Cost-Of-Living Adjustments Unpopular Among U.S. Employers

(Published September 20, 2010)

 

 

Just 11% of U.S. employers award cost-of-living adjustments (COLAs) to employees, as prevailing pay increases tend toward promotional (94%), merit (92%), and market adjustments (76%), according to a WorldatWork study titled Compensation Programs and 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.  COLAs still dominate many workers' perceptions about their raises, as they believe that these are given to cover a cost-of-living increase rather than to reward job performance.

"From a rewards perspective, it doesn't make sense to base pay raises solely on the Consumer Price Index," said Kerry Chou, CCP, compensation practice leader at WorldatWork.  "Pay raises are a tool to motivate and retain employees.  How motivating can it be for a top performer to receive the same base pay increase as a low or average performer?"

When asked how base salary increases are determined, 89% of respondents selected "individual performance against job standards"or "anagement by objectives"without selecting "general increase" (where everyone receives the same increase regardless of job performance).

"Eight out of 10 employers assess performance either formally (65%) or informally (15%),"said Alison Avalos, research manager for WorldatWork.  "Given the prevalence of tying pay to performance, we expect the number of employers awarding COLAs to stay flat if not dwindle in the coming years."