Opinion: Solid strategies needed to navigate executive pay through tariff and market turbulence
This has been far from just another year for most of Alberta's biggest companies.
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Economic indicators in 2024 showed a relatively strong provincial economy, with most sectors posting strong, positive total shareholder returns. But the celebration of those results came to a rather abrupt end as the new year dawned and U.S. President Donald Trump's administration began weaponizing tariffs on some of our key products.
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Like so many of our Canadian and global neighbours, the developing story of 2025 is one of reduced economic activity in the face of tariffs causing share-price return reversals. Sixty-five of Alberta's 100 largest publicly traded companies tracked in Global Governance Advisors' annual review of executive compensation posted negative total shareholder returns in the first half of 2025.
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For boards of directors, setting executive compensation levels and incentive performance targets is already difficult. Factor in yo-yoing tariffs, shifts in global trading partners, unpredictable commodity prices and share price erosion, and it becomes extremely challenging.
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That said, there are some strategies directors can employ during these uncertain times.
Conservative increases in base salary: Given market uncertainty, providing lower merit salary increases is one way to limit increases to fixed costs. If competitive market pressures are bubbling up, shifting some of a planned salary increase to at-risk incentive pay allows a company to remain market competitive on total compensation while placing more of an executive's pay at risk.
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Review of incentive performance metrics: In an uncertain period, historical performance metrics and those strongly affected by commodity prices may not be as relevant in determining performance, especially on a one-year basis. Introducing new metrics and/or shifting weight to other more controllable measures — cost containment, strategy execution, cash flows, etc. — can be effective to keep key leaders motivated and focused. However, a company should not introduce too many metrics so as to dilute the effect of any one metric within the plan. A good rule of thumb is to maintain a weighting of 10 per cent or higher within the plan design.
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Review performance targets: Setting challenging, yet fair performance targets can be difficult in the best of times. Goals set at the start of the year might have been upended by shifting U.S. tariffs and other trade disruptions. This can be managed by setting wider performance ranges that allow for a greater level of variability in performance results, or by making in-year adjustments to performance expectations if it's clear targets are unrealistic. More qualitative targets may be warranted to encourage leadership focus shifts and plan changes, to both anticipate and react in ways to keep the staff motivated, even as those targets change.
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