SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
PRINCIPAL FINANCIAL GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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PRINCIPAL FINANCIAL GROUP LOGO
April 9, 2002
Dear Shareholder:
You are cordially invited to attend the first annual meeting of
shareholders of Principal Financial Group, Inc., to be held on Monday, May 20,
2002, at 9:00 a.m., local time, at 711 High Street, Des Moines, Iowa.
The notice of annual meeting and proxy statement accompany this letter and
provide an outline of the business to be conducted at the meeting. Also, I will
report on the progress of the Company during the past year and answer
shareholder questions.
We encourage you to read this proxy statement and vote your shares. You do
not need to attend the annual meeting to vote. You may complete, date and sign
the enclosed proxy card and return it in the envelope provided, or vote by proxy
using the telephone or via the Internet. Thank you for acting promptly.
Sincerely,
/s/ J. Barry Griswell
J. BARRY GRISWELL
Chairman, President and Chief
Executive Officer
PRINCIPAL FINANCIAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 2002
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The first annual meeting of shareholders of Principal Financial Group, Inc.
(the "Company") will be held at 711 High Street, Des Moines, Iowa, on Monday,
May 20, 2002, at 9:00 a.m., local time. The purpose of the meeting is to:
1. Elect four directors, each for a term of three years ending at the
annual meeting to be held in 2005 or until their respective
successors are elected and qualified;
2. Ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2002; and
3. Act on any other business as may properly come before the meeting.
Shareholders of record at the close of business on March 22, 2002, are
entitled to vote at the meeting. It is important that your shares be represented
and voted at the meeting. Whether or not you plan to attend the meeting, please
vote in one of the following ways:
- By telephone, by calling the toll-free telephone number listed on the proxy
card;
- Through the Internet, by visiting the website noted on the proxy card; or
- By completing, signing and promptly returning the enclosed proxy card in the
postage-paid envelope.
By Order of the Board of Directors
/s/ Joyce N. Hoffman
JOYCE N. HOFFMAN
Senior Vice President and Corporate
Secretary
April 9, 2002
TABLE OF CONTENTS
Voting Procedures And Security Ownership.................... 1
Proposal One -- Election Of Directors....................... 3
The Board Of Directors And Its Committees................... 5
Compensation Of Directors................................... 7
Audit Committee Charter And Report.......................... 8
Proposal Two -- Ratification Of Appointment Of Independent
Auditors.................................................. 9
Security Ownership Of Certain Beneficial Owners And
Management................................................ 10
Executive Compensation...................................... 12
Annual Report On Form 10-K.................................. 23
Other Matters............................................... 23
Delivery Of Documents....................................... 23
Shareholders Proposals For 2003 Meeting..................... 24
Appendix A -- Audit Committee Charter....................... A-1
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PROXY STATEMENT
PRINCIPAL FINANCIAL GROUP, INC.
711 HIGH STREET
DES MOINES, IOWA 50392
VOTING PROCEDURES AND SECURITY OWNERSHIP
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of Principal
Financial Group, Inc. (the "Company") in connection with the annual meeting of
shareholders of the Company to be held on Monday, May 20, 2002, at 9:00 a.m.,
local time, at 711 High Street, Des Moines, Iowa, and at any adjournment or
postponement thereof (the "Annual Meeting"). This proxy statement, the enclosed
proxy card and the enclosed Annual Report for 2001 were first sent to
shareholders on or about April 9, 2002.
The Annual Meeting is the Company's first annual meeting of shareholders
since becoming a publicly-held company. The Company became a publicly-held
company effective October 26, 2001, upon the completion of the conversion of
Principal Mutual Holding Company from a mutual insurance holding company to a
stock company and the initial public offering of shares of the Company's common
stock ("Common Stock") under the terms of the Plan of Conversion (the "Plan of
Conversion"). This process is sometimes referred to herein as the
"Demutualization." The Company is the ultimate parent of Principal Life
Insurance Company ("Principal Life").
VOTING RIGHTS
Only shareholders of record at the close of business on March 22, 2002,
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. As of the Record Date, there were approximately 359,673,132 shares of
Common Stock outstanding. Each share outstanding on the record date is entitled
to one vote on each matter to be voted on at the meeting.
A plurality of the shares voting is required for the election of directors.
Approval of each of the other matters that are before the meeting will require
the affirmative vote of the holders of a majority of the shares represented at
the meeting and voting on the matter. No votes may be taken at the meeting,
other than a vote to adjourn, unless a quorum has been constituted consisting of
the representation of one-third of the outstanding shares as of the Record Date.
Proxies marked as abstaining and proxies containing broker non-votes on any
matter to be acted upon by shareholders will be treated as present at the
meeting for the purpose of determining a quorum but will not be counted as
shares voting on such matters. Votes will be tabulated under the supervision of
Mellon Investor Services, LLC which has been designated by the Board of
Directors to act as inspector of the election.
VOTING OF PROXIES
Your proxy in the form enclosed is solicited by the Board of Directors of
the Company for use at the Annual Meeting and all valid proxies will be voted.
Except to the extent that contrary instructions are given by shareholders in the
places provided in the proxy, it is the intention of the persons named in the
proxy to vote "for" each of the nominees for the Board of Directors and "for"
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors. A proxy may be revoked at any time prior to its use. Such
revocation may be made in person at the Annual Meeting, by a notice in writing
delivered to the Corporate Secretary of the Company or by a proxy bearing a
later date.
Subject to the limitations described below, shareholders may vote by proxy
as follows: (i) by using the accompanying proxy card, (ii) by telephone, or
(iii) through the Internet. When voting using any of these methods, as to the
election of directors, you may (a) vote for all of the director nominees as a
group, (b) vote for all of the director nominees as a group, except those
nominees whose names you specify, or (c) withhold your vote from all nominees as
a group. As to the other proposal, you may vote "for" or "against" the item or
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"abstain" from voting. If you properly vote by proxy by any of the methods
described herein but do not specify any choices, you will thereby confer
authority upon the persons named as proxies to vote your shares in their
discretion. A proxy also confers discretionary authority on these individuals to
vote your shares on any matter that was not known on the date of this Proxy
Statement but is properly presented at the Annual Meeting, including voting on
the election of any substitute nominees selected by the Board of Directors in
the event any nominees are unable or decline to serve.
