Cost of Living Allowances / COLA
Should COLA be updated?
One benefit of the COLA is that it is paid separately from salary and can be updated for changes in economic conditions – both up and down. Because the COLA compares costs between home and host, an exchange rate is used to facilitate the comparison. As exchange rates change they are applied to the COLA to keep it up to date.
Additionally, both the market basket at home and at host are affected by inflation and deflation, so the COLA is updated for those as well. Updating the COLA for exchange rate and inflation allows the company to make sure the employee is protected against economic changes.
As a result of changing economic circumstances, the COLA can increase when more support is needed, decrease when less of a supplement is needed. Although COLA changes keep the employee balanced, COLA decreases may raise questions from employees and the global mobility team often is called on to help field questions.