The $100 million man?

Posted by Marc Hodak on July 25, 2009 under Executive compensation, Politics, Reporting on pay | 2 Comments to Read

It appears that Citi is on the hook for $100 million to the head of their Phibro division.

A top Citigroup Inc. trader is pressing the financial giant to honor a 2009 pay package that could total $100 million, setting the stage for a potential showdown between Citi and the government’s new pay czar.

The New York Times and Wall Street Journal, who would consider it well beneath them to publish front page stories about Jennifer Aniston’s romantic travails, have no qualms regaling the mob with stories about big dollars going to unpopular executives–the MSM’s version of porn for the business pages, which they peddle in the brown paper bag of “governance issues.”  The government is easily embarrassed by these big dollar stories, which sets up “the showdown.”

So, am I suggesting that Andrew Hall, the guy in line for this bonus, is worth $100 million a year?  No, I’m not.  I’m sure he neither needs or deserves this princely sum.  I’m simply suggesting that he should get what his contract says he should get.

A former official recently told me, “hey, contracts get challenged and renegotiated on Wall Street all the time, so why are you so upset when the government is doing it?”

I’m not upset when the government does it the way private firms typically would.  A Wall Street firm renegotiates contracts quietly, to avoid the perception that they take their agreements lightly.  No bank, however “powerful” they may be, could keep their doors open a fortnight if they could not be counted on to keep their word on a deal.

In contrast, the government uses these public spectacles to flaunt its disrespect for contracts, standing in a champion’s pose before the cameras, ignorant or uncaring that their knock-out is a blow to the rule of law.

Since most people were taught in their social studies classes that the government is here to help people rather than merely protect them, they may have never learned that the rule of law evolved to protect common people from the ‘rule of men,’ i.e., the political power lacking any real constraints.  Whenever our government pisses on another contract to score some populist points, it weakens the foundation of civilization.

My one hope for having a “pay czar” (as despicable as that sounds to the grandchild of people who left Russia to escape a Czar) was that he might at least provide an opinion about which agreements the government would honor and which it would challenge, before the agreement made the front pages.  Or perhaps Mr. Hall and everyone else should have abandoned their illusions that they were working under the rule of law once their firm came under the people’s dominion, and accepted that their pay was now at the discretion of the mob.  But I don’t believe in blaming the victims.

The lesson, here, is that once your story hits the papers, don’t expect to be treated with integrity by the U.S. government.  They will essentially put your pay to a vote by people who make less than you.  (If your a reader of the NYT or WSJ, that would be almost everyone else in this democracy.)  Another possible lesson, for the people designing these bonus plans, is for god’s sake hire someone who knows what they’re doing.  This particular agreement is actually pretty bad, though for none of the reasons cited by the press.