The expense of proxy solicitation will be borne by the Company. Depending
upon the response to the initial solicitation, proxies may be solicited in
person or by mail, telephone, electronic mail or facsimile by officers or
regular employees of the Company. Also depending upon the response to the
initial solicitation, the Company may retain an agent to assist the
solicitation. The Company estimates that the cost of such assistance would be
approximately $10,000, plus reimbursement of certain out-of-pocket expenses. The
Company will reimburse brokers and others for expenses they incur in forwarding
proxy materials to you.
VOTING BY PROXY CARD
Any shareholder of record as of the Record Date may vote by proxy by using
the accompanying proxy card. When you return a proxy card that is properly
signed and completed, the shares of Common Stock represented by the proxy will
be voted as you specify on the proxy card.
VOTING BY TELEPHONE OR THROUGH THE INTERNET
If you are a registered shareholder (that is, you own shares of Common
Stock in your own name and not through a broker, nominee or in some other
"street name" capacity), you may, as an alternative to voting by mail, vote via
the telephone or Internet (please see the accompanying proxy card for
instructions on how to access the telephone and Internet voting systems). If you
hold shares of Common Stock in "street name," your broker or other nominee will
advise you whether you may vote by telephone or through the Internet.
VOTING SHARES HELD IN COMPANY PLANS
Shares of Common Stock held in The Principal Select Savings Plans are held
of record and are voted by the trustees of the respective plans. Participants in
these plans may direct the trustees as to how to vote shares allocated to their
accounts. A participant may give voting instructions by completing the voting
instruction card or, by following the instructions on the card, provide voting
instructions by telephone or through the Internet. The trustees of these plans
will vote shares as to which they have not received voting instructions as the
trustees determine in their sole discretion.
VOTING SHARES HELD IN DEMUTUALIZATION SEPARATE ACCOUNT
In connection with the Demutualization, the Company issued shares of Common
Stock to a separate account which Principal Life established to fund policy
credits received as demutualization compensation by certain qualified employee
benefit plans that own group annuity contracts issued by Principal Life.
Although these shares are held of record and will be voted by Principal Life at
the Annual Meeting, the plans may direct Principal Life how to vote shares
allocated to plan accounts. A plan may give voting instructions by completing
the voting instruction card that accompanies this proxy statement or, by
following the instructions on the card, provide voting instructions by telephone
or through the Internet. Principal Life will "mirror vote" separate account
shares as to which it has not received direction. This means that Principal Life
will vote the shares as to which it has not received direction in the same
proportion -- for, against or abstain -- as the shares in the demutualization
separate account for which it has received instructions.
THE BOARD OF DIRECTORS URGES YOU TO EXERCISE YOUR RIGHT TO VOTE BY
RETURNING THE ENCLOSED PROXY CARD, BY USING THE TELEPHONE OR THROUGH THE
INTERNET.
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PROPOSAL ONE -- ELECTION OF DIRECTORS
The Board of Directors of the Company (the "Board") is divided into three
classes. One class is elected each year to hold office for a term of three
years. At the Annual Meeting, four directors are to be elected to hold office
until the annual meeting of shareholders to be held in the year 2005. Each of
the nominees is currently a director. There is no cumulative voting, and the
four nominees receiving the most votes will be elected by a plurality. The
remaining directors of the Company, whose terms expire in 2003 or 2004, will
continue to serve in accordance with their previous election or appointment.
Unless authority is withheld by the shareholder, it is the intention of the
persons named in the enclosed proxy card to vote for the nominees listed and, in
the event any nominees are unable or decline to serve, to vote for the balance
of the nominees and for any substitutes selected by the Board. The name, age,
principal occupation and other information concerning each current director and
each nominee are set forth below.
The Board of Directors recommends that shareholders vote "for" all the
nominees.
NOMINEES FOR CLASS I DIRECTORS FOR TERMS TO EXPIRE IN 2005.
BETSY J. BERNARD, 46
Betsy J. Bernard has been a director of the Company since April 24, 2001,
and of Principal Life since February 1999. Ms. Bernard has been President and
Chief Executive Officer of AT&T Consumer since April 2001. Prior to April 2001,
she was Executive Vice President -- National Mass Markets of Qwest
Communications, formerly US WEST, from July 2000-January 2001. Prior to July
2000, she was Executive Vice President -- Retail Markets of US WEST from August
1998-June 2000; President and Chief Executive Officer of US WEST Long Distance
from June 1998-August 1998; President and Chief Executive Officer of Avirnex
Communications Group from December 1997-June 1998; President and Chief Operating
Officer of Avirnex from July 1997-December 1997; and President and Chief
Executive Officer of Pacific Bell Communications and Pacific Telesis from
1995-July 1997. She is an advisory member of the board of directors of Portview
Communications, a telecommunications company. She is the Chair of the Nominating
Committee and a member of the Board-Management Committee of the Board.
JOCELYN CARTER-MILLER, 44
Jocelyn Carter-Miller has been a director of the Company since April 24,
2001, and of Principal Life since February 1999. Ms. Carter-Miller has been
Executive Vice President and Chief Marketing Officer of Office Depot, Inc. since
February of this year. Prior to that time, Ms. Carter-Miller held the position
of Corporate Vice President and Chief Marketing Officer of Motorola, Inc. since
February 1999. Prior to February 1999, she held the following positions with
Motorola: Vice President, CLQC, Consumer Solutions Group, Personal
Communications Sector from 1998-1999; Vice President and General Manager,
Worldwide Networks Division from 1997-1998; Vice President of Latin American and
Caribbean Operations from 1994-1997. She is Chair of the Strategic Issues
Committee and a member of the Audit Committee of the Board.
GARY E. COSTLEY, 58
Gary E. Costley has been a director of the Company and Principal Life since
February 25, 2002. Mr. Costley has been Chairman and Chief Executive Officer of
International Multifoods Corporation, a manufacturer and marketer of consumer
brands of food service products, since November 2001. He was Chairman, President
and Chief Executive Officer of International Multifoods from 1997-2001. He is a
director of International Multifoods and Pharmacopeia, Inc., a firm specializing
in technology-based products and services that improve and accelerate drug
discovery and chemical development. Mr. Costley is a member of the Human
Resources Committee of the Board.
WILLIAM T. KERR, 59
William T. Kerr has been a director of the Company since April 24, 2001,
and of Principal Life since 1995. Mr. Kerr has been Chairman and Chief Executive
Officer of Meredith Corporation, a media and marketing company, since January
1998. He served as President and Chief Executive Officer of Meredith
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from 1997-1998 and as Meredith's President and Chief Operating Officer from
1994-1997. He is a director of Meredith, Maytag Corporation, a manufacturer of
household appliances, and Storage Technology Corporation, a manufacturer of
information storage and retrieval devices. Mr. Kerr is Chair of the Human
Resources Committee and a member of the Executive and Board-Management
Committees of the Board.
