Executive Summary: The Partnership Plan, launched in 1984, distributes Vanguard’s profits among its employees. Asset growth and cost “savings” are driving factors, but the calculations behind those payouts are a black box. I break down what little Vanguard reveals and estimate Salim Ramji’s compensation.
Low cost may be its mantra, but Vanguard’s executives take home millions every year. How? A profit-sharing plan you’ve probably never heard of—and that the firm would rather you didn’t ask about. Here’s what every Vanguard investor should know.
The Mechanics: How the Plan Works
Let’s start at the beginning.
The Partnership Plan was established by Vanguard founder Jack Bogle in 1984 as an internal profit-sharing program. The idea? To reward employees from top management (who benefit the most) to full-time call center staff with a slice of Vanguard’s annual profits.
Two drivers set the size of the dividend:
- Assets under management (AUM). It’s Vanguard’s asset growth—not fund performance—that matters.
- Cost savings. Vanguard compares its average operating expense ratio to the industry’s and claims the difference as savings. Those “savings” are a metric for feeding the dividend pool.
The plan’s dividend grew 9.4% to $498.38 in 2024, which means that since its first payout in 1985, the Partnership Plan’s dividend has grown 145-fold, from $3.43 to nearly $500. For comparison, one share of 500 Index (VFINX)—with all distributions reinvested—has grown about 81-fold over the same period.
The takeaway is clear: Many long-term investors have built wealth using low-cost index funds. But it’s the selling of those index funds—not owning them—that’s been filling Vanguard executives’ bank accounts.