For a long time, IT companies did not enforce Cost of Living Adjustment (COLA) as inflation remained relatively low. That changed when inflation spiked, putting considerable pressure on businesses. They find themselves grappling with higher wages, especially in India, but unable to pass these additional costs on to customers.
for some time, including cola terms Contract signing has become a common practice in the industry. These provisions allow companies to adjust fees based on changes in the cost of living, ensuring they can maintain profitability and continue to provide quality service to customers without bearing the full burden of inflation-driven fees.
For example, at Cognizant, a cost-of-living adjustment is applied to the compensation of each employee who resides in a jurisdiction other than the CEO’s Ravi KumarKumar’s principal place of work (the United States) adjusts the compensation of such employees to the jurisdiction of Mr. Kumar’s principal place of work. Each such cost of living index, including the cost of living index for India (where the global median employee is located), is used to adjust an employee’s applicable salary to the cost of living index for the United States. All cost of living indices used are the 2023 Cost of Living Index published by cost of living database provider Numbeo.com, cognition expressed in its agent documentation.
Peter Bendo-Samuel“COLA has always been an important source of profit for the company,” said the CEO of IT research consultancy Everest Group. information technology company. It is not shared with employees but is used to support revenue. As market conditions tighten, it’s harder for companies to get Coke into contracts, but whenever possible, they work to secure contracts in place to help profitability.
ISG Distinguished Analyst Stanton Jones said IT services contracts have not added cost-of-living adjustments for years because of low inflation. “However, when inflation spikes, rising wages, especially in India, puts a lot of pressure on businesses, but they are unable to pass on these costs to customers. It is now common practice to include these clauses in contracts.
Honda-Samuel said the employee pay increase was driven by local market conditions and had nothing to do with the Coca-Cola adjustment. “COLA is only indirectly related to wage growth because wage inflation will allow COLA to adjust. However, if a company can adjust COLA but not increase wages, they will do so. But if wages rise significantly, the COLA provisions kick in. Likewise , getting Coke into new contracts is becoming increasingly difficult as the company seeks price drops in the current market.
Jones said that in the case of COLA, it is an index used in multi-year outsourcing relationships to ensure that the price of a managed service (or price list) is consistent with the impact of inflation on operating costs. “Salary is an important component of a provider’s operating costs, but it is not the only component. It is also important to remember that businesses often do not have visibility into specific or even overall compensation levels for their provider teams,” he added.