CONTINUING CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2003.
J. BARRY GRISWELL, 53
J. Barry Griswell has been Chairman, President and Chief Executive Officer
of the Company and Principal Life since January 1, 2002, a director of the
Company since April 24, 2001, and a Principal Life director since March 1998.
Prior thereto, he had been President and Chief Executive Officer of the Company
since April 25, 2001, and President and Chief Executive Officer of Principal
Life since January 2000. Prior to January 2000, Mr. Griswell held the following
positions with Principal Life: President from 1998-2000, and Executive Vice
President from 1996-1998. He is a Chartered Life Underwriter, a Chartered
Financial Consultant and a LIMRA Leadership Institute Fellow. He is Chair of the
Executive and Board-Management Committees of the Board.
CHARLES S. JOHNSON, 63
Charles S. Johnson has been a director of the Company since April 24, 2001,
and of Principal Life since 1995. Mr. Johnson is the retired Executive Vice
President of E. I. Du Pont de Nemours and Company, a chemical company, a
position he held in 1999. Prior to his position with DuPont, he was Chairman,
President and Chief Executive Officer of Pioneer Hi-Bred International, Inc., an
agricultural seed company, from December 1996-1999. He is a director of Gaylord
Container Corporation, a manufacturer of corrugated containers. Mr. Johnson is a
member of the Human Resources Committee of the Board.
RICHARD L. KEYSER, 58
Richard L. Keyser has been a director of the Company and Principal Life
since February 27, 2002. Mr. Keyser has served as Chairman of the Board of W.W.
Grainger, Inc. a wholesale electronics company, since 1997, and as that
company's Chief Executive Officer since 1995. Mr. Keyser is also a director of
Rohm and Haas Company, a chemical company. Mr. Keyser serves on the Audit
Committee of the Board.
DONALD M. STEWART, 63
Donald M. Stewart has been a director of the Company since April 24, 2001,
and of Principal Life since June 1979. Mr. Stewart has been President and Chief
Executive Officer of The Chicago Community Trust, a philanthropic organization,
since June 2000. Prior to June 2000, he was Senior Program Officer and Special
Advisor to the President at the Carnegie Corporation of New York from July
1999-May 2000, and President of The College Board from 1986-June 1999. He is a
director of The Campbell Soup Company, a food and beverage manufacturing firm,
and The New York Times Company, a diversified media company. Mr. Stewart is a
member of the Nominating Committee of the Board.
ELIZABETH E. TALLETT, 52
Elizabeth E. Tallett has been a director of the Company since April 24,
2001, and of Principal Life since May 1992. Ms. Tallett has been President and
Chief Executive Officer of Dioscor Inc., a pharmaceutical and biotechnology
firm, since 1996 and Marshall Pharmaceuticals, Inc. since 2001. She is a
director of Coventry Health Care, Inc., a managed health care company,
IntegraMed America, Inc., a health services company, Varian, Inc., a supplier of
scientific instruments, and Varian Semiconductor Equipment Associates, Inc., a
semiconductor equipment company. Ms. Tallett is Chair of the Audit Committee and
a member of the Executive and Board-Management Committees of the Board.
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CONTINUING CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2004.
DAVID J. DRURY, 57
David J. Drury has been a director of the Company since April 24, 2001, and
of Principal Life since 1993. Prior to January 1, 2002, he was Chairman of the
Company since April 25, 2001, and Chairman of Principal Life since January 2000.
Prior to 2000, Mr. Drury was Chairman and Chief Executive Officer of Principal
Life from 1995 to 1999. He is a Fellow of the Society of Actuaries and a member
of the American Academy of Actuaries. He is a member of the Executive Committee
of the Board.
C. DANIEL GELATT, 54
C. Daniel Gelatt has been a director of the Company since April 24, 2001,
and of Principal Life since August 1988. Mr. Gelatt has been President of NMT
Corporation, a computer software and microfilm service business, since 1986. He
is a member of the Executive, Human Resources and Board-Management Committees of
the Board.
SANDRA L. HELTON, 52
Sandra L. Helton has been a director of the Company and Principal Life
since May 21, 2001. Ms. Helton has been Executive Vice President and Chief
Financial Officer of Telephone & Data Systems, Inc., a diversified
telecommunications corporation, since 1998. Prior to 1998, she was Vice
President and Corporate Controller of Compaq Computer Corporation, a computer
company, from 1997-1998. From 1994-1997, Ms. Helton was Senior Vice President
and Treasurer of Corning Incorporated, a communications equipment company. She
is a director of Telephone & Data Systems and U.S. Cellular Corporation, a
wireless telecommunications company. She is a member of the Audit and Strategic
Issues Committees of the Board.
VICTOR H. LOEWENSTEIN, 63
Victor H. Loewenstein has been a director of the Company since April 24,
2001, and of Principal Life since August 1991. Mr. Loewenstein has been senior
director of Egon Zehnder International, a management consulting firm, since
November 2001. Prior to November 2001, he was managing partner of Egon Zehnder
International since 1979. He is a member of the Nominating Committee of the
Board.
FEDERICO F. PENA, 54
Federico F. Pena has been a director of the Company since April 24, 2001,
and of Principal Life since November 1999. Mr. Pena has been Managing Director
of Vestar Capital Partners, an investment firm specializing in management
buyouts, recapitalizations and growth capital investments, since 2000. He served
as Vestar's Senior Advisor from 1998-2000. Prior to his joining Vestar, Mr. Pena
was Secretary of the U.S. Department of Energy from 1996-1998. He is a director
of Marsico Funds, a family of mutual funds, Valor Communications, a
telecommunications company, and Sonic, Inc., a franchiser of drive-in
restaurants. He is a member of the Nominating and Strategic Issues Committees of
the Board.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Company are managed under the direction of
the Board. The Board currently consists of 15 directors. The Board is divided
into three classes. One class is elected each year to hold office for a term of
three years. Of the 15 directors, five are Class I directors with terms expiring
at the 2002 Annual Meeting, five are Class II directors with terms expiring at
the 2003 annual meeting, and five are Class III directors with terms expiring at
the 2004 annual meeting. Of the five Class I directors, only four are standing
for re-election. The Board has fixed the number of directors at 14 effective as
of the conclusion of the Annual Meeting.
