Further to last week’s post, Proxy Analytics prepared for us the following summary of key changes to Vanguard’s Proxy Voting Policy for US companies as compared to its 2023 Policy.
New board composition policy. The updated policy introduces new expectations regarding board composition and disclosure. Vanguard seeks boards with diverse skills, experience, perspectives, and personal characteristics (such as gender, age, race, ethnicity) for effective oversight and expects companies to regularly disclose their board structure, composition, and evolution process. Vanguard anticipates that companies will include a skills matrix covering topics like tenure, skills, and experience at the director level and may support requests for the disclosure of the company’s approach to board composition, inclusive of board diversity, if not already provided.
Revised board diversity commentary. Vanguard did not change its overall policy on board diversity but made significant revisions to its commentary on the issue. Specifically, the firm eliminated much of the language about potentially taking voting actions against the Nom/Gov Committee Chair (or other relevant director) in cases of insufficient progress in enhancing board diversity and related disclosures. The new language provides for adverse votes (absent a compelling reason) if the board is "not taking action to achieve board composition that is appropriately representative, relative to their markets and the needs of their long-term strategies." Additionally, an entire section on "Diversity and qualifications disclosure" was removed.
Updated say-on-pay guidance. The policy outlines three broad categories Vanguard uses for evaluating executive pay. While no structural changes were noted, the firm included guidance on the features it considers for each element. Of significance, the commentary on "alignment of pay and performance" introduces new criteria on how Vanguard assesses the alignment of incentive targets with corporate strategy (TSR vs. realized pay as compared to peers). In addition, the policy includes factors Vanguard may consider to mitigate concerns when there are warning signs regarding executive compensation.
A more detailed memo on the changes is available to Proxy Analytics’ subscribing clients. Corporate issuers who are members of the Society can request a complimentary copy of the memo via this email address.