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It's the Economy …

Oct. 14, 2008 — All eyes are on the economy as we enter the last few weeks before the elections. It's amazing how quick attention can turn; a month or so ago all anyone wanted to talk about was the energy crisis or perhaps health care, but real-world events intervene.

After last week's IMF and G7 meetings, the U.S. Treasury yesterday gave an update on its activities since passage of the Emergency Economic Stabilization Act (EESA), also known as the financial rescue/bail-out law.

In addition, today the Treasury announced new interim final rules regarding executive compensation under EESA. These new rules will generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers participating in any of the three programs offered under EESA:

  • Troubled Asset Auction Program (program to purchase troubled mortgage-related assets through an auction format)
  • Capital Purchase Program (program designed to provide equity capital under standardized terms directly to certain financial institutions)
  • Programs for Systemically Significant Failing Institutions (program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis; in this case, the exec comp requirements would include restricting golden parachutes for departing executives)

The rules require that entities participating in any of the three programs must comply with the following rules:

  1. Ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;
  2. Required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;
  3. Prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and
  4. Agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

Continuing the focus on the economy, yesterday the House Democrats held an economic forum to highlight their push for a new economic stimulus package to be voted on in November and to announce hearings over the coming months on the same issue.

Joining in the fray, the two presidential candidates have released competing economic plans. Sen. Obama released his plan yesterday. A key centerpiece is "A New American Jobs Tax Credit": a temporary tax credit for firms that create new jobs in the United States over the next two years.

Sen. McCain released his plan today, which focuses on extending unemployment benefits by exempting them from taxation and proposing that withdrawals from tax-preferred accounts — IRAs And 401(k)s — should be taxed at the lowest rate (10%) in 2008 and 2009.

Before the U.S. markets opened today, the president spoke to the nation concerning the economy and the help the government will provide by and U.S. Treasury Secretary Paulson issued a statement describing the new capital purchase program. This voluntary program will be available to qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5 p.m. (Eastern) on Nov. 14, 2008. These entities must also comply with the new executive comp rules that I mentioned above.

This must all be working (right? right???), since yesterday the stock market had a record rally, up nearly 1,000 points! Early today the market also looked to be headed in a positive direction, but later seemed to slow.

There are reports that small businesses have been affected by the credit crisis. Obama has issued a plan to help by providing tax incentives and loans. McCain also has a plan to lower taxes, including capital gains taxes.

Has all of this started affecting your company? What impact, if any, is this having on your ability to attract, motivate or retain good workers?

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The opinions expressed are solely those of the author and do not necessarily represent those of WorldatWork.

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Tue October 14, 2008 8:34 PMReport Abuse
Mercedes McBride-Walker
Research Consultant
Member Since: 1/1/2001
Comments: 65
Thank you, Cara, for the great recap of the current goings-on. I appreciate having it in one place from which to reference.