Pay and benefits: Only 21% of employers used COLA for pay raises in 2015

COLA has been commonplace practice for a while now, but the title really sums it up.

No, I do not mean that 21% of employers used a sugary beverage to help them calculate their employee pay raises last year. I mean Cost of Living Adjustments of course…

You can download a report by PayScale on compensation best practices to find out more.

The adjustments to employee pay are based on the everyday costs of living such as housing, transportation and utilities that have gone up over the years.

The problem is that these costs do not consider the external value of the job in the market or the internal value that an employee brings to a business. And that is not all.

• In hindsight, the cost of living increases are simply too little too late – By that, I mean that by measuring and awarding COLA at the end of the year (which is when it is typically done) it is always a year behind. With prices upping and lowering more commonly than the sun, waiting for the cost of living to be calculated and then the COLA pay increase to come out is simply a waste of time.

• Everyone is rewarded the same – While this is an unintended outcome, it doesn’t change the simple fact that everyone in the business gets the same pay rise regardless of their actual performance. Performance related pay can be a much better practise for a businesses pay and benefits scheme.

• Cost of Labour – COLA does not take into account the cost of labour, which essentially means that even if the cost of living is low in a particular area, there may be a particularly high demand for a specific role, increasing the job roles market value. In other words, the cost of living is not aligned with the cost of labour.

So what is the answer?

Because the cost of living is calculated after the fact and it does not include the cost of labour or other “goods”, it is not the best pay and benefits scheme. A market-based pay structure and performance based pay increase could be a much better option for your business as a whole.

At Reality HR, we always take a bespoke approach to our HR advice, which includes our pay and benefits toolkit. In other words, we tailor a pay and benefits scheme to suit what your business needs.

To see the improvements you could make to your business with Reality HR on your side, give us a call on 01256 328 428 or fill out the form below to arrange a callback at your convenience.

 

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