Executive compensation in the UK is quickly closing the gap with the USA, according to a new report by the FSA. The study found that total earnings by chief executives at British blue-chip companies have doubled over the past five years. Another study conducted at the University of Pennsylvania showed that US CEOs' average pay was 1.6 times that of their UK counterparts in 2003, down from 2.2 times six years ealier. Some are blaming compensation consultants for these mishaps as those are the ones that help align CEO incentives with shareholder interests. Others suggest that the government should impose regulatory caps, but history has shown that government intervention creates many more problems than it solves.

Merrill Lynch & Co. chief executive E. Stanley O'Neal announced his retirement today following a three day drama surrounding his future after the firm announced a nearly $8 billion writedown in the value of its securities as a result of subprime and credit markets. The ex-CEO also angered board members when he approached Wachovia Corp about a possible merger without board authorization.

"We would like to thank Stan for the contribution he has made leading a major transformation of Merrill Lynch into a global and diversified company with enormous potential ahead of it," Cribiore said in a statement. "His commitment to the company, its clients, shareholders and employees has never wavered and the company will reap tremendous benefits in the future from his work."

Alberto Cribiore has been appointed as interim chairman and will also chair a committee that will evaluate other CEO candidates. Merrill presidents and COOs Ahmass Fakahany and Gregory Fleming will run the company while a search is conducted. And with a possible $4 billion in additional writedowns, they may have their work cut out for them.

The decision to oust Merrill Chief Executive Stan O'Neal could cost the company millions. A regulatory filing shows that a combination of his company holdings, retirement benefits and a severance package could cost upwards of $200 million. Problematically, the compensation committee is filled with O'Neal allies, including Chubb CEO John Finnegan, who is a former colleague from their days at GM and Alberto Cribiore who has been a strong supporter of O'Neal. So, while the company does not have a non-takeover severance package in place by default the compensation committee will likely grant one. The executives dismissal comes after a record $8.4 billion quarterly writedown that came as the result of risky subprime lending and CDO trading.

Merrill Lynch announced that it cut worker compensation in half in the third quarter, which means big bonuses could suffer this year. The investment firm spent $1.99 billion on compensation during the July-September period compared to $3.94 billion during the same quarter last year and $4.76 billion during the second quarter of this year.

'Merrill Lynch remains focused on paying its best performing employees competitively,' the company said in a statement. 'In the same vein, it may be necessary to accrue compensation expense at a higher level in the fourth quarter to ensure it can appropriately reward employees whose performance will drive future growth.'

Institutional investors sent a letter to Verizon Communications last week urging the company to give shareholders a greater say in the pay packages given to executives. A vote in May narrowly came out in favor of asking Verizon to adopt a say-on-pay policy to help rein in executive compensation.

"More than half of the people who you represent on the board of directors sent you a message that we want more transparency and accountability in executive pay at our company," the investors said in the October 17th letter. "As institutional investors, we are concerned by the disconnect between executive pay and corporate performance at Verizon and other public companies ... If you truly intend executive pay to reward superior performance, serious adjustments to Verizon's pay practices are in order."

The institutional investors involved in this ordeal include the North Carolina state treasurer, Connecticut deputy treasurer, the New York State Teachers' Retirement System, the City of Cincinnati Retirement System, Walden Asset Management, Marianist Province of the United States, and Boston Common Asset Management.

Women are making more money than ever before in the higher echelons of companies, but their pay is still falling behind that of their male counterparts. The best paid female executive was Morgan Stanley's Zoe Cruz, who took home $30 million in total compensation last year. Yahoo's Susan Decker takes second place with a $25 million paycheck last year. Others include eBay's Meg Whitman ($11 million) and Avon's Andrea Jung ($10.7 million). However, these numbers fall behind their male counterparts. Bob Nardelli, former chief executive of Home Depot, took in a whopping $133.7 million while Viacom's CEO Tom Freston took home $71.6 million. In the end, the 25 best paid men took home $1.3 billion in 2006, which amounts to 4.35 times more than the 25 best paid women.

Researchers at the University of Colorado Boulder recently conducted a study that found press coverage of executive compensation may be one of the reasons it is gaining speed. The researchers started with the theory that the more attention a CEO received in the media, the greater the variable compensation - that is, all compensation other than their salary.

"Our findings suggest that the press appears to contribute to high CEO pay, which is ironic given some journalists' concerns about outsized CEO compensation," said Markus Fitza and associate professors Mathew Haward and Kai Larsen in a recent paper.

The researchers examined more than 1,500 companies and CEOs from 1997 to 2005 and how often they appeared in Business Week, the New York Times, Wall Street Journal and other major national business publications. They found that each major business news publication increased a CEO's variable compensation by more than $650,000. More, a picture in one of these publications increased it $1.1 million!

Hedge fund managers have been able to get away with millions of dollars of tax free money thanks to a loophole that is just now about to be closed. The Senate plans to dramatically limit hedge fund managers' ability to put off paying their taxes by introducing a bill that would prevent them from using offshore havens to defer taxes on large amounts of income.

The proposed legislation would cap the amount of compensation that managers can defer each year to the same amount other tax payers are permitted to place in 401(k) and IRAs - $19,500 per year. This compares to the current law that enables them to put off income taxes for years by investing them in their funds and letting it grow tax-free in the meantime!

This new piece of legislation comes just months after another tax proposal that would raise taxes on "carried interest" paid by managers of private equity, hedge funds, VC funds and some real estate deals. The carried interest would be taxed as income as opposed to as capital gains on the investment. Both of these pieces of legislation are considered long-overdue by many and should provide a nice boost to tax revenues.