People and Accrued Liabilities

 

 

(August 11, 2011)

Pondering accrued liabilities: accrued vacation time is accounted as an accrued liability on the balance sheet. To improve a company’s financial standing at the end of a financial reporting period, a company may require employees to take their vacation time. That is, the company will furlough the employees to lower that company’s debt.

This is an innovation of the human imagination, which also gave us double entry book keeping, depreciation, net present worth, etc.

As a practical exercise, my company applies this theory of operations each December as a matter of plan. In the previous fiscal year, the company also required employees to take several days of vacation during a certain quarter prior to closing the books. This helps improve the ratio of earnings to debt. That, in turn, is supposed to make investors more confident in the company. These investors then buy stock in the company, which drives the market value of the stock up.

This is the theory, at any rate. Or, perhaps the theory is, “it can’t hurt.”

I’ll offer a theory of my own, which is grounded in employee behavior: is the cost of the accrued liability of employee vacations (too) high on the liabilities side of the balance sheet because the employees elect not to take vacation?

We might be in a situation where work force reductions increase an individual worker’s responsibility without reducing corporate goals (or increasing the employee’s compensation). This makes it harder for the employee to take vacation (part of the employee’s compensation package) without impacting the employees individual goals (which determines the employee’s compensation). The accrued liabilities due to vacations go up, until they meaningfully offset earnings.  This results in a case where the employees, who do not believe they can take vacation must take vacation.

I have no data to prove that this theory is true. So, I’m offering it as a hypothesis.

In this hypothetical situation, the cause of an increase to accrued liabilities is the choice of the employee to not take vacation time. If true, this strange behavior might best be explained by the employee feeling constrained (prevented) from taking vacation due to (real or imagined) pressure to sustain a certain work load. The corporate leaders, then, have to order the employee to enjoy the benefits granted to the employee because the employee is costing the company too much money holding up a work load that is arguably overwhelming – otherwise, why would the employee not take vacation?

At this point, we need to take a quick diversion: The work that the employees of this company perform does not directly contribute to the survival of the employee or the employee’s family.  The corporate employee is not growing crops or hunting game. The employee is earning capital (or actually an agreement about capital stored as fields in a banking database)  that the employee exchanges (or transfers to other fields in another person’s banking record) in return for goods and services necessary to survive (or survive in such a way that everything’s fine as long as the electricity doesn’t go out).

(Surviving in this definitions seems to include an X-Box 360, Call of Duty: Black Ops and an X-Box Live Gold Membership for a year.)

In such a light, commuting appears to be an especially strange behavior. See the “Gods Must Be Crazy” for more on that topic.

In sum, then, it is possible that what we can learn from how corporations manage the financial position of the company by reducing accrued liabilities through furloughing employees who feel they can’t take vacations due to the increased responsibilities following layoffs and hiring freezes is that we are all bat crap insane – but we’d be homeless and starving if we behaved sanely (or at least we would not be playing Call of Duty: Black Ops).

This in turn makes me wonder if the end of the human race will not be a cataclysm of fire from nuclear weapons or a gamma ray burst from the sun, but rather it would follow an accumulation of stupidity in the pursuit of a better quarterly earnings call. A friend summed this up in the question, “Is Capitalism Cannibalistic?” which I’ve been wrestling with unsuccessfully for years.

During this year’s furlough, despite all my education and specialization in the on-time, on-budget delivery of multiple, related projects, I might be well advised to learn how to grind wheat into flour with a stone and practice how to get a yeast culture started. I’ll probably spend it in class work on the financial management of projects in order  to maintain a certification in project management and playing Call of Duty: Black Ops.

(13 December 2012)

An update on matter of accrued liabilities, paid time off, and the question of why people do not take vacations:

This year, again, my company will furlough employees for a holiday shutdown. This will produce FY Q2 savings throughout the organization. The savings will come from a reduction of liabilities as full-time employees spend the paid time off they have accrued over the year (or, really, it will be reflected as less debt owed to salaried employees). There will be additional savings to the quarterly cost of change-the-business and non-critical run-the-business operations as OS labor is re-balanced to reflect the actual cost of work performed in the reduced quarter. This is not news.

What is different this year is a policy that full time employees should spend the amount of paid time off accrued in a fiscal year during that fiscal year. This is a sort of “carry in, carry out” policy hikers have in the woods. For every hour of paid time off I accrue in the current fiscal year, I am asked to take that hour as vacation before we close the books on FY13 in July.

I accrue roughly six and a quarter hours a pay period, yielding about twenty days of paid time off in a year. I rarely take twenty days of vacation in the course of a year. As a result, I exit the fiscal year with a balance of paid vacation days due to me.

I am not actually required to take these twenty days, but I am strongly encouraged to take them. The result is that I should exit the fiscal year with the same balance of paid vacation due to me when I started the year.

A number of people have been objecting to this policy. These objections explain some of the reasons why some people choose to take less time for vacations than they could. My hypothesis, which I still suspect is true in many cases, is that people feel greater pressure to be producing at work than they feel a need to take a vacation.

Other people, however, have stated that they like to accrue vacation because they are managing uncertainty. Some like to have a surplus of accrued vacation hours so they can take as much as needed should an unknown need arise. As an aside, these people could borrow future paid time off in this case, but I suspect that people who like to have savings don’t like to carry debt. Some manage the uncertainty of employment itself. They accrue vacation time as a kind of guaranteed unemployment benefit; in the event of layoffs, they can bank on the company paying out the balance of the accrued PTO (which is fixed) against severance benefits (which are variable and, therefore, hard to predict).

