1, 2026, and May 1, 2026—representing 81.2% of the S&P 500 index—reveals how compensation committees navigated the tariff-laden landscape when designing and evaluating executive pay for the 2025 fiscal year.
Executive Summary
The analysis highlights a significant surge in tariff-related disclosures within S&P 500 proxy filings. Out of 406 filings covering the 2025 fiscal year, 136 (33.5%) contained at least one mention of tariffs, with these disclosures heavily concentrated in the industrial, manufacturing, and consumer goods sectors. Crucially, 62 companies (15.3% of all filers) explicitly linked tariff developments to executive pay plan design, goal setting, performance measurement, or payout decisions. The remaining 74 filings referenced tariffs generally, often in risk disclosure language, without a direct connection to compensation outcomes.
A keyword dataset tracking tariff mentions from 2010 through 2026 shows a dramatic acceleration in disclosure frequency. After a period of moderate and variable mention rates through 2024, 2025 filings recorded 141 mentions—a threefold increase over the prior year’s average. The 2026 filings, with 450 mentions, represent the highest single-year count in the 16-year observation window. This trajectory directly reflects the escalation of U.S. trade policy actions beginning in 2025 and their tangible impact on corporate financial results and executive compensation.
The report identifies four distinct disclosure patterns among the 62 companies that linked tariffs to executive compensation:
- Tariff Impact Moderated: Compensation committees excluded or moderated tariff costs when calculating performance metrics.
- Mitigation Rewards: Management was credited for actions that mitigated the impact of tariffs.
- Pre-emptive Goal Modification: Committees incorporated tariff risk into plan design at the outset of the performance period in anticipation of volatility.
- Shared Burden: Companies declined to make adjustments, allowing below-target outcomes to stand or actively reducing payouts.
Background: The Macroeconomic Context of Tariffs
The period of fiscal year 2025 saw a dramatic shift in U.S. trade policy. Proclaiming April 2, 2025, as “Liberation Day,” the Trump administration announced a universal 10% tariff on all imported goods, accompanied by additional country-specific “reciprocal tariffs” on 57 nations. This broad-based application of tariffs, intended to protect domestic industries and address trade imbalances, created significant cost pressures and supply chain disruptions for many U.S. corporations.
The scope and pace of these policy changes often outstripped what companies had incorporated into their annual operating plans and executive compensation targets, which are typically set in the first quarter of the fiscal year. Consequently, proxy filings for FY2025 were compelled to address and explain the impact of these sweeping tariffs on company performance and, by extension, on executive compensation, particularly annual or short-term incentive plans. The “pay for performance” mandate, coupled with the emphasis on at-risk compensation, meant that compensation committees had to grapple with how to fairly evaluate management’s contribution amidst these unforeseen external economic shocks.
The implications for executive compensation were multifaceted:
- Direct Cost Pressure: Tariffs introduced direct cost burdens on key earnings metrics such as adjusted EPS, operating income, and operating margin, which are frequently used as performance benchmarks for incentive plans.
- Limited Management Response Time: The rapid implementation of tariffs constrained management’s ability to implement offsetting strategies within the performance period, such as supply chain adjustments or price increases.
- Asymmetric Financial Effects: For some companies, tariff-related shifts in volume or the success of mitigation efforts created disparate impacts on revenue and cost measures. Without adjustments, these could distort the perceived relationship between reported financial outcomes and underlying operational performance.
These dynamics necessitated a broad reassessment by compensation committees regarding the suitability of existing incentive plan mechanics. Many of these mechanics predated the intensified tariff environment and needed to be evaluated for their capacity to yield outcomes that appropriately reflected management’s contribution. The resulting disclosures, as analyzed in this report, highlight a significant heterogeneity in committee responses to this complex challenge.
Tariff Disclosure Growth: A Marked Escalation
The keyword count in S&P 500 proxy filings from 2010 through 2026 reveals a striking trend. While tariffs have been a recurring disclosure topic for over a decade, the volume of mentions has escalated dramatically in the 2025 and 2026 filing cycles. The 2025 figure of 141 mentions is more than three times the 2024 average, and the 2026 figure of 450 mentions substantially exceeds the prior 16-year cumulative trend (averaging approximately 50 mentions per year). This sharp increase underscores the pervasive impact of the “Liberation Day” tariffs, transforming tariff discussions from an occasional concern to a widespread disclosure consideration, albeit with significant industry-specific variations.
Tariff-related disclosures in 2026 proxy filings are notably concentrated among firms heavily exposed to global supply chains and physical goods production. In industrial and manufacturing sectors—including machinery, aerospace, automotive, and electrical equipment—approximately 70-80% of companies mentioned tariffs, with several firms like Caterpillar, RTX, BorgWarner, and Whirlpool reporting double-digit references. Consumer-facing goods sectors also show high, though more variable, exposure, with roughly 60-70% of consumer staples and retail firms referencing tariffs, particularly import-heavy retailers and household goods manufacturers such as Ross Stores, Dollar Tree, and Newell Brands.
