Friday, September 25, 2009

Merit or COLA?

I just put down an interesting survey published by the Economic Research Institute on how cost of living adjustments sometimes replace pay for performance.

The most interesting finding in this survey is that taking the easy road may be more expensive in the long run.

The good: COLAs are easier to administer and roll out that pay for performance plans for obvious reasons. For one thing, they are highly standardized and easy to understand. You don't need a team of compensation specialists to give everyone a 2.3% COLA. Even managers understand it. And you don't have to deal with whiny or litigious employees who think they should be getting a higher than average raise because everyone is treated equally.

The bad: COLA tends to be a self-fulfilling prophesy. Once you have a COLA culture people expect it every year, regardless of their own performance or company performance, and over time modest increases can really hit you in the bank. And sadly, it's easier to close a plant than control salaries.

The funny: Here's my favorite takeaway line because it shows that even a fairly dry topic can amuse: 'There's a reason why comp specialists always go to lunch in threes.'

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