DawgTalkers.net Forums DawgTalk Tailgate Forum $100 Million Pay Day Poses Problem for Pay Czar

by David Segal
Monday, August 3, 2009

In a few weeks, the Treasury Department's czar of executive pay will have to answer this $100 million question: Should Andrew J. Hall get his bonus?

Mr. Hall, the 58-year-old head of Phibro, a small commodities trading firm in Westport, Conn., is due for a nine-figure payday, his cut of profits from a characteristically aggressive year of bets in the oil market.

There is little doubt that Mr. Hall is owed the money under his contract. The problem is that his contract is with Citigroup, which was saved with roughly $45 billion in taxpayer aid.

Corporate pay has become a live grenade in the aftermath of the largest series of corporate bailouts in American history. In March, when the American International Group, rescued at vast taxpayer expense, was to give out $165 million in bonuses, Congress moved to constrain the payouts, and protesters showed up at the homes of several executives.

As it happens, one can see some of those homes from Mr. Hall's front lawn in Southport, not far from his office. But his case is more complex. Mr. Hall, raised in Britain and known for titanium nerves and a collection of pricey art, is the standout performer at an operation that has netted Citigroup about $2 billion over the last five years. If Citigroup will not pay him the huge sums he has long made, someone else probably will.

The added wrinkle is that Mr. Hall works in a corner of the trading world that appears headed for its own infamy. Regulators are pushing to curb the role of traders like Mr. Hall, whose speculation in the energy markets may have played a major role in the recent gyrations of oil prices.

That suggests that last summer, drivers paid more at the pump, at least in part, because of people like Andrew J. Hall. How do you hand $100 million to a guy who may have profited because gas hit $4 a gallon?

Whatever the answer, the case of Mr. Hall highlights the hazards of mixing the public interest with capitalism at its most unbridled, and it raises basic questions of fairness. There was outrage last week over a report by the New York attorney general that about 5,000 traders and bankers at bailed-out firms got more than $1 million each last year. So it could be politically untenable for a company like Citigroup to pay gargantuan sums even to those who generate gargantuan profits -- the very people the company must retain if it is to recover.

Among those who believe the Phibro-Citigroup relationship is doomed by bailout politics is the $100 million man himself. People with knowledge of talks between Phibro and Citigroup say that Mr. Hall is quietly pushing for what is being called "a quiet divorce" from his parent company and that he has had preliminary talks with one possible suitor.

Wary of publicity and worried that he will become the next marquee villain of the financial collapse, he has discussed with Citigroup's leadership a number of possibilities, including a spinoff.

Mr. Hall has plenty of sway over the fate of Phibro because much of its value is thought to flow from his expertise and track record. If he leaves, he could start another firm and bring colleagues with him.

History suggests that he is accustomed to getting his way. Two years ago, Mr. Hall waged a legal fight with the Historic District Commission of Fairfield over an 82-foot concrete sculpture that he had placed on the front lawn of his 7,300-square-foot Greek Revival mansion, where he lives with his wife, Christine. He thought he did not need permission to display the work, but because of his neighborhood's preservation restrictions, the state Supreme Court ultimately ruled that he did.

"The strange part is that I think he would been approved if he'd asked for permission," says Richard Hatch, who headed the commission at the time.

Mr. Hall lent this work to the Massachusetts Museum of Contemporary Art, though not because he lacks display space. A few years ago, he bought a medieval castle in Germany from the neo-expressionist painter Georg Baselitz, and he and his wife have turned the property, said to contain roughly 150 rooms, into a private museum for their collection.

"He has about 4,000 pieces in what could easily be described as one of the world's finest collections of contemporary art," said a New York dealer, Mary Boone. It includes pieces by Andy Warhol, David Salle, Bruce Nauman and Julian Schnabel.

The son of a British Airways employee who trained pilots, Mr. Hall was raised near London, and he graduated from Oxford University with a degree in chemistry. He moved to the United States in 1981 to work for British Petroleum. His trading there caught the eye of Phibro, a firm that started as Phillips Brothers early in the last century and which, in the 1970s, was the home of Marc Rich, the fugitive pardoned by President Bill Clinton.

By 1987, Mr. Hall was running Phibro. It is based today in a generic red building, part of a bucolic, 53-acre office park that was once a dairy farm. (Its former neighbors included the notorious AIG Financial Products division.) The trading floor is a modest room that was once the company's kitchen, before it downsized about a decade ago.

