Just 11 percent of employers award cost-of-living adjustments (COLAs) to employees, preferring to award promotional and merit increases, according to a WorldatWork study on compensation practices.
COLA refers to an across-the-board wage and salary increase designed to bring pay in line with increases in the cost of living to maintain real purchasing power. Cost of living still dominates many workers’ perception of their raises, believing that these are given to cover a cost of living increase, rather than to reward them for job performance.
As a best practice, human resources managers don’t mix merit pay with cost of living factors that have no bearing on job worth or performance. An individual’s cost of living is driven by their personal financial choices and cannot be neatly tied back to the CPI. Example: a choice to take out a five-year loan with 0 percent down for a luxury car versus a compact car has nothing to do with the local cost of labor. How employees have chosen to allocate their finances is a personal choice. A vast majority of employers and HR managers view pay raises as a tool to motivate employees. How motivating can it be for a top performer to receive the same base pay increase as a low or average performer?
Given the prevalence of tying pay to performance, expect the number of employers awarding COLA to stay flat, if not altogether dwindle in the coming years. This trend actually began way before the recession, and is not likely to come back even in an economic recovery. The reason is that more and more organizations are requiring increases in pay to be earned. Showing up at work is no longer enough.
No doubt this news will be met with approval by high performers and derided by low performers. Which kind are you?