Citigroup worries pay czar Kenneth Feinberg will balk at energy trader’s hefty pay package

Citi exec’s pay package may spark gov’t showdown

The hefty 2009 pay package of Andrew J. Hall, leader of Citigroup Inc.’s lucrative Phibro energy trading unit, may spark a showdown between the New York-based bank and government pay czar Kenneth Feinberg.

Hall’s division generates a substantial chunk of Citigroup’s profit, which the bank sorely needs to get back on its feet and eventually repay the $45 billion it has received in government aid. Under the terms of his contract, Hall’s compensation is linked to Phibro’s profits, but the size of his 2009 pay package, which The Wall Street Journal estimated Saturday may total $100 million, could fuel political and shareholder anger against Citi.

Employee compensation at financial companies has brought criticism from members of Congress and the public in the wake of the U.S. paying out hundreds of billions in bailout dollars to banks. The Obama administration has blamed compensation plans for encouraging excessive risk-taking that pushed the financial services sector into chaos last year.

Feinberg, a lawyer, was selected by the administration to be its “special master” to oversee compensation packages awarded by seven companies receiving the most bailout aid, including Citi. He can reject pay plans he deems excessive and review compensation for the firms’ top 100 salaried employees.

“Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives,” a Treasury spokesman said Saturday. “That process is just beginning now, and Mr. Feinberg has begun consulting with those firms about their compensation plans. We are not going to provide a running commentary on that process, but it’s clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance.”

Some of the banks that received government loans, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., already have paid back their debt, and are no longer subject to compensation oversight. Those firms are able to offer lucrative deals to entice employees away from other banks.

That leaves banks like Citigroup scrambling to retain the talent they need to turnaround their operations. Among the hardest hit by the credit crisis and recession, Citi has reported six straight quarterly losses totaling nearly $30 billion. The bank, which will soon be 34 percent-owned by the government, has reduced staff and sold assets to streamline operations and return to profitability.

To keep vital personnel from decamping to other firms, Citi in April asked the Treasury to free the highly profitable Phibro unit from federal compensation limits and last month said it would boost the base salaries of many employees — reportedly by as much as 50 percent for some workers — as it restructures their compensation amid government restrictions on bonuses.

“Retaining and attracting the best talent is very important to the success of Citi and all its stakeholders,” Citigroup spokeswoman Danielle Romero-Apsilos said in a statement Saturday, while declining specific comment on Hall’s contract. “Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment.”

The Treasury spokesman noted that Feinberg’s task is to ensure that companies “strike the right balance around their need to retain talent, reward performance, and protect the taxpayers’ investment.”

Earlier this year, American International Group Inc. was criticized for bonuses it paid to employees at one of its most troubled divisions. AIG was rescued from the brink of collapse by the government last fall, and has received more than $180 billion in aid. Charlotte, N.C.-based Bank of America Corp., which also received $45 billion in government support, is among those facing additional scrutiny about bonuses and executive compensation.