Set the baseline
You must first set the baseline. This is extremely important as you need to outline the clauses of your compensation package when you are offered a contract. The best thing is to relate the salary or the hourly wage to the changes in inflation. However, your annual bonus should have no link to any changes in inflation.
Select the CPI
You must choose which Consumer Price Index you want to use. There are four types of Indices that can be used. These include the CPI-U (for urban consumers), CPI-W (for wage earners), CPI-E (for elderly) and C-CPI-U (chained CPI for all the urban consumers). Select the index according to your use and the regions, cities and categories you want.
There should be an agreement on a reference period. You must decide whether you want to agree on a yearly average, a monthly average or some other time period that you like.
Determine a formula to make adjustments
You must establish a formula to get the findings. The most common method is to divide the new Consumer Price Index with the older one and multiply the answer with the base wage or the base price.
Decide on a cap or floor
You can agree on a cap or floor with your company to counter any effects of inflation on the wage or the price that you are offering. Generally a floor will ensure an increase in wage every year even if there is no inflation.