There has been a vocal backlash against this policy. I don’t know whether this community is representative of the overall community of workers or not. That is, for some, this policy is irrelevant because these workers do consume all of their accrued paid time off in the course of a fiscal year. The complaints seem to be less about vacations per se, but rather about, “the leadership is taking something away from me in an arbitrary way.”

What they are taking away is choice. As a matter of fact, the company is not actually taking away choice in the strict sense, since this policy is not really a policy:  the management team is suggesting, encouraging and probably nudging with a certain firmness. They are not, however, requiring. Still, many people feel that they had ownership over their choice of taking or not taking a vacation. They feel that choice has been curtailed.

Management states that the principal reason for taking this choice away from workers (or suggesting strongly in regard to) is that the company wants to ensure that people are healthy, happy and rested. Again, this is strange, because as in the case the furlough, the management team is requiring (or strongly suggesting that) people enjoy their vacations. The irony of it would be worth further thought, except that the principal reason for this policy is not the health of the workers but the management of the balance sheet.

I am not suggesting that the management is unconcerned with the health of workers. Certainly they are. I am suggesting, however, that the management team would not be expending this sort of energy over a spontaneous concern about the well-being of unrested workers. I don’t think the CFO woke up one morning overcome with a concern about fatigued employees.

Having said that, what I suspect the management is doing will benefit the workers in the long run. I suspect that the company is working to do away with paid time off completely. They will replace it with some guaranteed amount of time each year that people are allowed to not be at work, pending direct manager approval. This is different from the policy of accruing paid time off. If the worker did not take these days, it would not result in the accumulated debt owed as salary. To make this a win/win, the company would need only increase the amount of time off a worker might be allowed to take in a given year — and off course, there would be no rolling over or accumulating of eligible vacation time.

My problem with all of this is not the view of a pernicious management team acting arbitrarily to muck around with the benefits they owe employees as part of our employment contract (though I admit that I do bristle at the thought of it, even though I don’t think I am being rational about it). What I do object about it is why we would need to make this change in the first place: we’re fiddling with our books.

There’s nothing illegal or unethical about this particular kind of fiddling. In fact, you could say it was smart, creative and responsible.

The problem with it, speaking for myself only, it is an attempt to make the company more profitable without the company actually being more productive. One could argue, if people start taking more time off, it’s an attempt to make the company more profitable while being less productive; you get into a bit of sidebar on that one, since someone could make an argument about the productivity of rested workers against the productivity of fatigued or dispirited workers. I’m not especially interested in that rabbit hole. Productivity is not the motive, in either case.

Numbers are the motive, and the people we are interested in appeasing with those numbers are not the workers. Financial analysts are the subject of this policy, and the stock price is the object. Workers are drawn into this mess the way dolphins are pulled out of the sea in tuna nets.

The change in the paid time off policy is about short term capitalization without issuing stock or taking on debt. It is about fidgeting with the summing of expenses paid to salary. It is about ratios of earnings to debt. It’s about agreements over how we reflect our finances. It’s gamesmanship, trickery and prestidigitation. It is pulling back the tent flap to discover that American Dream is not Henry Ford but P.T. Barnum.

Our financial industry, which I understand is about 17% of GDP, is about creating wealth without creating anything.

We need a punitive, regressive tax on short term capital gains. We also need a punitive capital gains tax on naked short sales of stocks. I’ll happily trade these for sweeping tax breaks for corporations. What I really wish we had was a prohibition on computer trading, requiring all trades to be bought and sold between humans on a trading floor with hand-written receipts in paper. The thing I’d like to see the most is executive compensation reform, with shareholders in companies putting a cap on what their executives can earn from stock options and grants. These changes would make it hard to harvest profit from swings in the marketplace and limit the influence Wall Street analysts have on corporate operations. To me, these make a hell of a lot more sense than messing with vacations in an attempt to manage, maintain, and sustain this stupid flimflammery.

I’ll have plenty of time to think about why none of the above reforms will ever happen during my twenty days of vacation this year.

(2017 September 28)

The Director tells me that I have over ninety hours of PTO accrued and I should plan to take my holidays.

She mentions this again in staff, as a general remark. The problem, I seem to understand, is making sure we have proper coverage during out time off and there are no gaps.  A peer mentions the budget benefit to the organization if we consume our PTO.

I say nothing.

Next on the agenda is the criticality of accomplishing deliverables to meet our corporate goals. We are cautioned, if we don’t track to these goals, it will be “all hands on deck,” and “PTO will be cancelled.”

I say nothing.

(2017 October 25)

The Director sends out an email instructing her direct reports not to communicate to staff that PTO will be cancelled. She carefully states that “This has not been the case….” The Director, like many directors, appears to have mastered the careful construction of a sentence.

We can all appreciate the craftsmanship of obfuscation that comes from the present prefect simple used the passive voice.

Thus, something in the past that did not happen once and, therefore, that nothing will definitely have no impact on anyone in the future.

We should be quite clear about that.

Only an artist can find a fulcrum point that puts the sentences “this may happen,” and “this may not happen,” into such perfect balance without tipping meaning to one side or the other.

We are further instructed to bring her attention, immediately, if we hear of such a thing from any of the teams.

I think on LaLoux’s color scale, this part of the instructions to the team qualifies as “Infra-Red.”

I am torn between a commitment to do nothing about any of this or to report immediately that I heard it from her.

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