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The Board held five meetings in 2001, and each of the directors then in
office attended at least 75% of the aggregate of the meetings of the Board and
the Committees of the Board of which the director was a member. The Committees
established by the Board include the following:
AUDIT COMMITTEE
The members of the Audit Committee are appointed by the Board from those
members of the Board who are not officers or employees of the Company or its
subsidiaries. The Audit Committee recommends to the Board the firm of
independent certified public accountants to annually audit the Company's books
and records and reviews and reports to the Board on the audit and non-audit
activities of the independent auditors. Pursuant to the Audit Committee charter
approved by the Board (a copy of which is attached to this Proxy Statement as
Appendix A), the Committee also reviews and reports to the Board on accounting
policies, internal controls, financial reporting practices and legal and
regulatory compliance, and maintains through regularly scheduled meetings direct
communication with the Company's financial management, internal auditors and
independent auditors. The Audit Committee consists of four members, all of whom
are "independent" and "financially literate" in accordance with applicable New
York Stock Exchange listing standards. The current members of the Audit
Committee are Ms. Tallett, Chair, Ms. Carter-Miller, Ms. Helton and Mr. Keyser.
Mr. Keyser joined the Committee on February 27, 2002, replacing Mr. Johnson, who
served in 2001. The Committee held two meetings in 2001.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee is chosen by the Board from those members who
are not officers or employees of the Company or its subsidiaries. The Human
Resources Committee reviews and recommends to the Board the compensation for
executive officers, including base salaries, incentive compensation and other
benefits, acts upon management's recommendations for salary and supplemental
employee compensation policies for all other employees, reviews and makes
recommendations to the Board regarding the compensation of non-employee
directors and reimbursement for their expenses, administers the Company's Stock
Incentive Plan and Directors' Stock Plan, acts on management's recommendations
that require director action with respect to all employee pension and welfare
benefit plans, and oversees executive management succession planning. During
2001, the members of the Human Resources Committee were Mr. Kerr, Chair, Mr.
Gelatt, and Ronald D. Pearson, currently a Class I director, who will retire
from the Board effective May 20, 2002, after having served as a director of the
Company since April 24, 2001, and of Principal Life since 1996. Presently, the
members of the Committee are Mr. Kerr, Chair, Mr. Gelatt, Mr. Pearson, Mr.
Costley, and Mr. Johnson. The Committee held three meetings in 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. One of the
members of the Human Resources Committee, Mr. Kerr, is the Chairman and Chief
Executive Officer of Meredith Corporation ("Meredith"). In March 1999, Principal
Life, for itself, and an affiliate of Principal Life, for accounts the affiliate
manages, purchased in the ordinary course of business approximately $24 million
of an aggregate of $200 million of notes issued by Meredith. Principal Life and
its affiliate purchased notes in two of the three series issued by Meredith in
transactions in which an insurance company unaffiliated with the Company was the
lead lender. The notes held by Principal Life and its affiliate pay interest
between 6.51% and 6.65%, and mature on March 1, 2005, and March 1, 2006.
Principal Life, for itself, and an affiliate of Principal Life for accounts
it manages, have also agreed to purchase in the ordinary course of business an
additional $25 million of an aggregate $100 million of notes to be issued by
Meredith in two series. In Series A, Principal Life will purchase $20 million of
an aggregate $50 million of notes paying interest at 6.39% and maturing April 9,
2007; in Series B, Principal Life and its affiliate will purchase $5 million of
an aggregate $50 million of notes paying interest at 6.62% and maturing April 9,
2008. Principal Life and its affiliate will purchase the notes in a transaction
in which an insurance company unaffiliated with the Company will be the lead
lender.
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NOMINATING COMMITTEE
The Nominating Committee is chosen by the Board from those members who are
not officers or employees of the Company or its subsidiaries. The Nominating
Committee recommends a slate of candidates for election by shareholders at each
annual meeting and proposes candidates to fill vacancies on the Board. Beginning
with the 2003 annual meeting, the Committee will consider shareholder
recommendations for directors sent to the Nominating Committee, c/o Ms. Joyce N.
Hoffman, Senior Vice President and Corporate Secretary, Principal Financial
Group, 711 High Street, Des Moines, Iowa 50392-0300. The members of the
Nominating Committee are Ms. Bernard, Chair, Mr. Loewenstein, Mr. Pena, and Mr.
Stewart. The Committee held two meetings in 2001.
EXECUTIVE COMMITTEE
The Executive Committee has, during times between Board meetings, all the
authority of the Board in the management of the Company's business, except that
the Executive Committee has no authority for any matters as to which the Board
has specifically directed otherwise and for certain matters set forth under law
and in the By-Laws, including the authority to declare shareholder dividends or
other distributions, fill vacancies on the Board or any Committee thereof, and
adopt, amend or repeal the By-Laws. The current members of the Executive
Committee are Mr. Griswell, Chair, Mr. Drury, Mr. Gelatt, Mr. Kerr, and Ms.
Tallett. The Committee did not meet in 2001.
BOARD-MANAGEMENT COMMITTEE
The Board-Management Committee reviews and recommends changes with respect
to corporate governance matters, including the responsibilities of, and the
relationships between each of, the Board, Board Committees, the Chief Executive
Officer and other members of management, relationships with shareholders and the
Board's structure, procedures, practices and overall performance. The current
members of the Committee are Mr. Griswell, Chair, Ms. Bernard, Mr. Gelatt, Mr.
Kerr, and Ms. Tallett. The Committee held one meeting in 2001.
COMPENSATION OF DIRECTORS
DIRECTORS' RETAINERS AND ATTENDANCE FEES
Directors who are not officers or employees of the Company or its
subsidiaries receive an annual retainer fee of $24,000. Non-employee directors
who serve as Chair of a Board Committee receive an additional $5,000 annual
retainer per chair. Non-employee directors are paid an attendance fee of $2,500
for each day of a Board meeting they attend and $1,300 for a Board Committee
meeting they attend on the day of or day before a Board meeting. The fee for
participation in a Board or Board Committee meeting held by telephone conference
call is $1,000. Non-employee directors may defer the receipt of the payment of
all or a portion of their retainer and attendance fees under the Company's
Deferred Compensation Plan for Non-Employee Directors.
