Accounting Magic

A new look at how accounting effects employee policies. 


What do you think GM has announced in the last few days? According to the WSJ, GM has announced three items: $8 billion in net profits for 2011, bonuses for 26,000 salaried employees and an $8.7 billion underfunded pension plan. If GM would pay all of its bills, like the rest of us have too, such as the $8.7 billion it owes to the pension fund, then GM would show a $700 million dollar loss and could hardly rationalize bonuses for 26,000 salaried employees. 


I have not had an opportunity to review GM's financial statements, but I bet through the magic of accounting, the $8.7 billion underfunded pension plan is listed as a contingent liability rather than a current expense. If it was a current expense, then GM would show a loss, but as a contingent liability, GM owes it, but not right away. Ergo, GM makes a profit and 26,000 salaried employees get a bonus. 

What about the $8.7 billion it owes the pension plan? GM will worry about that next year. It can always borrow it. As they say, "As GM goes so goes the government," or is it the country. What's the difference?

And so it goes.