Vanguard has released updated proxy voting guidelines for U.S. portfolio companies just in time for the proxy season. The updated guidelines, which provide greater detail on a number of compensation matters, became effective April 1, 2019.

The guidelines are reorganized under four pillars: board composition and effectiveness; oversight of strategy and risk; compensation; and governance structures. They significantly expand the detail within each pillar to clarify Vanguard’s position on compensation and governance issues. Pay guidelines are concentrated under the compensation pillar, but the other pillars touch on important compensation or human capital management topics. Most of the updates reflect large investors’ concerns in recent proxy seasons, but Vanguard’s size and stewardship activities with portfolio companies make these views important.

Board scrutiny

Guidelines under the board composition and effectiveness pillar outline circumstances which might prompt Vanguard to vote against compensation committee members — usually following a prior Vanguard vote against a say-on-pay proposal. A failure to meaningfully improve executive compensation practices or persistent poor pay practices are frequent causes of a negative vote.

Vanguard’s closer scrutiny of compensation committee members parallels the broader trend of investors holding board members more accountable when concerns persist.

This pillar also refines guidelines on topics such as board diversity, independent board chairs and over-boarded directors.

Compensation practices that raise a flag

Vanguard’s cites examples of compensation practices that will attract scrutiny as listed below. A yellow flag is a “warning sign” and a red flag indicates greater scrutiny:

Vanguard’s cites examples of compensation practices that will attract scrutiny

The revised guidelines elaborate on what Vanguard considers when evaluating an equity compensation plan and cite some specific favorable practices.

The revised guidelines elaborate on what Vanguard considers when evaluating an equity compensation plan

Shareholder proposal considerations

Vanguard’s policies support shareholder proposals on diversity that seek disclosure of directors’ different personal (e.g., gender and race/ethnicity) and professional (e.g., skills/qualifications) characteristics. The same is true for proposals that ask companies to adopt policies designed to ensure appropriate board diversity if this information is not already present.

Several types of workforce inclusion proposals are discussed. Vanguard will generally:

  • Support shareholder proposals requiring the inclusion of sexual orientation, gender identity, minority status, or protected class in a company’s employment/diversity policies when the company does not already have such protections
  • Oppose proposals asking companies to exclude references to sexual orientation and/or gender identity, interests or activities in their Equal Employment Opportunity policy
  • Vote on a case-by-case basis for other policies such as enhanced disclosure of employee workforce demographics/compensation statistics

What this means

Vanguard’s policy updates are timely as we hit the full stride of the 2019 proxy season. The revised policies appear to introduce many changes, but several of the changes may simply detail existing Vanguard positions not previously disclosed. Furthermore, many of the practices listed were commonly scrutinized in recent proxy seasons. Vanguard’s elevation of these items gives companies another compelling reason to prepare to discuss relevant policies during the shareholder engagement process.

Vanguard’s updated guidelines and other resources can be found on its website here.


Mike Biggane 

Michael Biggane

Willis Towers Watson

Eric Chen 

Eric Chen

Willis Towers Watson
Los Angeles

Jim Kroll 

Jim Kroll

Willis Towers Watson
Los Angeles

Michael Biggane is an executive compensation consultant based in Cincinnati. Eric Chen is an executive compensation analyst, and Jim Kroll is a director who leads the Governance Advisory practice for executive compensation, both based in Los Angeles. Email,,, or