DIRECTORS STOCK PLAN
The purpose of the Directors Stock Plan is to enable the Company to
attract, retain and motivate the best qualified non-employee directors and to
foster a long-term aligning of interests between such directors and
shareholders. Under the plan, the Human Resources Committee of the Board may,
from time to time, grant options, restricted stock or restricted stock units to
non-employee directors. No member of the Human Resources Committee may
participate in any decisions with respect to his or her benefits under the plan
unless the decision applies generally to all non-employee directors.
On April 29, 2002, six months after the completion of the Demutualization,
non-employee directors whose terms continue past the Annual Meeting will each
receive options to purchase 2,000 shares of Common Stock. Non-employee directors
first elected to the Board after April 29, 2002, will receive, upon election, an
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amount of options prorated with respect to the amount of time remaining until
the next annual meeting of shareholders. At each annual meeting thereafter, each
non-employee director then in office will receive options to purchase 2,000
shares of Common Stock. The exercise price will not be less than the fair market
value of the shares on the date the option is granted. Except as otherwise
determined by the Human Resources Committee, options will become exercisable in
four approximately equal installments on the third, sixth, ninth and twelfth
month anniversaries of the grant date; however, no options will become
exercisable earlier than eighteen months following the completion of the
Demutualization. Each option will expire, if not previously exercised in
accordance with the terms of the plan, on the tenth anniversary of the grant
date.
Non-employee directors whose terms continue past the Annual Meeting will
also receive on April 29, 2002, and subsequently elected non-employee directors
will thereafter receive, grants of restricted stock units. The number received
by each director on April 29, 2002, will be prorated with respect to the amount
of time remaining in such director's term, so that Class III directors will
receive 1,500 restricted stock units, Class II directors will receive 750 and
Class I directors will receive none. Upon re-election, beginning with the Annual
Meeting, each director will receive 1,500 restricted stock units. Restrictions
on the sale or transfer of restricted stock units will lapse in substantially
equal installments from the date of grant to the date of the end of such
director's term, so that portions of each award vest four times per year.
However, no restrictions will lapse earlier than eighteen months following the
completion of the Demutualization.
Subject to the terms and conditions of the plan, the Human Resources
Committee may also grant options, restricted stock or restricted stock units to
any non-employee director at any time, except that: (i) no grant may be made
before the six month anniversary of the completion of the Demutualization; and
(ii) during the eighteen month period after the completion of the
Demutualization, the aggregate number of shares granted pursuant to such
discretionary option awards may not exceed 20,000 shares, and the aggregate
number of shares granted pursuant to such discretionary restricted stock or
restricted stock unit awards may not exceed 15,000 shares. The maximum number of
shares that may be awarded under this plan is 500,000 shares of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, Principal Residential Mortgage, Inc., the Company's mortgage
banking subsidiary, extended mortgage loans in the ordinary course of its
business to John E. Aschenbrenner and Larry D. Zimpleman, both executive
officers of the Company. The original amount of Mr. Aschenbrenner's mortgage was
$205,000 with an interest rate of 5.75%. The original amount of Mr. Zimpleman's
mortgage was $300,000 with an interest rate of 6.5%. Principal Residential
Mortgage, Inc. no longer owns either loan.
AUDIT COMMITTEE CHARTER AND REPORT
AUDIT COMMITTEE CHARTER
The Audit Committee operates pursuant to a Charter approved by the Board, a
copy of which is attached to this proxy statement as Appendix A. The Charter
sets out the responsibilities, authority and specific duties of the Audit
Committee. The Charter specifies, among other things, the structure and
membership requirements of the Committee, as well as the relationship of the
Audit Committee to the independent auditors, the internal auditor and management
of the Company.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed with management the audited financial statements for the fiscal year
ended December 31, 2001, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments and the clarity of disclosures in the financial statements.
8
The Committee has discussed with Ernst & Young LLP, the Company's
independent auditors, the matters required to be discussed by Statement of
Accounting Standards ("SAS") 61 (Communications with Audit Committee). SAS 61,
as amended, requires the independent auditors to provide the Company with
additional information regarding the scope and results of their audit of the
Company's financial statements, including with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, including a discussion of their quality, not just their
acceptability, (iii) management judgments and estimates, (iv) any significant
audit adjustments, (v) any disagreements with management, and (vi) any
difficulties encountered in performing the audit.
The Committee has received from Ernst & Young LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) with respect to any
relationships between Ernst & Young LLP and the Company that in their
professional judgment may reasonably be thought to bear on independence. Ernst &
Young LLP has discussed its independence with us, and has confirmed in such
letter that, in its professional judgment, it is independent of the Company
within the meaning of the federal securities laws. The Committee has considered
whether the non-audit services rendered by the Company's independent auditors
during the Company's most recent fiscal year are compatible with maintaining the
independence of such auditors.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board (and the Board has approved) that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2001, for filing with the Securities and Exchange Commission. The
Committee has also recommended (and the Board has approved, subject to
shareholder ratification) the selection of Ernst & Young LLP to be the Company's
independent auditors for the fiscal year ending December 31, 2002.
As specified in the Audit Committee Charter, it is not the duty of the
Committee to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and in accordance with generally accepted
accounting principles. That is the responsibility of the Company's independent
auditors and management. In giving our recommendation to the Board, the
Committee has relied on (i) management's representation that such financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principles, and (ii) the report of the
Company's independent auditors with respect to such financial statements.
Elizabeth E. Tallett, Chair
Jocelyn Carter-Miller
Sandra L. Helton
Charles S. Johnson
PROPOSAL TWO -- RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to shareholder ratification, the Board, upon recommendation of the
Audit Committee, has reappointed the firm of Ernst & Young LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
December 31, 2002. This firm and its predecessors have been employed by the
Company or Principal Life in that capacity for many years. Ratification of the
appointment of auditors requires the affirmative vote of a majority of the
shares represented at the meeting and voting on the matter. If the shareholders
do not ratify this appointment, the matter of the appointment of independent
auditors will be considered by the Board upon recommendation of the Audit
Committee.
9
The Board of Directors recommends that shareholders vote "for" such
ratification.
Representatives of Ernst & Young LLP will be present at the Annual Meeting,
will be given an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions relating to the audit of the
Company's 2001 consolidated financial statements.
AUDIT FEES
The Company estimates that the aggregate fees billed by its independent
auditors for professional services rendered in connection with (i) the audit of
the Company's annual financial statements set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, and (ii) the review of
the Company's quarterly financial statements set forth in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, were
approximately $1,566,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company incurred no fees from its independent auditors for the
Company's most recent fiscal year for professional services rendered in
connection with operating, or supervising the operation of, the Company's
information system, managing the Company's local area network or designing and
implementing hardware and software systems.
