Harvard University paid its top six money managers $26.7 million in 2008 and said that future compensation would be tied more directly to the performance of the endowment.

Harvard, the world's richest university and whose strong investment returns have long been envied in the investing community, lost billions during the financial crisis prompting its chief investment officer to overhaul not only the way the school manages money but how it pays its top investment managers.

Starting on July 1, 2010, Harvard's senior management team's pay will be linked more closely with the endowment's overall performance and measures will be put in place to cut pay in years where the endowment loses money, Jane Mendillo, who heads the university's money management arm, wrote in a letter to the school's alumni and friends.

Also, the compensation system will be reviewed once a year by the chief risk officer and the school hired an outside consultant to review the compensation system as well.

HMC's overarching compensation strategy is to maximize alignment of interests between our investment management teams and the University, Mendillo wrote. Our managers do well when the University does well over a sustained period of time.

Harvard's review of how it pays it managers comes as Wall Street's huge salaries and bonuses have angered average Americans after many blamed bankers' mistakes and willingness to take big risks for the country's high unemployment rate and economic crisis.

Harvard's portfolio shrunk by $10 billion to $26 billion in the fiscal year that ended in June 2009, when losses at hedge funds and private equity funds hurt performance.

The drop marked the biggest percentage decline in four decades and prompted the school to make changes in how it invests its money, including managing more money in-house.

Unlike many prominent schools, including rival Yale, Harvard allowed only a portion of its funds to be overseen by outside managers with internal managers still doing a lot of the stock picking.

The payouts in 2008 are roughly comparable to the $26.8 million the school paid to its five most successful money managers and to its chief investment officer in the fiscal year from July 1, 2007 through June 30, 2008.

Harvard's payouts to managers are significantly less than they are on Wall Street or at privately owned hedge funds but the news of multimillion pay packages for university employees have still long angered some alumni.

Jack Meyer, who helped quadruple the endowment to $26 billion during his tenure as CEO at Harvard Management, left in 2005 as fury over pay simmered.

After Meyer left in 2005, the endowment continued to perform extremely well, hitting a record of $36.9 billion in the year that ended 2008.

In the last few years, however, pay has dropped dramatically from the $107.5 million that the best paid investors took home in 2003 to about $26.7 million now.

The rankings this time were unchanged from the previous reporting period with Stephen Blyth, who oversees international fixed income investing, again ranked as the school's best paid manager, taking home $6.35 million.

Marc Seidner, who left the school to work at bond manager Pacific Investment Management Company, earned $6.29 million while Stanley Zuzic, who heads domestic equities got $4.85 million. Steven Alperin, who oversees emerging market equities, took home $4.36 million and Andrew Wiltshire, who oversees natural resources, received $3.84 million.

Mendillo, who took over the portfolio on July 1, 2008 after Mohamed El-Erian returned to PIMCO, earned $999,114.

(Reporting by Svea Herbst-Bayliss, editing by Bernard Orr)