by David Segal. Published August 2 by The New York Times
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.