Mr. Hall and his colleagues -- there are about 55 in the Westport office, and handfuls in London and Singapore -- specialize in a variety of hedging and arbitrage techniques.

Generally, Phibro looks for anomalies in the market and pounces, taking advantage of unusual spreads between the spot price of oil and the price of an oil futures contract.

The company, for example, often wagers that the price of oil will rise so fast during a particular period, say six months, that it can make money by storing oil in supertankers and floating it until the price goes up. (If the price rises by more than it costs to lease the tankers, he makes money.)

Other deals are more complex. Right before the first Gulf War, Phibro placed an elaborate bet that the price of oil would spike and then go down faster than others were anticipating. The company earned more than $300 million from the gamble.

"He's got great memory, great focus," says Philip Verleger, an author of books about oil markets and a friend of Mr. Hall. "He's not as arrogant as other people who make the kind of money he makes. Of course, you make that kind of money and you're going to be a little arrogant."

A spokesman for Kenneth Feinberg, the Treasury's pay czar, said the reviews of compensation figures were just starting and that pay levels must strike the right balance between discouraging excessive risk-taking and encouraging reward.

"We are not going to provide a running commentary on that process," the spokesman, Andrew Williams, wrote by e-mail, "but it's clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance."

The mere specter of such review is already hurting Citigroup. A person familiar with its staffing travails says that for months it has been trying to fend off competitors who are calling employees and saying, in effect, "Come and work for a company that doesn't have to contend with public scrutiny."

James Forese, Citigroup's co-head of global markets, says Mr. Hall's pay-for-performance contract is the kind the pay czar will like. "We're confident in the value these types of profit-sharing arrangements bring to the company and its shareholders," Mr. Forese wrote in a statement, "as they directly align compensation with performance."

Still, the company is an awkward spot, and it is hard to say which is worse: the inevitable public outcry if Mr. Hall is paid $100 million, or the risk that he might take his talents to a firm in which the public has no stake.

http://finance.yahoo.com/banking-budgeti...r-pay-czar.html

What dose his " Contract " call for ??? You honor a Contract in This Country !

That's the key. Does his contract say he's paid on what profits his investments bring the company, or the overall profit of the company? We may never know.

Click ...

In our current system...he should get paid.

But one thing I can't stand about our current system is how the economy fluctuates purely off of speculation. Stock values are hardly based off of the companies worth, but more about how its stock is traded day to day, who's buying what, why those stocks are being bought, etc...

Day traders sell stocks high...the stock begins to dive...every day joes that are not "professional traders" sell to avoid the big loss, and the same traders that initially sold buy those stocks back up at a cheaper price...and the cycle contiunes. That crap has more effect on people's monies than the performance of the company. That is a problem in my eyes.

Granted..I'm no expert...not even a beginner. So maybe I'm confusing different issues.

Quote:

---

That's the key. Does his contract say he's paid on what profits his investments bring the company, or the overall profit of the company? We may never know.

---

They make specific note that he brought in 5 billion in profit over 2 years which would indicate to me the he's paid on his performance.. They signed a contract saying they would pay him X for X in Profit apparently. And now it appears as if he achieved his objective under the contract..

Pay the man his money,,

As for the article saying that Halls actions and trading may have played a hand in the up and down pricing at the pump,, That to me is more of a moral issues,,,

He's done nothing wrong.. in fact, he's done his job quite well...

Pay the man!

I'd have to do some checking, but it appears that Hall doesn't actually work for Citicorp.

Quote:

---

Mr. Hall, the 58-year-old head of Phibro, a small commodities trading firm in Westport, Conn., is due for a nine-figure payday, his cut of profits from a characteristically aggressive year of bets in the oil market.

---

He works, as the paragraph above suggests, for a small commodities trading firm in Conn..

I'm guessing he managed the commodities trading for Citicorp making him a vendor to Citicorp, not an employee..

If I"m right about that (and I think I am) then NOT paying him would be like NOT paying the janitorial company an agreed upon bonus for excellent cleaning service, because the company lost money..

Quote:

---

BUT, to say that the media stated something, so it indicates something one way or the other, wow, I just can't believe you typed that out with all the crap we see the media print every day to skew things one way or another depending on the impact it will have on the readers.

---

Apparently you didn't read my entire post,,, I was basing my thinking on what the story said,, I thought I made myself perfectly clear about that.

But, if I'm wrong to do that, then you are wrong for assuming the article is incorrect.

Take it anyway you want FF.. bottom line, I think it's clear the man doesn't work for Citicorp and that he and his company are mere vendors.. my analogy about the janitorial service is spot on..