ALL OTHER FEES
The Company estimates that the fees billed by its independent auditors for
the Company's most recent fiscal year for other services totaled approximately
$5,429,000. Approximately $4,568,000 was audit related for professional audit
services provided for the statutory audit of Principal Life and the audits of
separate accounts, the various subsidiaries of Principal Life, and other related
audit work, including acquisitions and Demutualization work. The balance of
$861,000 in professional fees was for other services rendered by its independent
auditors for the Company's most recent fiscal year, including work performed
with respect to financial projections, actuarial and investment analysis
process, management information reporting, tax consulting and other related
compliance, consulting and analysis projects.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise indicated below, the following table shows, as of March
15, 2002, beneficial ownership of shares of the Common Stock by (i) the only
shareholder known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer named in the Summary Compensation Table below, and (iv) all current
directors and executive officers as a group. Except as otherwise indicated
below, each of the individuals named in the table has sole voting and investment
power, or shares such powers with his or her spouse, with respect to the shares
set forth opposite his or her name.
As of March 15, 2002, due to restrictions contained in the Plan of
Conversion, the only shares of Common Stock that directors (except for Mr.
Costley and Mr. Keyser) or executive officers could beneficially own were the
shares that they, their spouses or other immediate family members received as
policyholders or participants in a pension plan that was an eligible
policyholder in connection with the Demutualization. With the exception of Mr.
Keyser's shares, all shares reflected in the following table with respect to
directors or
10
executive officers were issued in connection with the Demutualization. Mr.
Keyser purchased his shares before becoming a director.
NUMBER OF SHARES PERCENT OF COMMON
NAME BENEFICIALLY OWNED STOCK OUTSTANDING
---- ------------------ -----------------
Northern Trust Corporation(1)............................... 54,505,365 14.52%
50 South LaSalle Street
Chicago, Illinois 60675
Betsy J. Bernard............................................ 126 *
Jocelyn Carter-Miller....................................... 170 *
Gary E. Costley............................................. 0 *
C. Daniel Gelatt(2)......................................... 121,710 *
Charles S. Johnson.......................................... 666 *
William T. Kerr............................................. 737 *
Richard L. Keyser........................................... 1,000 *
Victor H. Loewenstein....................................... 158 *
Ronald D. Pearson........................................... 158 *
Federico F. Pena............................................ 101 *
Donald M. Stewart........................................... 327 *
Elizabeth E. Tallett........................................ 133 *
J. Barry Griswell(3)........................................ 1,239 *
David J. Drury(3)........................................... 1,875 *
Michael H. Gersie(3)........................................ 967 *
John E. Aschenbrenner(3).................................... 1,401 *
Michael T. Daley(3)......................................... 31 *
All current directors and executive officers as a group (24
persons).................................................. 136,726 *
---------------
* The number of shares represents less than one percent of the number of
shares of Common Stock outstanding.
(1) The information regarding beneficial ownership by Northern Trust Corporation
is based solely on a Schedule 13G filed by it with the Securities and
Exchange Commission ("SEC") on February 14, 2002, which provided information
as of December 31, 2001. According to the Schedule 13G, Northern Trust has
sole voting power with respect to 1,610,184 shares; shared voting power with
respect to 1,076,822 shares; sole investment power with respect to
54,141,600 shares; and shared investment power with respect to 234,615
shares. Northern Trust Investments, Inc., a subsidiary of Northern Trust
Corporation, serves as portfolio manager of the Principal Life separate
account established in connection with the Demutualization. As of December
31, 2001, the demutualization separate account held 51,484,214 shares of
Common Stock.
(2) Includes 121,506 shares held by The Gelatt Corporation of which Mr. Gelatt
is a controlling shareholder, director and executive officer.
(3) Includes the following shares held in the demutualization separate account
for the benefit of each person indicated, as to which none of such persons
has voting power: Mr. Griswell, 373; Mr. Drury, 691; Mr. Gersie, 441; Mr.
Aschenbrenner, 560; and Mr. Daley, 31.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the SEC and
the New York Stock Exchange initial reports of ownership and reports of changes
in
11
ownership of Common Stock and other equity securities of the Company. SEC
regulations also require such persons to furnish the Company with copies of all
such reports. Based solely upon its review of the copies of such reports
furnished to it, the Company believes that during fiscal year 2001 all filings
required to be made by reporting persons were timely made in accordance with the
requirements of the Exchange Act.
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
Since the Company's formation in April 2001, none of its officers or other
personnel have received any compensation from the Company. All compensation has
been paid to such individuals in their capacities as officers and/or directors
of Principal Life, with an allocation of their compensation to be made for
services rendered to the Company. The Company will pay the amount of such
allocation to Principal Life pursuant to a cost allocation agreement. To the
extent any employees of the Company cease also to be employees of Principal
Life, their salaries will be paid by the Company.
The following table sets forth the compensation paid to the Company's Chief
Executive Officer and other four most highly compensated executive officers
(collectively, the "Named Executive Officers") employed as of December 31, 2001,
for services rendered during the fiscal years ended December 31, 2001 and 2000:
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) PAYOUTS(3) COMPENSATION(4)
--------------------------- ---- -------- -------- --------------- ------------ ---------------
J. Barry Griswell.......... 2001 $919,231 $845,692 $ 0 $516,963 $38,935
President and CEO 2000 841,346 378,606 0 316,888 33,783
David J. Drury............. 2001 825,000 493,350 0 731,099 35,887
Chairman 2000 825,000 371,250 0 479,538 37,205
Michael H. Gersie.......... 2001 367,308 212,488 0 296,636 15,069
Executive Vice President 2000 333,269 134,974 0 303,737 13,978
and CFO
John E. Aschenbrenner...... 2001 384,615 225,000 0 237,309 15,435
Executive Vice President 2000 318,269 128,899 0 295,727 13,211
Michael T. Daley........... 2001 387,030 228,928 243,650 248,103 14,150
Executive Vice President 2000 175,590 71,114 32,285 323,077 13,930
---------------
(1) The amounts shown for 2001 represent the 2001 incentive compensation awards
paid in 2002 under the Company's Incentive Pay Plan.
(2) The amounts shown represent reimbursement of relocation and moving expenses.
(3) The amounts shown for 2001 represent the 2001 long-term incentive plan
awards, both paid and deferred in 2002 under the Company's Long-Term
Performance Plan.
