Compensation Glossary

Cost of Living Allowance (COLA)

The term COLA can be used in two senses. 1) A Cost-of-Living Adjustment in which wage rates are periodically adjusted, usually upward, based upon changes in the cost of living. These are often found in collective bargaining agreements. In addition, they constitute large increases in government programs, such as social security. 2) An allowance that is separate from base pay that is given to employees who relocate to a more expensive city to help them financially make the adjustment to living there. These allowances are usually phased out as the employee makes the adjustment.