Bogle argues that poorly designed compensation schemes encouraged the speculation that caused the last two financial crises. By promising big paydays to executives for hitting quarterly earnings numbers or short-term stock price targets, compensation committees encouraged chief executives to take excessive risks, he says.
So why would Vanguard vote against proposals to limit such pay? "If Vanguard wants to manage the 401k's of large corporations, it doesn't want to offend their CEOs by voting to rein in their compensation," argues Lisa Lindsley, AFSCME's director of capital strategies.
Bogle agrees. "The three lowest voters for shareholder proposals in the AFSCME report are the three biggest providers of defined contribution plans," he says. "Vanguard says, 'We're much more active than you think because we talked (privately) to 400 managements last year, and we get them to change what they're doing.' But at some point you've got to say, 'Here is the data and, failing any other explanation, the data is telling us the truth.'"
Glenn Booraem, a member of Vanguard's proxy oversight committee, characterizes the AFSCME analysis as simplistic. He says Vanguard works behind the scenes to ensure that executives are compensated appropriately.
"AFSCME's got this very black-and-white view that all management proposals on compensation are bad and all shareholder proposals are good," he says. "I think that is a terribly simplistic view of governance. We've taken the perspective that we don't want to be in the position of micromanaging . . . compensation practices."
Activist shareholders may feel differently. Those dissatisfied with their 401k plan's voting record on shareholder proposals might want to switch to a socially conscious fund shop. Such companies typically take a more activist approach.
"During the 2010 and 2011 proxy voting seasons, we voted 84% of the time against management resolutions to increase executive compensation," says Julie Gorte, a senior vice president for sustainable investing at Pax World Management, a socially responsible fund company in Portsmouth, N.H.
"It's a reflection of our belief that executive compensation should be what it isn't. It should be fair, it should be performance-based, it should compensate managers for long-term performance rather than what happened in the last 10 minutes, and it should be transparent," says Gorte.
The fees on Pax World funds are far higher than those at Vanguard, however. The retail shares of the Pax World Growth (PXGRX) fund have a 1.29% expense ratio. That's 18 times more expensive than the Vanguard Total Stock Market index fund. Until there are more equitable fee structures at socially responsible funds, buying an index fund may be the only "Adam Smith-ian" solution for activist investors, other than investing in individual stocks and voting on shareholder resolutions themselves.
Of course, you can always go the sleeping-bag route.
Fund mentioned on the previous page: Vanguard Total Stock Market Index Admiral (VTSAX)
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20 years with the credit union and no complaints. Credit unions are more conservative with their lending practices and have no grossly overpaid executives. If everyone banked at local banks and credit unions, the Great Recession would not have happened. The mega banks devastated our economy and most of us are still struggling years later. Ironically, the people who created this mess are back on top making millions.
The problem for the employed investors is that employers control those 401Ks. Employers, not employees select the overall fund package as well as the fund administrators. This doesn't leave much leverage to employees who want a broader range of choice in their investments. The problem today with 401Ks among those provided by employers is lack of full employee choice. If the employer is only offering a 401K but makes no match, he shouldn't be allowed to choose the fund for his employees. That's too much like "Father Knows Best" mentality. And, who's to say that the fund the employers choose don't directly or indirectly benefit his company?
Americans must stop the mentalities that takes their hard earned money and allows someone else to decide what employees can and can't do with it.
I am 66 and still working, and probably will be next year, but I still plan on eventually retiring. My wife and I had built up 401K and IRA investments in mostly growth stocks, but I converted those into more conservative income investments a while back as we neared retirement. Some people refer to these investments as hybrids (approximately 60% dividend stocks, 30% bond ladder and 10% money market/cash). Yes, Steve, we do get the dividends and interest, and they are being re-invested for us. To date, the dividend/interest income generated represents a 7.9% return on my original buy in cost, and if that continues into my retirement, I will be satisfied. Those looking for that 32% annual bull market bonanza, lotsa luck, I doubt we will ever see those days again.
The problem for investment minded Americans is that their scope of investments is linear. So, they look for the big guns of Wall Street instead of looking for more local investments. This is an era of opportunity for investors with the savvy to revert from their old investing habits of yore. We know it's next to impossible to place full faith in Wall Street or Big Businesses. They are not into stable investing. They are into fast cash ROI gambler mentality investing. They actually believe this is sustainable.