(4) The amounts shown for each executive officer named above are the total of
the Company's contributions to the 401(k) Plan in which all Company
employees are generally eligible to participate, and contributions to the
Company's Excess Plan, a non-qualified supplemental executive retirement
plan. For the year ending December 31, 2001, the Company's contributions to
the 401(k) Plan were as follows: Mr. Griswell, $3,846; Mr. Drury, $3,894;
Mr. Gersie, $3,938; Mr. Aschenbrenner, $3,937; and Mr. Daley, $3,938. The
Company's contributions to the Excess Plan for that year were as follows:
Mr. Griswell, $35,089; Mr. Drury, $31,993; Mr. Gersie, $11,131; Mr.
Aschenbrenner, $11,498; and Mr. Daley, $10,212.
12
INCENTIVE PAY PLAN
Under the Company's Incentive Pay Plan ("PrinPay Plan"), most Company
employees are eligible to receive additional, annual compensation for any year
if certain performance targets are met and if the Company has achieved threshold
performance objectives specified in the PrinPay Plan. Awards are paid by March
15 of the following year. At the beginning of a plan year, target cash award
opportunities are established for eligible employees at varying percentages of
base salary. The achievement of target awards for a participant is based on
meeting target performance measures for the components of the PrinPay Plan
applicable to that participant. These components are corporate and individual in
the case of the most senior executive officers, including the Named Executive
Officers, corporate, business unit and individual in the case of other executive
officers and more senior employees, and corporate and business unit in the case
of all other participants. The relative weight of each component varies among
classes of participants. The PrinPay Plan provides that corporate performance
measures may include, but are not limited to, return on equity, operating
earnings, earnings before income taxes, deposits, depreciation and amortization,
budget, customer satisfaction and total shareholder return. The Human Resources
Committee reviews and approves corporate performance measures for all
participants and business unit and individual performance measures for executive
officers. The amounts actually paid as awards may be less than, equal to or
greater than the target awards initially established depending on the
relationship of actual performance results to target performance measures. The
PrinPay Plan permits the Human Resources Committee in comparing actual
performance results to target performance measures to make adjustments for
extraordinary items and events not taken into consideration in establishing the
target measures. In approving awards for 2001, the Human Resources Committee
determined that the result obtained for corporate performance should be set at
85% of the target for overall corporate performance. This adjustment affected
all participants. The extent to which it affected any particular participant
depended on the relative weight of the corporate component to the other
components applicable to the participant.
LONG-TERM PERFORMANCE PLAN
The Company's Long-Term Performance Plan affords eligible executives,
including the Named Executive Officers, the opportunity to share in the success
of the Company if the Company achieves specified performance objectives over
periods of three calendar years. At the beginning of each such performance
period, the Human Resources Committee awards executives a number of performance
units based on incentive opportunity targets established as percentages of base
salaries and the beginning values of the units. At the end of each three-year
performance period, the number of performance units held by an executive will be
adjusted by a performance multiplier. This multiplier is a percentage determined
by a matrix the Human Resources Committee establishes at the beginning of each
performance period. The matrix establishes the various performance objectives to
be achieved and the levels of reward that participating executives will receive
if the Company achieves stated levels of performance. The amount payable to each
participating executive at the end of each performance period is equal to the
product of the number of performance units initially awarded multiplied by (i)
the percentage derived from the performance matrix and (ii) the value of such
units at the end of the performance period. The value of a performance unit has
been determined using a multiple of 10 times the product of the average return
on equity for the prior three years and the adjusted consolidated GAAP equity as
of the end of the performance period, divided by the number of units available
to be granted under the plan. This formula was used, and will be used, to
determine the value of performance units at the beginning and end of each of the
1999-2001 and 2000-2002 performance periods and at the beginning of the
2001-2003 performance period. The units in the 2001-2003 performance period will
be converted to a valuation based on the price of the Common Stock using the
average trading price of the Common Stock during a 20-day period in June 2002.
The value of a performance unit at the beginning of the 2002-2004 performance
period will be based on the average trading price of the Common Stock during a
20-day period in May 2002. The value of all other performance units for all
performance periods ending after December 2002 will be based on the average
trading price of the Common Stock during the last 20 trading days in December of
each year. Notwithstanding the foregoing, no payments may be made in respect of
any performance period if threshold performance objectives established by the
Human Resources Committee with respect to such performance period are not
satisfied. The Human Resources Committee has determined that,
13
commencing April 29, 2002, payouts under the Long-Term Performance Plan will be
made in cash, Common Stock or a combination of cash and Common Stock, as elected
by a participant.
Listed below are the awards granted under the Long-Term Performance Plan in
2001 with respect to the 2001-2003 performance period.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS BASED ON
NUMBER OF PERIOD UNTIL CURRENT FORMULA
PERFORMANCE MATURATION --------------------------------------
NAME UNITS(1) OR PAYOUT THRESHOLD(2) TARGET(3) MAXIMUM(4)
---- ----------- ------------ ------------ ---------- ----------
J. Barry Griswell
President and CEO.................. 13,085 12/31/03 $0 $1,365,289
David J. Drury
Chairman........................... 11,671 12/31/03 0 1,217,752
Michael H. Gersie
Executive Vice President and CFO... 4,187 12/31/03 0 436,872
John E. Aschenbrenner
Executive Vice President........... 4,414 12/31/03 0 460,557
Michael T. Daley
Executive Vice President........... 4,414 12/31/03 0 460,557
---------------
(1) The number of performance units granted was determined by reference to the
three year average return on equity for the 1998-2000 performance period and
other factors, including salary levels.
(2) Payouts under the plan will be zero if threshold performance targets are not
met. The threshold targets for the 2001-2003 performance period are based
upon achievement of prescribed levels of the risk based capital ratio of
Principal Life, and consolidated GAAP equity, return on equity and operating
earnings for the Company.
(3) Principal Life did not achieve target in the year 2001. See the Summary
Compensation Table above for payout information with respect to the year
2001.
(4) Because the formula will be based on the Company's Common Stock price in
December 2003, the payout under the plan could be unlimited.
ADDITIONAL STOCK OWNERSHIP PLANS
As a result of having become a stock company, the Company is in a position
and expects to make increasing use of stock-based executive and employee
incentive compensation. In this connection, the Board in 2001 adopted the
Company's Stock Incentive Plan and Employee Stock Purchase Plan which are
described below. There are, however, a number of restrictions under the Plan of
Conversion which will delay the Company's full use of such compensation. Thus:
- until six months after completion of the Demutualization, the Company may
not award any stock options, stock grants or other stock-based grants to
any executive officers or directors, and they may not purchase shares of
Common Stock or receive distributions of stock under the Long-Term
Performance Plan; and
- until eighteen months after completion of the Demutualization, the
Company may not issue any shares of Common Stock to participants under
the Company's Excess Plan (the Company's non-qualified defined
contribution retirement plan) and no stock incentive awards to executive
officers or awards to directors may become exercisable or distributable
except in cases of death or disability or other limited circumstances.
