Tariffs, Economic Pressures Causing Unease About Compensation

As employers contend with various cost pressures in light of a shifting economic landscape, company leaders have a new concern: high employee fears over how that shifting landscape will impact compensation.

More than half of companies (56%) across the U.S. and Canada said their workforces are concerned about base pay increases in light of recent changes to economic policies and the implementation of President Donald Trump’s tariffs, according to a pulse survey of 218 respondents conducted in April by consulting firm WTW. 

Indeed, roughly a quarter of organizations (23%) are expecting tariffs and ongoing economic volatility to result in reduced pay increases for the remainder of the year, WTW’s survey found. Most, however, said the tariffs shouldn’t influence compensation this year: 48% of companies reported there would be no impact to this year’s projected salary increases, but said next year’s budget may be impacted. Another 28% reported no impact at all.

It’s not surprising that employees are expressing concern over compensation. Slowing pay raises, more awareness about pay, and soaring financial stress have driven employee dissatisfaction. Overall, employee optimism is near a record low, according to an April SHRM pulse survey of 1,067 U.S.-based workers and 2,060 HR professionals, driven by economic and political concerns. 

Following recent political events, including the executive actions taken by Trump to dismantle the Department of Education, the Federal Reserve’s decision to keep interest rates steady amid inflation concerns, and the recent stock market decline, only 47% of U.S. workers expressed some degree of optimism about the future of the U.S. This represents the second-lowest level of optimism since SHRM started tracking the figure in June 2024. The highest level was 65% in November 2024.  

Meanwhile, SHRM found that 49% of U.S. workers said the current state of the economy had a negative impact on their mental health, while only 17% said the state of the economy had a positive impact on their mental health. More than 1 in 3 (36%) said the state of the economy had a negative impact on their sense of job security.

Overall, there are many unknowns and concerns about the impact of the tariffs, said Justin Ladner, senior labor economist at SHRM.

“The broad expectation is that tariffs will drive prices higher in the near future, and this belief will play a powerful role in decision-making, at least in the short term,” he said. “There is incredibly high uncertainty regarding future conditions. There is broad agreement that sustained tariffs will drive prices higher, but whether or not the tariffs will be sustained — and, if so, at what levels — is an enormous question mark. Sustained uncertainty of this kind is economically damaging in and of itself.”

Communicating with Employees About Pay

Although compensation worries are high, most employers say this year’s projected salary increases will not be impacted by the tariffs. 

The disconnect — that employees are worried, but employers aren’t yet making drastic changes to compensation because of tariffs — underscores a need for communication, said Lori Wisper, managing director, work and rewards, at WTW.

“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,” she said. Also important, she added, is to reiterate the organization’s commitment to retaining and attracting talent.

Indeed, most employers already have their compensation spend set for the year. Other factors —including a cooling labor market and stabilizing inflation — have driven employers to pump the brakes on the competitive pay increases that were the norm over the past couple of years. A report by Seattle-based compensation firm Payscale in March found that on average, organizations are reducing pay increases by 0.3 percentage points — planning for 3.5% pay raises in 2025, compared to the 3.8% given in 2024.