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THE annual bonus round is galling enough when times are good; when times are bad, and the banks are largely to blame, the bile rises even faster. Investment banks had a large hand in starting the rot that has sent the American economy stumbling towards recession, yet total compensation for employees at Wall Street's big five securities firms rose in 2007, to $66 billion from $60 billion in 2006. The average bonus at these banks stood at more than $210,000 last year, some four times more than America's average household income. “I get bankers coming to me and asking: ‘I got an £800,000 ($1.57m) bonus. Should I be happy?'” says one disbelieving headhunter in London.

Press luminaries and academics have lined up to criticise a compensation system that apparently creates incentives for risk-taking but fails to penalise bankers when bets turn sour. “It's ‘heads I win, tails you lose'”, says Raghuram Rajan of the University of Chicago's business school. He would like to see a “clawback” system that would hold onto portions of bankers' bonuses in an escrow account until the risks associated with their positions had become clearer. The tone is less measured in the blogosphere. “Bankers are the worst class of ‘business' people out there,” posts one blogger. “Commies coming out of the woodwork here,” blasts back another.

The asymmetry certainly looks awful. A crisis that started with people taking on too much debt at the bottom of the housing ladder now has bonus-laden bankers viewing townhouses and weekend retreats at its top. (Rumours about scatological protests by bank traders disgruntled at the size of their pay-outs do nothing for the industry's soiled image.) But the reality is more nuanced.

Start with those big bonus pots at the five Wall Street firms. Banks ended the year in a sea of red, with some notable exceptions, but the first half of 2007 was thumpingly good (2008, by contrast, looks likely to be consistently miserable). Staff numbers surged as a result. When last year's totals are divided by numbers of employees, bonuses dipped year on year on average.

Talk of “averages” is in any case misleading. The bonus season is not yet complete, so the influence of Goldman Sachs, by far the best performer on Wall Street, on the aggregate numbers so far is exaggerated. Eric Moskowitz of Options Group, an executive-search firm, forecasts that bonus pools will wind up dropping by 10-15% at top-tier banks in New York. Variation within banks is also much greater this year than in previous years. The rainmakers are pulling in bigger rewards; others are seeing their slice of the pie shrink sharply. “This is not a good year to be at or below the median,” says Dee Symons of Russell Reynolds, another search firm. Nor is it a good year to be working on anything to do with structured credit, where bankers are as likely to receive a pink slip as a pay cheque.

Should bankers be getting anything at all, given how far shares and profits at many have fallen? Critics point to soaring compensation ratios at Merrill Lynch as an example of how the system appears to be loaded in bankers' favour. Banks normally try to keep their compensation as a proportion of revenue just below 50%; the ratio at Merrill, which posted its first annual loss since 1989 in 2007, shot up to 141%. That looks indefensible: John Thain himself, Merrill's new boss, expressed discomfort with the bonus system, suggesting that it needed to be changed to reflect the performance of the overall organisation rather than individual bits of the bank.

But the outrage can again be overdone. The ratio of compensation to income naturally rises at any business that suffers a slump; and the price of not paying the going rate for the top people can be a lethal exodus of talent. Headhunters report plenty of interest from “ambulance-chasing” second-tier banks hoping to prise star employees away from big banks that have not met expectations on pay.

The system is not perfect, of course. A debate about how compensation policies might encourage bankers to think more about the long term and the overall health of the business is welcome. Greater use of stock options is one possibility: banks that fared worst in the subprime saga, such as Merrill, UBS and Citigroup, have all been forced to increase the equity component of compensation packages. But options have their own flaws, as examples in other industries readily show; and in any case the chances of an industry-wide overhaul of compensation practices (the only way that meaningful change will happen) are slim. The bloggers will be raging for a while yet.