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

By Stephen Miller  9/16/2010
 

Only 11 percent of U.S. employers say that they award cost-of-living adjustments (COLAs) to employees. The more prevalent types of pay increases are characterized as promotional (94 percent), merit (92 percent) and market adjustments (76 percent), according to a WorldatWork study, Compensation Programs and Practices

“What types of salary increases and/or adjustments does your organization award to some or all employees?”

Option

Percent

Promotional increases (result of higher/greater level of responsibility).

94%

Merit increases.

92%

Market adjustments.

76%

Internal equity adjustments.

64%

Pay differentials (usually related to atypical schedule, hazardous or un-secure work environment, special skill set or responsibilities, etc.).

42%

Temporary special assignment pay.

36%

General across-the-board increases not considered COLA or market adjustments.

12%

Cost-of-living adjustments (COLAs).

11%

Other.

4%

Source: WorldatWork Compensation Programs and Practices.

A 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.

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Cost of living still dominates many workers'
perception of their raises
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“From a rewards perspective, it doesn’t make sense to base pay raises solely on the Consumer Price Index,” said Kerry Chou, compensation practice leader at WorldatWork, a not-for-profit organization focused on global HR issues including compensation, benefits, work/life and integrated total rewards. “Pay raises are a tool to motivate and retain employees," he added. "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, a vast majority (89 percent) of respondents selected individual performance against job standards and/or "management 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 percent) or informally (15 percent),” said Alison Avalos, research manager for WorldatWork. “Given the prevalence of tying pay to performance, we expect the number of employers awarding COLA to stay flat if not dwindle in the coming years.”

Methodology

Survey data was gathered from June 16-July 2, 2010 among members employed in the HR, compensation and benefits departments of mostly large U.S. corporations. Of the 1,381 responses, 44 percent came from companies with 5,000 or more employees.

Stephen Miller is an online editor/manager for SHRM.

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