Morphological pyramid has been proven to be a useful tool in image compression due to low computational complexity, simple implementation and good compression performance based on minimization of entropy. Several morphology based pyramid decomposition techniques already exist. These techniques use morphological filters prior to the down sampling of images. The coding schemes developed commonly omit the first error image of the error pyramid to achieve high compression ratios. However, fine image details may be lost in this process. In order to get high quality lossy image, an estimator involving connectivity preserving filters for the first error image has been used. By using this estimator, the bits per pixel required to code the first error image can be reduced by 30 to 40 percent to obtain `near lossless' compression. In this paper, we apply variable Vector Quantization (VQ) to pyramid coding. We compare the performance of the above estimator to that of VQ scheme. For multi-level pyramid, we discuss accumulative errors and use a modified pyramid generation structure to reduce the accumulative errors. We perform our comparison on two standard images and use Peak Signal to Noise Ratio to judge the compression efficiency and visual quality.