Andrew J. Hall: From $4.00 Gas, to $100m bonuses, To Battle With Our Treasury Dept Czar of Executive Pay!

This is such an outrage that it needs to be the news cycle of the next week!  I’m giving this my classic attention deficit news treatment in order to provide some basics and some background.

Hopefully, this post will illuminate a very complicated and infuriating topic.

Andrew J. Hall currently works for Citigroup in an energy trading unit called Phibro LLC. Mr. Hall’s contract calls for up to a 100 million bonus, as he is one of their top energy traders for 2009.

Remember the $4.00 per gallon gas? Mr. Hall was there! He serves as head of Citigroup’s Philbro, LLC energy trading unit. Mr. Hall makes huge money for Citigroup. Period. That’s why he has such a huge compensation package.

Remember the bailouts? Citigroup was there, getting 45 billion that has not been paid back. And that 45 billion still may not be enough! 1

A lot of these bailout firms use ridiculous bonuses to get the top people to work for them. Otherwise,the theory is that the best people will work somewhere else, since they are allegedly such hot tamales.

However, firms which have gotten TARP funds are now limited in how they can compensate the fat, juicy top employees.

The rule for bonuses is: no more than one-third of total compensation and payable only in restricted stock. If the contracts predate Feb. 11, 2009, they are exempt.2

And that’s where Kenneth Fineberg, a Treasury Department official dubbed the “Pay Czar”, comes in. Mr. Fineberg is expected to reign in the compensation of the top 100 people at the TARP companies. 3

He has to walk the plank between letting companies attract the best top personnel with lucrative contracts; and zapping bonuses paid for by TARP funds.

Mr.Fineberg simply cannot force a company to breach it’s existing contracts; Mr. Hall want’s his money. I hope that Mr. Fineberg is healthy and has a strong heart.4

SUMMARY

In summary, I can’t see a dog in the fight with Mr. Hall, unless Mr. Fineberg can use genius levels of negotiating to make Citigroup and other banks eat the costs of their pre existing bonus contracts.

There are restrictions in place for the post TARP compensation packages, but Mr. Fineberg is looking at the tip of a huge iceberg when it comes to contracts made before the TARP restrictions went into effect.

For more on the whole picture of post TARP bonuses being paid to honor pre TARP contractual obligations, here’s a start.

The Wall Street Journal Article on The $33 Billion bank bonus boondoggle of 2008.

NOTES AND SOURCES:

The New York Times Article about Mr. Hall’s potential $100m bonus.

1. And Citigroup is not guaranteed to stop coming back for more!!!

2, 3 and 4. The Wall Street Journal Article on Mr Kenneth Feinberg, the Treasury Departments “Pay Czar”.

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