the best compression for audio is AAC
NeroAAC or Apple AAC are the best encoders right now
AAC-LC is good because it consumes little power.
Xrecode II is the best paid audio transcoder ive found and it uses all my 8cores (i7 with HT) while converting audio format.
i recommend you use 256kbit for encoding as it generally perseveres the audio quality and is good for average earbuds/headphones. If you really want to save space and you just use generic earbuds/headphones, I suggest you encode on 128kbit.
MP3 format is really ancient and should only be used if you plan to transfer your audio files on older devices and the quality suffers when you transcode less than 96kbit (64kbit AAC-LC have the same quality as 128kbit MP3 at half the size).
i also heard good things about AAC-FDK being extremely good at less than 96kbit compared to other AAC encoders but I havent confirmed it myself.
FLAC format is the best audio format if you are ripping from audio cd, but it is lossless meaning its file size(3x-4x bigger compared to AAC-LC 256kbit)