A prominent U.S. law firm is warning companies facing tariff-related losses to rethink executive bonuses or risk a blowback from workers and investors.
At a Glance
- Cooley LLP advises firms impacted by tariffs to reassess executive pay to avoid public backlash
- Trump-era 50% tariffs on steel and aluminum are squeezing profit margins across industries
- Without adaptive bonus policies, companies risk rewarding executives during layoffs
- Pay committees are urged to distinguish between controllable and uncontrollable performance factors
- The warning applies internationally as tariff shocks ripple through global supply chains
Legal Red Flags
As new rounds of Trump-era tariffs hit everything from metals to tech components, businesses are being warned that retaining generous executive bonus structures could invite scrutiny. Cooley LLP, a major Silicon Valley law firm, has advised corporate boards to treat tariffs as a “black swan” trigger, one that demands immediate compensation review. Their concern: awarding multimillion-dollar bonuses during cost-cutting rounds or layoffs could spark both reputational and internal backlash.
The 50% tariffs on steel and aluminum—excluding the UK—have boosted input costs across manufacturing, while U.S. import restrictions on high-tech goods have disrupted tech supply chains. For companies without flexible compensation language to account for macroeconomic shocks, the optics of rewarding top executives during tough times may become a liability.
Strategic Guidance
Cooley’s guidance to boards includes specific steps: incorporate macroeconomic triggers into compensation formulas, stress-test bonus policies against global shocks, and build in clauses that allow for discretionary adjustments during periods of extraordinary volatility. Without such measures, firms risk locking themselves into payouts that appear unjustified.
Executive pay transparency is increasingly under the microscope, and shareholders are starting to demand that boards justify their decisions not just on financials, but on fairness. This growing sentiment has accelerated as tariffs drag on earnings reports and drive unpredictable supply disruptions.
Long-Term Implications
Some observers, like Luke Hildyard of the High Pay Centre, argue that the current environment exposes long-standing weaknesses in how executive compensation is rationalized. Traditional justifications—that high pay attracts top talent—don’t hold up well when external shocks dominate performance. Companies may be forced to reevaluate not just bonuses but the very metrics used to gauge executive success.
The transnational nature of supply chains also means companies based in the UK, EU, or Asia with U.S. exposure may find themselves caught in the same trap. That makes Cooley’s memo not just a warning for Wall Street, but a global signal.
As boards prepare for midyear compensation reviews, one thing is clear: failure to adapt bonus structures to geopolitical shocks could become the next major liability in corporate governance.
