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Manufacturing index drops to 28-year low Meltdown 101: Asset-backed securities comeback? More companies forcing unpaid vacations December consumer confidence drops to all-time low Top 10 business stories show '08 was gloomy yearSurvivors benefit from turmoil Retailers got lumps of coal in stockings Layoffs spread a week before ChristmasIn certain fields, job picture is brighterWho decides if it's a recession?

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NEW YORK — It's been a year of panic on Wall Street as banks' stocks and profits plunged — along with some executives' bonuses.

Only two large investment banks — Goldman Sachs Group Inc. and Morgan Stanley — are left standing after Bear Stearns Cos. and Merrill Lynch & Co. were bought by competitors, and Lehman Brothers Holdings Inc. filed for bankruptcy.

Goldman announced Sunday that its seven top executives won't get bonuses for 2008, a sharp switch from 2007, when Goldman's CEO alone had total pay of $54 million.

With sums so huge, you may wonder how those bonuses are calculated and who decides who gets what. Here are some questions and answers.

A: Compensation has long been the largest expense on Wall Street. Nothing even comes close.

For instance, in 2007, 44 percent of Goldman's revenues were devoted to paying its employees, with roughly 30,000 people splitting a total compensation pool of more than $20 billion, for an average of $575,000 each.

Goldman's compensation total was nearly twice its fiscal 2007 profit of $11.6 billion.

Of course, not everyone took home a half-million. CEO Lloyd Blankfein's $54 million payday and comparable amounts paid to other top executives left less for midlevel managers. Still, Goldman made plenty of workers millionaires last year — some earned far more than that $575,000, while some earned much less.

It's likely to do the same, very quietly, this year, as it strives to keep its top performers.

A: Base pay on Wall Street is a modest portion of total pay, with senior executives earning salaries from $250,000 to $450,000 — an amount that can more than quadruple during a good year, when bonuses are high.

The argument for rich pay on Wall Street is that investment banks are, in some respects, like law firms: They're only as good as their teams. Because employees are the firms' greatest asset, their pay is the firms' largest expense.

Banks argue that if they didn't pay so well, their brightest employees would flee for other financial jobs at private equity firms or at hedge funds, which command hefty money-management fees from their clients.

The counterargument is that Wall Street workers are overpaid, with the emphasis on pay encouraging firms to take foolish risks with investors' money.

A: Banks establish a companywide bonus pool, which is usually some percentage of revenue and profit, said David Wise, a compensation consultant with Hay Group.

Different groups within the bank then get a portion of that pool, based on their contribution to profitability over the course of the year. So if a team of bond traders added millions to the firm's profit, its bonus pool would be greater than, say, that of a money-losing team of mortgage traders.

Back-office teams that don't generate any revenue also are included, such as technology, compliance and human resources.

Once the overall pool has been split by group, individuals get their allocation based on their managers' assessments of their performance.

There isn't usually a formula, Wise said. "There tends not to be a lot of formality at any point in the bonus-setting process, but most people will tell you it is a very performance-driven environment, and bonuses are allocated based on merit."

A: "At the banks, people are working with each other very closely within the same group," Wise said. "Managers have a pretty good read on an individual's contribution to the group's performance. Are there hard measures and metrics? No, there are not. That is different than what we see in other industries."