Adjustment of living index parity in annual wage review is a must for companies to build employees trust and promote fairness - Gulf News article

Companies must factor these into annual compensations for a better engaged workforce

Employees’ expectations for a salary raise in line with any spike in the cost of living index is fair and must not be ignored. And when it’s not done, this is cited as a usual employee grievance.

This demand must not be lost in translation, citing market conditions, or comparative salary index to tone down this request. A cost-of-living raise is an increase in pay to ensure the employee’s salary is the same during a period of inflation, if any. Without a cost-of-living lift, workers are left with less real money.

Cost-of-living raises are also known as the cost of living adjustments (COLA). We also refer to this as Consumer Price Index (CPI), which is an approximation of how much someone must spend to attain a certain level of well-being. It measures the price of a basket of goods and services that an average household buys.

Genuine demand

Companies should see this as a genuine need to recognise best practice. In fact, this sets the requisite standards for effective employee engagement and ensure workforce happiness.

Increments arising from work-related improvements and promotion-related assessments must not form a part of this review.

Still, any consideration on a rise in living index related adjustments should be a separate exercise. Individual employee performance, divisional profits, company performance, and living cost adjustments should be the four main criteria for the annual compensation evaluation reviews.

Indeed, each can have its weightage, but wage increment must be a compulsory factor in living index parity in an appraisal review. Companies must consider this element as a cost and factor it into budgetary estimates.

Nod to market reality

I realise that in current market conditions, any such move may be tough. Still, all should be aware that for employees to meet their basic living needs, it is fundamental to their well-being and is indeed tied to a company’s overall performance.

It is imperative for finance departments in organisations to factor this need and must provide this as an essential cost differential in its forecasts.

The living index cost primarily covers their holistic needs, such as food, utilities, rent, recreation, entertainment, communications, clothing, transportation, health care and education.

From these costs, rent and education are the two major variants that must be a part of any wage review. No doubt, in recent years, rent differentials in UAE have been a matter of great — or less — concern.

This index has tilted both southward and northwards, and it is fair that we engage employees, either way, to communicate about the impact on both the company and employee. It is a tough call as markets continue to remain hostile to any cost escalations.

However, if we observe fairness as a company’s value, then there is no option but to waive this consideration, however difficult it may be. Because such a measure can be such a booster for employee morale.

Based on merit, there can be many ways to arrive at a fair conclusion.

However, with regards to living index, there cannot be any debate as it is based on publicly available data. And to ease the pressure on themselves, companies must factor this into their contractual engagements and when preparing their forecasts.

This has got to be implemented across the entire workforce and not on a selective criteria.