By: Maryam Naghavi

The 2025 tariff hikes—especially on imports from China—are driving up costs across the board. Startups that rely on global supply chains, contract manufacturing, or foreign cloud infrastructure are seeing their margins shrink overnight. And while boards and founders are scrambling to renegotiate vendor contracts and find cheaper alternatives, one thing is getting overlooked: your compensation plan.

For most startups, comp planning is already a house of cards—built on limited cash, big equity promises, and optimistic projections. The new tariffs are shaking that structure hard. Here’s how to adapt before you lose your team, breach agreements, or damage your cap table.

1. Bonus Plans Tied to Revenue or Margin Need Rework—Now!

Let’s say your COO has a 2025 bonus tied to a $15M revenue target. Thanks to tariffs, your BOM costs jumped 22%, and gross margins are sliding. You’re now forecasting $12.5M in revenue—optimistic if things stabilize.

If you ignore this:

• Your COO misses their bonus and starts fielding calls from recruiters.
• You’re tempted to make a discretionary payout that’s off-plan—and opens the door for others to demand the same.

What to do:
Amend bonus agreements before performance periods end. Include a clause that allows you to adjust metrics due to “macroeconomic disruptions,” including tariff impacts.

2. Refresh Grants Must Reflect Reality—Not the Last VC Valuation

Tariffs are indirectly crushing valuations. Increased costs mean lower margins and delayed growth, which are pushing 409A valuations down. If your equity refresh grants are based on outdated numbers, you’re both overpaying and not retaining.

Example:
Let’s say your 409A valuation from last year said your common stock was worth $1.00/share. But due to tariffs and other economic shifts, the actual value of common stock is at $0.60/share. If you grant new options based on the outdated $1.00 strike price:

• Employees receive less upside.
• The options are less attractive.
• You’re using more of your option pool to offer the same perceived value—effectively “overpaying” in equity terms, without the retention benefit.

What to do:
Run a 409A check (even informal) before issuing new grants. Consider milestone-based vesting or RSUs that convert on a financing event.

3. Your Workforce Is Adapting—So Should You

According to HSBC’s 2025 Trade Pulse survey, 77% of U.S. small and mid-sized businesses expect more cost increases this year due to tariffs. Your employees are human! They are, therefore, already looking for side gigs or contract work to offset rising costs of living. Some may leave your startup to join a more stable company that offers them a better compensated position.

What to do:
Make your bonus and equity plans more modular. Break them down into company, team, and individual components so wins in one area still pay out—even if tariffs tank the rest.

4. Be Transparent—Tariffs Aren’t a Surprise Anymore

Your employees read the news. They’ve seen prices go up, vendors delay shipments, and new product launches get kicked down the road.

What to do:
Be upfront. When plans change, send a plain-language memo. “We’re updating compensation targets to reflect the economic impact of tariffs” does more for morale than silence and secrecy.

5. Avoid Vague “Make-Whole” Promises

You might be tempted to make side promises to key employees: “Don’t worry, we’ll make you whole at year-end.” But vague compensation assurances are dangerous.

What to do:
If you must adjust comp midyear, document everything. Better yet, roll it into a new written plan approved by the board.

6. Rebuild for 2026 Now—With Flexibility Baked In

It’s clear the tariff landscape isn’t going back to 2023 norms. The U.S. tariff burden is expected to jump from $76B to nearly $700B annually (ouch!).

What to do:

• Add “economic disruption” clauses to your bonus and equity plan docs.
• Set performance metrics quarterly, not annually—so you can course-correct.
• Build board-approved discretionary ranges into comp plans.
• Document how tariff impact is calculated—especially for margin-based bonuses.

Final Word

Startups can’t out-lawyer macroeconomics—but they can out-communicate and out-plan them. Compensation is too central to morale, retention, and recruitment to leave it misaligned for a full year.

If you’re adjusting your bonus plans, refreshing grants, or preparing board materials to approve new comp structures—SIP Law can help.