Pay the man

Quote:

---

The only thing that exasperates it is the incarnation of the "Day Trader".

---

That is exactly correct.

We have not adapted all of our systems to the information age and it is a problem. For instance, we all want our government to work fast... our government is not meant to work fast except in matters of national defense. That is why it is set up the way it is with committees and long debates and house bills and senate bills and reconciliation etc... it's meant specifically to PREVENT the knee jerk reaction... and for a long time it has worked fairly well. But we live in an immediate gratification age where people don't want to wait years, or even months, to get something done...

The market is the same way, it was supposed to be a long slow prodding process, where companies grew and declined in long slow curves... but every schmoe with a computer can trade stocks and we have instant access to information. Heck computers have been set up for a while now to identify price differentials (as this article points out) that if a stock is trading at X on a particular exchange but X+1 on a different exchange, I can buy mass quantities of it on the first exchange and sell it simultaneously on the other exchange and pocket the difference for essentially... doing nothing.

Quite simply: The "Compensation Czar" should be put out of work and this guy should get every penny he has earned.

This country does NOT need some Gov't Appointed Bobblehead arbitrarily determining who deserves to get what amount. This is America - you deserve to get paid whatever amount you can command from the marketplace.

I'm not saying he shouldn't, I'm questioning the wording in his contract. If his bonus was based on company performance and profits, then they failed immensely. If his bonus was based on personal performance, then sign the check.

Since the entity this guy is responsible for has no bearing on the success or failure of the rest of the company I would guess that his bonus is tied strictly to his performance... He seems too shrewd to have it set up so that his bonus is tied to the performance of all those other people.

Quote:

---

Quote:
--------------------------------------------------------------------------------

The problem is that his contract is with Citigroup, which was saved with roughly $45 billion in taxpayer aid.


--------------------------------------------------------------------------------



According to the article, his contract IS with Citigroup.

---

Now read that all again and tell me what's wrong with your comment.

He has a contract with Citicorp to perform a service,,, it apparently calls for a bonus if he succeeds, he has apparently succeeded and now wants paid,, I'm afraid I just don't see the problem here.

Quote:

---

I'm afraid I just don't see the problem here.

---

Then you need to look deeper.

He's in investment banking, that's strike one.
He deals in oil futures, that's strike two.
He's rich, that's strike three ...... and you're out.

In reality, he did NOTHING wrong.. but in the current "hate the rich", "hate anything associated with oil", "hate anything associated with banking" era in which we find ourselves, the guy might as well wear a red suit and sport some horns.

I saw that, but I was addressing the earlier point that it doesn't matter in the least what his bonus was tied to: He either earned it or he didn't, and he wouldn't be due to receive it if he didn't earn it (no company is that stupid).

My comment was that I failed to see the problem with paying the man his bonus... and you wrote:

Quote:

---

Then you need to look deeper.

He's in investment banking, that's strike one.
He deals in oil futures, that's strike two.
He's rich, that's strike three ...... and you're out

---

Not one of those things has diddely to do with IF he should be paid.. it only has something to do with how the bonus is perceived by the folks on the streets..

Then you go on to say:

Quote:

---

In reality, he did NOTHING wrong.. but in the current "hate the rich", "hate anything associated with oil", "hate anything associated with banking" era in which we find ourselves, the guy might as well wear a red suit and sport some horns.

---

I agree with that entire statement., completely..

But it still has no bearing on whether or not he's owed his bonus.. it appears that he is..

Now,, What I don't know is if the data and information in the article is accurate. I have really no way of knowing that to be honest. But taking it at face value he appears to be owed the money. (I know, I know, taking anything in the media at face value is probably not the brightest thing)

I know what your saying DC.. But it's not a good enough reason for me to look any deeper...

For the record, I don't hate the rich.. not at all, I actually aspire to be rich someday

What I don't like is greed.. and I don't like those folks such as Bernie Madoff or Frank Grudidaria (sp) who basically cheated folks out of thier hard earned money.

I don't care for failures either. guys that were in charge of GM and Chrysler for the last 20 or 30 years were warned that the day of reckoning was coming.. and they did nothing.

I don't care for those greedy SOB's that ran the Autoworker or Steelworkers unions for misleading thier constituency and not trying to work with the car companies to build a long lasting agreement that helps all parties.. And yeah, they were warned also..

But rich people,, Nope,, I got no problem with them at all...

My entire post was all about public opinion.. not the legality of whether or not he's owed the money.

Oh,, Never mind then