Cost Of Living Adjustment | Meaning and Definition

What is Cost of living Adjustment?

A cost-of-living adjustment, or simply, COLA, is a pay increase that is applied to all employees at the same time when the cost of living rises. Cost of living adjustments are often incorporated by government agencies and labor unions, but individual enterprises do so only on rare occasions. For example, a private-sector corporation may opt to implement a COLA for employees who relocate to a more costly locale. Private firms, on the other hand, often base wage increases on merit increases, promotions, and market value. When developing competitive remuneration, HR professionals should keep the regional cost of living in mind. Competitive compensation that allows an employee to enjoy a high-quality lifestyle may help recruit, engage, and retain top personnel. 

Implementing Cost Of Living Adjustment 

  • Accommodation, food, health, transit, and energy are all included in the cost of living. Employee earnings must meet at least these basics in their city of residence, according to HR leaders. Workers should be encouraged to live and flourish on their optimal salary.


  • HR executives should consider two key factors to guarantee that pay can match the cost of living: market value and corporate value. HR executives can better comprehend each employee’s worth to their organization and the job market by looking at these three factors.


  • Rather than relying entirely on cost-of-living arrangements, companies may create a pay scheme that meets the demands of their employees, appropriately represents the job market, and is within the budget of the company.
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