Merrill Lynch yesterday boosted Stan O'Neal's departure package by almost $90 million (€62.34 million) - taking it to $160 million - by letting him retire as chairman and chief executive rather than sacking him.

The company said yesterday that Mr O'Neal and the board had "both agreed that a change of leadership would best enable Merrill Lynch to move forward".

Mr O'Neal's departure follows the company's admission last week that it had lost almost $8 billion on mortgage-backed securities.

But by casting his departure as a retirement, the board allows Mr O'Neal, who was paid $48 million last year, to retain deferred compensation in the form of unvested stock worth $90 million, giving him a total exit package of about $160 million, including other compensation, shares and benefits.

The move threatens to reignite the controversy over the link between pay packages for executives and their performance.

However, lawyers said that Merrill Lynch would have found it legally difficult to fire Mr O'Neal "for cause".

Although Mr O'Neal will not get any severance pay, Mike Mayo, analyst at Deutsche Bank, said there needed to be a better link between the interests of shareholders and the incentives of management. "Past compensation of top management was inflated by higher risk, whose losses were not realised until this year," he said.

The bulk of Mr O'Neal's exit package is linked to the stock price, which has fallen by a third this year.

Alberto Cribiore, a board member of Merrill Lynch for four years, has been chosen to serve as interim chairman.

Mr Cribiore will also chair a committee "that will identify and evaluate chief executive candidates from within and outside of the company".

The top internal candidates for the position are considered to be Greg Fleming, co-president, and Bob McCann, who heads the wealth management operations.