Citigroup Inc agreed on Friday to sell its Phibro commodities business to Occidental Petroleum Corp , offloading a unit that has drawn criticism over star trader Andrew Hall's massive pay package.

Occidental, an oil and gas exploration and production company, agreed to buy Phibro for roughly its net asset value. It said its net investment would be about $250 million.

Phibro has been the subject of controversy because of Hall's compensation. He was contractually entitled to a 2009 pay package that could be worth $100 million.

It eliminates future potential embarrassments for compensation issues, Michael Holland, president of Holland & Co, said of the deal.

When the government is an owner and Congress and regulators are looking over his shoulder when he writes a check, then he has to be trembling if he writes a $100 million check, Holland said, referring to Citigroup Chief Executive Vikram Pandit.

Phibro's management team, headed by Hall, and its employees will remain with the unit after the sale closes, expected by year-end.

Citigroup said certain Phibro executives had agreed their 2009 compensation would be deferred and reinvested in Phibro, and paid out in future years.

Occidental said Phibro's senior management team had agreed to make a significant investment in the business and receive returns dependent on the company's future performance.

It said significant portions of current and future bonuses would be deferred and retained by Phibro and paid out in future years. The payouts will be adjusted to reflect Phibro's results.

Occidental itself is no stranger to high pay packages. Its chief executive, Ray Irani, has long been one of the best paid executives in the world. He took home $60.5 million in 2008 and $77.6 million in 2007. Irani is also Occidental's largest individual shareholder.

Phibro will become part of Occidental's midstream segment, which includes natural gas liquids, power, pipeline and trading businesses.

(Reporting by Paritosh Bansal; editing by John Wallace)

Citigroup Investment Vikram pandit