Best Columns: Business

Investors sink their claws into executive pay; The damage done by oil speculators

Investors sink their claws into executive pay

Gretchen Morgenson

The New York Times

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Score one for the shareholders, said Gretchen Morgenson in The New York Times. Last week, shareholders of UnitedHealth Group won a landmark victory when the company agreed to recover $1 billion paid to former executives who had unjustly enriched themselves through backdated stock options. By fiddling the dates that the options were awarded, the executives realized gains that were rightly due UnitedHealth shareholders. The agreement is great news for shareholders of other companies, because it “sets a standard of behavior for other companies and boards when performance pay is shown to have been based on ephemeral earnings.” Whenever a company like UnitedHealth “claws back” executives’ ill-gotten gains, says compensation expert Michael Melbinger, “it just makes it harder for other executives not to agree to them and other boards not to insist on them.” The UnitedHealth board set another important precedent by working diligently to get to the bottom of the company’s backdated-options mess instead of “whitewashing questionable actions.” Now, other boards will have to think twice before they let a CEO off with just a slap on the wrist.

The damage done by oil speculators

Paul Roberts

Los Angeles Times

Speculators’ gambles are making high oil prices a “classic self-fulfilling prophecy,” said Paul Roberts in the Los Angeles Times. The falling dollar is raising U.S. oil prices by as much as $20 a barrel, but “that pales against what speculators may be adding to the price.” Consider what can happen if enough traders bet in the futures market that oil prices will rise over the next 30 days. Eventually, the price of 30-day futures will rise to reflect their bets. In turn, the current, or spot, price of oil will also rise, reflecting the market’s consensus that prices are headed higher. Oil is especially susceptible to such manipulation, because the market is volatile and “opaque.” And while the size of the “speculative premium” is a matter of debate, it’s likely up to $45 for each barrel, or about $1 for each gallon of gasoline. There’s “nothing criminal” in this, but it has costs. “Angry motorists” are just the start. What’s more worrisome is that the speculative premium gives Iran, for example, an extra $5.5 billion every month.

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