Mobility Basics - What is COLA?

ANTONIA KUESSNER | September 6, 2016

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There are many different ways to calculate salary packages for expatriates. Companies using a home-based approach generally aim to maintain their assignees’ home country purchasing power while on assignment in the host country, so they are no better or worse off. In order to achieve this, a comparison of the cost of living in the home and host country is made. The term COLA stands for Cost of Living Adjustment and it accounts for the difference in cost of living between the assignee’s home and host location. As the cost of living can be either higher or lower in the host location, this amount can be either positive or negative. What if the COLA is negative? Depending on the country combination, the cost of living in the host country may be lower than in the home country, resulting in a negative COLA. The majority of companies do not currently deduct this negative COLA from the home spendable, thereby giving their assignee a windfall in the amount of the COLA and effectively increasing their standard of living in the host country.

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