A cost-of-living pay adjustment is an example of which compensation strategy?

A cost-of-living pay adjustment is categorized under the entitlement compensation strategy because it is typically based on external economic factors, such as inflation, rather than individual performance or contribution to the organization. This type of adjustment is meant to provide employees with a salary that maintains their purchasing power in the face of rising living costs.

In an entitlement strategy, pay increases are often viewed as a standard guarantee for employees, aligning with the expectation that all employees in specific roles receive adjustments regardless of their individual performance levels. This approach contrasts with performance-based strategies, which link compensation directly to individual contributions, accomplishments, or metrics of success.

While equity considerations do play a role in compensation practices, particularly in ensuring fair pay across similar positions, the cost-of-living pay adjustment is not based on perceived value or performance but rather on the necessity to adjust wages in response to broader economic conditions.