In contrast, tariff disclosure is considerably less common in asset-light sectors. The information technology sector sees fewer than 25-30% of firms mentioning tariffs, primarily those involved in hardware and semiconductors (e.g., Apple, Intel, Qualcomm). Software and platform companies rarely reference tariffs. The financial sector exhibits the lowest incidence, with over 90% of firms reporting zero mentions, reinforcing the view that tariffs had minimal direct impact on their core operating models. Healthcare and utilities fall in between, with approximately 30-50% of firms mentioning tariffs, typically reflecting indirect exposure through equipment, supply inputs, or capital projects rather than direct operational margins.
These industry-specific trends suggest that tariff discussions are not a universal macroeconomic theme across the S&P 500. Instead, the increased disclosure counts are largely driven by specific industry exposures to supply chain risks, input cost volatility, and reliance on international imports.
2026 Filing Landscape: Coverage and Disclosure Rates
As of the analysis date, 406 S&P 500 companies had filed their proxy statements for FY2025, representing 81.2% of the index. The 2026 keyword count remains partial, with the total expected to rise slightly as remaining companies file their statements through the end of 2026. However, the overall trend remains robust. The data visually illustrates the significant concentration of tariff discussions within specific industries, rather than a broad-based macroeconomic concern.
Disclosure Trends in Executive Compensation
The 62 companies that explicitly linked tariff developments to executive pay decisions for FY2025 adopted one of four distinct patterns, reflecting varied governance philosophies, timing of intervention, and approaches to management accountability:
| Pattern | Prevalence | Description |
|---|---|---|
| 1. Tariff Impact Moderated | 34% | Compensation committees excluded or moderated tariff costs when calculating performance metrics. |
| 2. Mitigation Rewards | 32% | Management was credited for actions that mitigated the impact of tariffs. |
| 3. Pre-emptive Goal Modification | 18% | Committees incorporated tariff risk into plan design at the outset of the performance period in anticipation of volatility. |
| 4. Shared Burden | 16% | Companies declined to make adjustments, allowing below-target outcomes to stand or actively reducing payouts, prioritizing shareholder alignment. |
Pattern 1: Tariff Impact Moderated (34% of filers)
Companies in this category treated tariff costs as extraordinary, unbudgeted items outside the direct control of management. Compensation committees excluded or moderated these costs from one or more financial performance metrics—such as adjusted EPS, operating income, operating margin, or free cash flow—before determining incentive payouts. The primary rationale cited was that plan targets were established before the tariffs were announced or implemented, making the subsequent policy actions external events not factored into the initial budgeting process. This was the most prevalent approach, observed across diverse industries including healthcare, aerospace, retail, consumer products, and industrial manufacturing, suggesting a widespread view that tariffs were beyond management’s immediate control. For instance, Becton, Dickinson and Company (BDX) detailed a framework for considering adjustments to metrics like adjusted EPS and operating margin, citing unbudgeted tariff costs that negatively impacted their results. Caterpillar (CAT) similarly framed its adjustments as a calibration to moderate, but not fully neutralize, the impact of tariffs on operating profit, acknowledging these as government actions outside management’s ability to anticipate or offset. RTX Corporation (RTX) anchored its approach in existing plan provisions for neutralizing the impact of changes in tax laws and accounting rules, extending this principle to tariff-related impacts due to their external and unpredictable nature. Church & Dwight Co. (CHD) quantified the tariff impact on its Adjusted Diluted EPS by $0.09 per share, demonstrating a clear adjustment. Dollar Tree (DLTR) made symmetrical adjustments to both operating income and total revenue to account for the tariff environment, increasing operating income by $148.8 million while decreasing total revenue by $259.4 million.
Pattern 2: Mitigation Rewards (32% of filers)
In this pattern, compensation committees did not merely exclude tariff costs but actively credited management for specific actions taken to mitigate tariff exposure. These actions, such as supply chain restructuring, geographic diversification, pricing adjustments, or policy engagement, were evaluated as positive qualitative or strategic performance factors. This approach implies a proactive management role, rewarded for value creation in response to external challenges. Abbott Laboratories (ABT) assigned a 5% weight to a goal focused on developing and executing plans to manage tariff impacts, with management achieving a perfect score. General Motors (GM) provided quantitative evidence of mitigation success, noting that leadership efforts reduced the initial projected tariff impact of $4.0B-$5.0B to approximately $3.1B, which the committee deemed significantly beneficial to shareholders. HP Inc. (HPQ) credited its CFO for exceptional leadership in mitigating tariff headwinds through supply chain shifts, cost reductions, and price increases. Aptiv plc (APTV) recognized cost optimization initiatives that offset tariff impacts within its Strategic Results Metric, leading to a 90% payout factor. Tractor Supply Company (TSCO) highlighted specific executive actions, like the CFO’s portfolio-based response and the CMO’s origin shifts and opportunistic buying, as drivers of margin protection. Rockwell Automation (ROK) directly attributed its 95.7% annual incentive payout to strong productivity performance and tariff impact mitigation on Adjusted EPS. This pattern was more common in sectors valuing supply chain flexibility and proactive management, such as consumer electronics, industrial technology, automotive, and financial services.
