Should Citi cancel Andrew Hall's $100 million pay and $400 million Mets deal?

Andrew Hall is Citigroup's (C) $100 million man, but it's looking like the fat pay package he receives as head of its Phibro energy trading unit is making Citi CEO Vikram Pandit uncomfortable. Pandit's discomfort means that Citi will likely restructure Hall's business to stop questions that irk Pandit.

What bothers me is that Pandit appears less embarrassed about pouring out $400 million of shareholder money to put Citi's name on the Mets' new stadium while his company holds $45 billion in Troubled Asset Relief Program (TARP) money, $306 billion in loan guarantees -- and posted a 2008 loss of $27.7 billion.

Hall's $100 million bonus payment does raise some interesting questions: Does Hall really deserve so much money? Should taxpayer money be used to pay his bonus? Does the government's investment in Citi give it the right to tear up Hall's contract?

The answer to the first question is: Probably not. Citi's 2008 commodities trading revenue totaled $667 million -- but it's not clear how much of that was from the Phibro unit, nor how much of that revenue turned into profit. But I question whether Hall is worth 15 percent of Citi's commodities revenue. Nor is it obvious that Hall is so central to Phibro's business that Citi needs to pay him that much to keep him in his job. Surely someone who works there could take up the slack.

As for the second question, I also would answer: No! Unless Citi is generating real positive cash flow from its operations -- rather than crediting itself with accounting profits due to the changing rules for valuing toxic waste -- then taxpayer cash will be used to pay Hall that bonus. And I think that's a huge mistake. We should not be spending even more hard-earned taxpayer dollars to reward an institution that has lost so much money.

Finally, since I am not a lawyer, I can't answer the third question. But my hunch is that when Citi became a ward of the U.S. government last fall -- staving off a bankruptcy -- its previous contracts became subject to the test of whether they were in the best interest of that big shareholder. And I think an argument could be made that the U.S. has every right to scrutinize a contract that pays Hall $100 million.

If that $100 million contract creates more shareholder value than its destroys, then by all means consider keeping it. If it destroys more shareholder value than it creates, the U.S. ought to renegotiate.

Meanwhile, it looks like Vikram Pandit -- sensitive soul that he is -- wants to spare himself the embarrassment of answering questions about Hall's pay. So Citi will try to restructure Hall's Phibro unit. Meanwhile, it looks like Pandit has no qualms about splashing Citi's name all over the Mets' new stadium.

The federal government might look at canceling that deal as well.

Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He owns Citi shares.


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