Amid the new administration’s recent flurry of tariffs and countermeasures, organizations throughout the U.S. and Canada are contending with an everchanging business environment. As they focus on the implications these changes have on business, they are challenged with the potential impact it is having on their employees. According to a new survey by Towers Watson, a WTW business (NASDAQ:WTW), 56% of companies indicated their workforces are concerned about base pay increases in light of recent changes to economic policies.
The Adapting to 2025 U.S. Policy Shifts Pulse Survey found that the current economic landscape is causing apprehension among employees about compensation. Yet, 48% of companies reported there would be no impact to this year’s projected salary increases but next year’s budget may be impacted, and another 28% reported no impact at all. Less than one-quarter (23%) of organizations are expecting tariffs and ongoing economic volatility to result in reduced pay increases for the balance of the year.
“This disconnect underscores the importance of communication during a time of change,” said Lori Wisper, managing director, Work & Rewards. “As employees worry about a potential recession, companies’ commitment to retain talent and remain competitive isn’t wavering. Particularly, since base pay and bonuses have the largest impact on talent attraction and retention, it behooves leadership to provide some assurance to their employees by sharing about the potential impact of tariffs on the company’s financial health to the degree that this can be defined.”
In terms of variable pay, companies remain committed to their established compensation programs. Two-thirds (67%) of organizations indicated they did not intend to modify their short-term incentive plans. However, 28% of companies said they would consider making discretionary adjustments, if appropriate, as the year progresses.
Almost three-quarters of respondents (72%), indicated that they do not intend to modify their long-term incentive plans. However, 19% of all companies surveyed noted that they would consider making discretionary adjustments at the end of the performance cycle, if deemed appropriate. Additionally, 11% indicated they either made a change already that they are standing by or are planning to make a change.
“While the pace of change to tariffs limits making programmatic shifts, organizations can take action now. For all incentives — short-term, long-term, sales compensation, and other variable pay — companies should assess how tariffs and ongoing market uncertainty may impact payouts, develop a perspective on what affects from tariffs should be included vs. what adjustments would be suitable, and have a plan to socialize this point of view,” said Marc Roloson, senior director, Work & Rewards. “The right decision varies by company and requires thoughtful consideration as to which behaviors and activities will deliver the best long-term impact for the business, its employees, and its shareholders.”
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