A perplexing question is troubling Citigroup and regulators in the United States. Citigroup trader Andrew Hall, who specializes in energy and commodities, earned a lot of money for his employer over the past year. No one disputes that according to his contract, he deserves one hundred million dollars. But there is some resistance to paying out the money. The root of the problem is that Hall's employer received emergency bailout funds in the fall of 2008. One of the conditions of the bailout was that the US government, which obtained an ownership interest in the rescued firms, would have oversight of pay packages for employees. For this purpose the Treasury appointed a "salary czar," Kenneth Feinberg. Feinberg does not have the authority to abrogate written contracts, but he can put pressure on employers to renegotiate what he considers excessive payouts. If he is dissatisfied he can impose various sanctions on the employer and on the employee, including modifying future pay agreements. Feinberg has at once an ethical and a practical dilemma. Ethically, it is obviously problematic for an employer to say: "Yes, we negotiated a pay package and you fulfilled your part, but we don't really want to fulfill our obligations." Certainly it is a bad example and precedent for the government to be encouraging companies to act this way. In some cases this could be justified in the case of a "windfall" profit; imagine a person who gets a million or two dollars in bonuses year after year, and one year lucks into many times that. It might be reasonable to say, neither side really conditioned its acceptance on a sum ten times the usual amount. But this argument doesn't really hold water for Hall. According to news reports, he has been hauling in nine-figure sums year after year. Furthermore, his profits have been accumulating over the course of the year; if Citigroup perceived a problem they could have renegotiated in the middle of the year. Yet the American taxpayer, now part-owner of Citigroup, is understandably asking: Why should I be tightening my belt in the middle of a recession to pay a hundred million dollars to a single guy who works a few hours a day guessing where markets are going? There is a good chance the bailed-out firms would have ended up bankrupt if not for the bailout, and where would Hall's payday have been then? It's true that Hall, a renowned star, would likely have found work somewhere else, but they wouldn't necessarily have extended him the same sums and his payday would likely have been less. And what if the bail-out saved the entire financial system? Hall could certainly not have thrived in the midst of a general melt-down. There is also a practical dilemma. Now that Hall is de facto working for Uncle Sam, the Treasury has a good reason to keep him happy, if he is as astute as Citigroup thinks he is. Hall's bonus is a percentage of the approximately one half billion dollars his trading group earned during his contract period. If word gets around that traders aren't getting what they bargained for, bailed-out firms could have difficulty finding employees. On the other hand, maybe that is a good thing. Many people thing that the bonus structure encouraged excessive risk-taking, which in turn led to the crash. Traders typically get twenty percent of the upside but zero percent of the downside, which obviously encourages taking big risks. Maybe it's good for America if Feinberg makes it difficult for bailed-out firms to run old-fashioned trading desks. This all points to an additional problem. The US authorities are now stuck in a potential conflict of interest. Suppose high-flying trading is good for the shareholders but bad for the economy. As regulator, the authorities should try and discourage the practice (as a bill now before the US Congress is designed to to). As owner, they may want to encourage it. I think the ethical and practical issues all boil down to one question: Was Hall skillful or lucky? If Hall guessed one way and made millions, while some equally talented anti-Hall at another desk guessed opposite and went home in anonymous ignominy, then he didn't really do anything special to earn the money, and little will be lost to the market, the country or the world if he misses out on part of his nine-figure payday. If, on the other hand, regulators have reason to believe that Hall really has more insight into the workings of the economy than other traders, then he is truly creating value for his employer and for the economy as a whole, and it's both fair and good to keep him happy.