Citigroup's Sale of Phibro: Ending the US$ 100 Million Pay Controversy

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Case Details:

Case Code : BECG108
Case Length : 13 Pages
Period : 2007-2009
Pub Date : 2010
Teaching Note :Not Available
Organization : Citigroup Inc.
Industry : Financial Services
Countries : US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

According to his contract, which specified that he was to be paid around 30% of Phibro's profits, Hall had to be paid about US$ 100 million for 2008 and another nine-figure sum for 2009.

Citigroup was one of the companies, most severely affected by the crisis in the US financial services industry. To save the bank from bankruptcy, the US government pumped in US$ 45 billion of taxpayer money into it and also guaranteed mortgages, junk grade loans, and sub-prime securities worth US$ 301 billion of the company. Later, after US$ 25 billion worth preferred stock was converted into common equity, the US government came to own a 34% stake in Citigroup.

Over a period of time, executive compensation at companies that had received government bailouts became a controversial issue with both politicians and the general public, calling for a review of the pay practices.

The US government appointed Kenneth Feinberg (Feinberg) - popularly referred to as the 'compensation/pay czar'- as the Special Master for the Troubled Asset Relief Program (TARP)4 Executive Compensation to review and set the pay for highly paid employees, at these companies.

As Feinberg had no authority to change work contracts like Hall's, he demanded that Citigroup reduce or restructure his pay. This put the company in a spot. On the one hand, Hall was unwilling to take a pay cut and was pressuring Citigroup to honor the contract...

 Excerpts >>

4] The TARP is a US government program undertaken in 2008 to purchase assets and equity from financial institutions to strengthen them, as part of its measures to address the global financial crisis.


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