Pattern 3: Pre-emptive Goal Modification (18% of filers)
Companies employing this strategy incorporated anticipated tariff risk into compensation plan design before the performance period began. This included setting financial targets below prior-year actuals, widening performance ranges to absorb volatility, establishing explicit tariff cost exclusion principles in plan documents, or adopting multi-interval performance measurement. TE Connectivity (TEL) utilized a two-interval performance measurement approach to account for tariff uncertainty and other macroeconomic challenges. Intel (INTC) cited changing trade policies, including tariffs, as a factor for setting 2025 targets below 2024 actual results. Ross Stores (ROST) widened performance ranges and revised payout schedules, while also adopting defined cost factors to isolate tariff-related expenses. Eastman Chemical Company (EMN) set its adjusted EBIT target below the prior year’s actuals due to anticipated tariff impacts. SLB N.V. (SLB) broadened its performance range to account for potential tariff policy volatility. Newell Brands (NWL) embedded tariff adjustment provisions into the plan design when setting 2025 targets, recognizing the prospect of significant impacts. This proactive approach was more prevalent in companies with high import dependence or exposure to commodity tariffs, such as specialty retail, oilfield services, specialty chemicals, and technology hardware.
Pattern 4: Shared Burden (16% of filers)
This least common pattern involved companies explicitly declining to make accretive tariff-related adjustments, and in some cases, actively reducing compensation. Compensation committees acknowledged the tariff impact but concluded that executives should share the burden with shareholders, prioritizing plan integrity and alignment over outcome smoothing. Thermo Fisher Scientific (TMO) stated its conclusion that maintaining established performance standards and holding management accountable was in the best interest of shareholders. Kimberly-Clark Corporation (KMB) noted that tariffs contributed to missed financial targets but confirmed no adjustments were made to the annual incentive outcomes, which paid out below target. Trane Technologies (TT) disclosed management’s decision not to recommend adjustments, believing tariff impacts were effectively managed within operating performance. Kenvue Inc. (KVUE) acknowledged tariff impacts on its gross profit margin but did not disclose adjustments. Teradyne, Inc. (TER) went further, implementing a temporary 5% base salary reduction for senior leadership due to evolving macroeconomic conditions and increased uncertainty from global trade developments. This approach was somewhat more common in sectors emphasizing operational resilience or strong shareholder alignment, such as consumer healthcare, diversified industrials, and technology.
Conclusion: A Shifting Compensation Landscape
The dramatic increase in tariff-related disclosures within S&P 500 proxy filings for 2026 signifies a fundamental shift in how companies are addressing trade policy impacts. While the sheer volume of mentions has tripled from 2025 and far surpasses the previous decade’s average, the explicit linkage of tariffs to executive compensation outcomes remained a minority phenomenon, affecting only 15.3% of companies. This suggests that for a significant portion of the S&P 500, tariff exposure did not materially alter compensation structures.
However, for the 62 companies that did connect tariffs to pay, the approaches varied considerably, categorized into the four patterns identified. The distribution across these patterns—34% moderating impact, 32% rewarding mitigation, 18% modifying goals preemptively, and 16% sharing the burden—indicates a lack of a single consensus practice. Instead, compensation committees are exercising considerable discretion, reflecting differing governance philosophies and the specific impacts of tariffs on their respective businesses.
The way tariffs are characterized within these disclosures is also noteworthy. In Pattern 1, tariffs are treated as external, uncontrollable events. In Pattern 2, they are viewed as strategic challenges that can be mitigated and potentially rewarded. Pattern 3 sees tariffs as foreseeable plan volatility requiring proactive design. Finally, Pattern 4 frames tariffs as a shared burden, prioritizing shareholder alignment. These varied characterizations have substantial implications for how pay-for-performance relationships are communicated to shareholders.
Overall, the 2026 proxy filings confirm that tariffs have become a material factor in executive compensation governance, prompting a spectrum of distinct responses. The ongoing evolution of trade policy, coupled with recent court rulings striking down the 2025 tariffs and mandating refunds (as seen in Learning Resources, Inc. v. Trump), will undoubtedly continue to shape executive compensation discussions and disclosures in the upcoming fiscal years, providing fertile ground for future analysis.
