BOSTON — Thanks to a banner year on Wall Street, the 2006 bonus increase for employees at
The Vanguard Group Inc. could be the biggest in more than a decade.
Vanguard, the nation’s second-largest mutual fund company, behind Boston-based
Fidelity Investments, this month is expected to announce the value of shares or units in its “partnership plan” for 2006. Full-time employees accumulate shares in the plan based on their tenure and position.
In 2005, the plan paid out $81.40 per unit, a 13% jump from $72.05 in 2004. The payout for 2006 could be even better if Wall Street bonuses are any indication, said Dan Wiener, the Brooklyn, N.Y.-based editor of The Independent Adviser for Vanguard Investors.
Wall Street gave out a record $23.9 billion in bonuses to workers in the securities industry in New York last year, a 17% increase over the amount in 2005, according to a report released late last year by the New York State comptroller’s office.
“Wall Street had a great year,” Mr. Wiener said. “If the guys at Vanguard were to get a 17% increase, that would be the best they’ve had since 1995.”
While a similar increase for 2006 would bring each Vanguard partnership plan unit to more than $95, that is still shy of the $100 target Vanguard chairman John J. Brennan once set as a goal for 2005.
An increase of roughly 23% would be necessary for each unit, based on last year’s performance to reach $100, Mr. Wiener said. “If they got a 23% pickup in the dividend, that would be the best year since the late ’80s. I don’t think that’s very likely.”
Vanguard founder John C. Bogle instituted the partnership program in 1984. The board of the company, which is owned by its mutual fund shareholders, sets the per-unit value based on Vanguard’s fund and operating performance in the relevant year, according to spokesman John Woerth.
In 1984, each unit was worth $3.43. The earnings per unit have increased every year since, except for 2002 when they dropped to $58.40, from $61.50.
“The partnership plan remains an important part of Vanguard’s corporate culture and compensation program,” Mr. Woerth wrote in an e-mail. “The plan aligns the interests of the crew with those of shareholders by fostering efficient operations, productivity improvements and higher levels of service, which in turn lead to lower expenses, higher investment returns and greater client satisfaction.”
The Malvern, Pa., firm uses a ship in its logo and refers to its employees as crew members.
Still, the partnership plan is a bigger boon for some employees than others. While the total value of the units rank-and-file employees receive for a given year is capped at 30% of their base salary, top executives reportedly have no cap.
“The average Joe gets a nice little bonus, but that’s it,” Mr. Wiener said. “The bigwigs take home the big bucks.” Mr. Woerth declined to comment on whether the bonuses of top executives are capped. Regardless, Mr. Brennan’s total compensation, which Mr. Wiener estimated at $6 million to $10 million, pales in comparison with what some Wall Street executives take home.
For instance, Lloyd C. Blankfein, chairman and chief executive of The Goldman Sachs Group Inc., received $54.3 million in total compensation last year, while Merrill Lynch & Co. Inc. chairman and CEO E. Stanley O’Neal got $48.3 million, according to an analysis by Salary.com Inc. of Waltham, Mass.
At Denver-based Janus
Capital Group Inc., CEO Gary D. Black’s 2006 compensation totaled about $11.3 million, Salary.com’s analysis found.
“I would say [Mr. Brennan is] probably underpaid relative to the way that people are compensated in this industry,” Mr. Wiener said.
If investor inflows are any indication, Vanguard crew members can also expect a nice increase in their partnership plan units for 2007. Flows into Vanguard’s stock and bond mutual funds totaled $34.7 billion in the first four months of this year, according to Boston-based Financial Research Corp. That was the most for any of the top 25 mutual fund firms and marked a 64% increase from the amount during the comparable period in 2006.
