Vanguard Pay

Partnership Still Beats Indexing

Partnership has its privileges, and never more so than in 2008.

The 2008 bear market certainly took the wind from the Vanguard Partnership Plan’s sails. I an announcement to the Vanguard “crew” last week, Vanguard announced that the 2008 Partnership’s dividend fell to $91.56 from the $101.60 paid out for 2007.

Still, the 9.9% decline in the amount being paid to top executives as well as the rank-and-file was nothing compared to the 37.0% decline for its flagship 500 Index or the 22.6% loss suffered by the average Vanguard investor. I estimate Chairman Jack Brennan’s payday for 2008 still came to something north of $7 million. And if by any chance founder Jack Bogle still holds his shares in the Partnership Plan, his payout would have amounted to a nifty $11 million.

The 2008 dividend drop was only the second decline in the Partnership Plan’s payout since its creation by Jack Bogle in 1984. The Partnership saw a 5.0% decline in 2002; again after a raging bear market ravaged shareholder accounts. Over the past 25 years the dividend has compounded at a 14.7% rate, which is a heck of a lot better than the 9.7% annualized gain for 500 Index. As I’ve often said in the past, it’s a heck of a lot better to work for Vanguard than to invest in its flagship index fund.

Although most Vanguard employees, or “crew members” are capped out in terms of the size of their annual bonus (30% of base compensation for older employees and reportedly just 10% for newer employees, hardly a bonanza given the parsimonious pay Vanguard is famous for), top executives earn the bulk of their compensation from the Plan’s dividends. That’s not surprising, given that founder Jack Bogle’s stated intention when he conceived of the Partnership Plan was “providing incentives to senior management employees who have principal responsibility for the long-term growth and success of the Company.”

Under the Plan’s guidelines, bonuses are paid out in November in fifths. So, employees must remain with the company for five years to receive the entirety of the 2008 $91.56 dividend that was just announced.

As should be obvious given the numbers involved, Vanguard is far from a “non-profit.” In fact, for senior managers, having their compensation tied in large measure to the Partnership Plan has been very, very profitable. For the bulk of employees, however, the Partnership Plan’s payments reportedly simply bring total compensation up to reasonable, but certainly not wealth-producing levels.


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