Another startup asked me "how do our bands reflect the change in cost of living?" Here's why this approach is hurting your business.
I get this question pretty regularly. And I understand why.
When the cost of living is up, people's salary doesn't go as far as it used to, and that's what they talk about around the dinner table.
So it feels like the natural thing to build your pay bands around.
But here's what I've learned after doing this with a lot of companies:
- Your bands don't exist to track the cost of living.
- They exist to track the cost of talent.
Those are two completely different markets.
Cost of living tracks your bread, your milk, your petrol.
It moves on the supply and demand of stuff.
Your bands should move on the supply and demand of people who do that job.
When I see a company anchor their bands to cost of living, one of two things always happens:
- The market for a role runs hot (think AI skills right now, 10-15% in some places).
- While cost of living is sitting at 2.1%.
So the company nudges their bands up 2.1% and then wonders why they can't hire and why their best people are taking calls from recruiters.
Or the opposite.
Cost of living jumps, the market for that role is flat, and the company pushes bands up 5% to "keep up."
Now they're burning cash they never needed to spend, which for a startup with finite runway is a genuine problem.
Either way, the band is now disconnected from the actual market.
It's telling you a story about groceries when you needed a story about hiring.
So when a client asks me how their bands reflect cost of living, here's what I say:
"Your bands should reflect the market for the role. Cost of living is real, and your people are feeling it, so address it deliberately, but address it somewhere else."
(btw I'm a fan of one-off allowances over a blanket % on pay. Cost of living pressure doesn't scale with what someone earns, so why should the relief?)
So don't ignore cost of living. Just stop asking your bands to do a job the aren't built for.