The new millennium savvy investors are looking at investments from a very different angle. Vastly out of the range of breakneck speed fast cash ROI. Today's more savvy investors are creating they own smaller and more local investment groups and are investing in local businesses and more creative enterprises that have a longer reach into the future for ROI.
As an example, take 10 investors who want to invest in an up and coming local museum, theater or art gallery. How would that kind of investment not show a stable return? Or at the very least, a bottom line of regular ROI? A smaller steadier stream of ROI is far better than one that is here today but gone tomorrow thanks to lack of full faith and trust in Wall Street fund managers.
Creative investment teams investing in more local or regional investments not only provide a stable source of ROI but they help reduce the tax burdens investors are paying.
Build a better tomorrow by investing locally. Do that and it takes all the power and steam out of an out of control Wall Street and the Too Big To Fail, Too Rich To Change Big Businesses.
Vanguard has the best investment philosophy for small individual investors of any firm by far. I have most of my investments with them. Unfortunately, they still can’t fully insulate you from the shenanigans of Wall Street. At some point, they still have to buy and sell securities in the markets which are increasingly corrupt these days.
Funny, that this article didn’t propose a single non-financial investment option. For example, how about going in with five fellow investors and buying a gas station. This would make you a better return on your investment than bonds, hedge your income and cost of living against rising oil prices, and allow you to buy all your own gas for personal consumption at wholesale prices. If enough people put investments like this in their 401k Wall Street would become a morgue for dead traders.
silly! it goes into the fund manager staff bonus. you didn't think YOU'D get it, did you?????
I guess that's why I get quarterly dividend reinvestment transactions from the funds I hold. Do you even know what you're talking about, Steve?
To HONESTLY answer your question, Jerome, look at the Yield on the funds you hold. You should get a DRIP transaction on a quarterly or annual basis. Look at your 401/IRA transaction history and you'll see those dividend payments.
They get paid out to fund holders, is that what you are asking? Read the prospectus, that's what they are for.
It is smart to invest in dividend/bond funds on or near retirement.
It is even smarter to invest in some growth funds as well, keeping investments working.
A well-known Washington lobbying firm with links to the financial industry has proposed an $850,000 plan to take on Occupy Wall Street and politicians who might express sympathy for the protests, according to a memo obtained by the MSNBC program “Up w/ Chris Hayes.”
The proposal was written on the letterhead of the lobbying firm Clark Lytle Geduldig & Cranford and addressed to one of CLGC’s clients, the American Bankers Association.
CLGC’s memo proposes that the ABA pay CLGC $850,000 to conduct “opposition research” on Occupy Wall Street in order to construct “negative narratives” about the protests and allied politicians. The memo also asserts that Democratic victories in 2012 would be detrimental for Wall Street and targets specific races in which it says Wall Street would benefit by electing Republicans instead.
According to the memo, if Democrats embrace OWS, “This would mean more than just short-term political discomfort for Wall Street. … It has the potential to have very long-lasting political, policy and financial impacts on the companies in the center of the bullseye.”
The memo also suggests that Democratic victories in 2012 should not be the ABA’s biggest concern. “… (T)he bigger concern,” the memo says, “should be that Republicans will no longer defend Wall Street companies.”
Two of the memo’s authors, partners Sam Geduldig and Jay Cranford, previously worked for House Speaker John Boehner, R-Ohio. Geduldig joined CLGC before Boehner became speaker; Cranford joined CLGC this year after serving as the speaker’s assistant for policy. A third partner, Steve Clark, is reportedly “tight” with Boehner, according to a story by Roll Call that CLGC features on its website.
Jeff Sigmund, an ABA spokesperson, confirmed that the association got the memo. “Our Government Relations staff did receive the proposal – it was unsolicited and we chose not to act on it in any way,” he said in a statement to "Up."
CLGC did not return calls seeking comment.
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[BRIEFING.COM] The stock market finished a down week on a cautious note with small caps leading the retreat. The Russell 2000 lost 0.5%, widening its weekly decline to 2.6%, while the S&P 500 shed 0.3%. The benchmark index ended the week lower by 2.7%.
This morning, the market was provided a basis to rebound with the July employment report, which was just right for the policy doves (209K versus Briefing.com consensus 220K). It showed payroll growth that was weaker than expected, ... More
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