Inflation and
The Cost Of Living

What role, if any, does rising inflation play in setting your pay strategies?

Traditionally, unless your organization adopted a Living Wage philosophy, the cost of living was not a significant factor in the design or administration of your pay programs.

In an environment where inflation fell below planned pay increases, this relationship was not top of mind for employers or employees. In fact, many organizations regularly directed HR and business leaders away from using language related to cost-of-living adjustments (COLA). As a result, the intersection of cost of labour, cost of living, and pay decisions was not clearly communicated and it is not commonly understood.

Entering into this period of high inflation, driven by rising gasoline and energy costs as well as the costs for goods, employees are demanding higher pay to address diminishing spending power. Most organizations are struggling to reconcile these demands with their established philosophy, strategies, and practice.

Responding to this issue is even more critical for organizations that are looking to mandate a more frequent return to the workplace. Neglecting to address this concern makes your talent acquisition and retention activities much harder.

Many organizations (45%) appear to be taking a wait-and-see approach. For those organizations who have changed their pay practices, paying above market rates, paying lump-sum bonuses, or one-time COLA changes to their structures are the most common approaches to relieving pressure.

Your organization’s philosophy and strategies on this matter will need to be tailored to what you judge to be fair, competitive, and sustainable for your organization. Calculating the costs for COLA will help your organization make evidence-based decisions and budget for the strategy you land on.

Like this article? This question, “What role, if any, does rising inflation play in setting your pay strategies?” is just one of 10 critical questions you need to ask to help you with your 2023 compensation budget. To learn more about the other critical questions and how to address them, you can download our complete and complimentary white-paper here:

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