14
Beginning on April 29, 2002, the Company will be able to grant stock
options to executive officers under the Stock Incentive Plan and make payouts to
such executives under the Long-Term Performance Plan in stock as well as cash.
The maximum number of shares of Common Stock that may be awarded under the
Long-Term Performance Plan, the Stock Incentive Plan, the Excess Plan, the
Directors Stock Plan described above, and any new plan awarding shares of Common
Stock, in the five years following the completion of the Demutualization is 6%
of the number of shares outstanding immediately following the completion of the
Demutualization, unless the shareholders vote to increase the maximum number,
and the number of shares that may be awarded in the eighteen months following
the completion of the Demutualization is limited to 40% of such maximum.
Stock Incentive Plan. Under the Stock Incentive Plan, the Human Resources
Committee may from time to time grant to the Company's executive officers stock
options (both nonqualified options and options qualifying as incentive stock
options under the Internal Revenue Code), stock appreciation rights (i.e.,
rights to receive cash or stock based on the appreciation in value of the Common
Stock from the date of grant), restricted stock (i.e., awards of Common Stock
subject to restrictions on transferability and a risk of forfeiture) and
restricted stock units (i.e., contractual rights to receive cash or Common Stock
in the future that are the economic equivalent of an award of restricted stock).
Stock options are expected to be the primary grant form under the Stock
Incentive Plan. Stock options are granted with an exercise price at least equal
to the fair market value of the Common Stock on the date of grant, are generally
exercisable in three approximately equal installments on each of the first three
anniversaries of the date of grant and continue to be exercisable for up to ten
years. Stock appreciation rights granted by the Human Resources Committee may be
either free standing awards or awards that are related to a stock option in such
a manner that the exercise of either the stock appreciation right or the stock
option will cause the cancellation of the other award. The terms and conditions
applicable to grants of stock appreciation rights are substantially the same as
those that apply to grants of stock options.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
affords virtually all employees of the Company and its subsidiaries the
opportunity to buy shares of Common Stock at a discount from the prevailing fair
market value. The number of shares of Common Stock issuable pursuant to options
under the plan may not exceed 2% of the total number of shares outstanding
immediately following the Company's initial public offering. Under the plan as
currently administered, participating employees are granted options, each with a
term of not more than one calendar quarter, to purchase shares of Common Stock
at a price not less than 85% of the fair market value of the shares as of the
date of grant. The Human Resources Committee has determined that the exercise
price may be as low as 85% of the fair market value of the shares as of the
exercise date, provided that the exercise date price is less than the grant date
price. The phrase "fair market value" is defined by the plan to be the closing
price of the shares reported on the principal exchange, or the last reported
trade on the national quotation system, on which such transactions are reported
on the grant date, or the exercise date, whichever is applicable. Generally, if
an employee leaves the Company or one of its subsidiaries for any reason other
than death or permanent disability, any outstanding options granted to him or
her will terminate and his or her individual account will be returned to him or
her.
RETIREMENT PLAN INFORMATION
Principal Life maintains a qualified defined benefit retirement plan and a
nonqualified supplemental pension plan (i.e., a supplemental executive
retirement plan for employees, or "SERP"). The SERP provides for supplemental
pension benefits in excess of the benefit limits provided by the Employee
Retirement Income Security Act of 1974 and benefit and compensation limits
provided under the Internal Revenue Code.
The table below provides for the estimated maximum annual retirement
benefits that a hypothetical participant would be entitled to receive under the
combined retirement plans. These benefits are computed on a straight-life
annuity basis, age 65 retirement, reduction of an annual social security benefit
of $21,180 (maximum allowed in 2001), and the number of credited years of
service and average final compensation equal to the amounts indicated. A
participant whose maximum credited years of service exceed 35 years upon
15
retirement at age 65 will be entitled to benefits substantially comparable to
the benefits available to a participant whose credited years of service equal 35
years upon retirement at age 65.
Effective January 1, 2002, the Company has a cash balance pension plan for
all new employees. Existing employees will get the higher of their current plan
or the new cash balance plan benefits when they retire.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ ------- ------- ------- --------- --------- ---------
$600,000....................... 105,377 158,066 210,754 263,443 316,131 368,820
$700,000....................... 123,949 185,923 247,897 309,871 371,846 433,820
$800,000....................... 142,520 213,780 285,040 356,300 427,560 498,820
$900,000....................... 161,091 241,637 322,183 402,729 483,274 563,820
$1,000,000..................... 179,663 269,494 359,326 449,157 538,989 628,820
$1,100,000..................... 198,234 297,351 396,469 495,586 594,703 693,820
$1,200,000..................... 216,806 325,209 433,611 542,014 650,417 758,820
$1,300,000..................... 235,377 353,066 470,754 588,443 706,131 823,820
$1,400,000..................... 253,949 380,923 507,897 634,871 761,846 888,820
$1,500,000..................... 272,520 408,780 545,040 681,300 817,560 953,820
$1,600,000..................... 291,091 436,637 582,183 727,729 873,274 1,018,820
$1,700,000..................... 309,663 464,494 619,326 774,157 928,987 1,083,820
$1,800,000..................... 328,234 492,351 656,469 820,586 984,703 1,148,820
$1,900,000..................... 346,806 520,209 693,611 867,014 1,040,417 1,213,820
$2,000,000..................... 365,377 548,066 730,754 913,443 1,096,131 1,278,820
$2,100,000..................... 383,949 575,923 767,897 959,871 1,151,846 1,343,820
$2,200,000..................... 404,520 603,780 805,040 1,006,300 1,207,560 1,408,820
The plans will provide pension benefits for Messrs. Griswell, Drury,
Gersie, Aschenbrenner, and Daley. Average final compensation under the
retirement plans will be based on each executive's salary and bonus under the
incentive pay plan. These amounts with respect to 2001 are shown under the
"Salary" and "Bonus" columns opposite the names of these executives in the
Summary Compensation Table above. The years of service of each of the named
executives for eligibility and benefit purposes as of December 31, 2001, were as
follows: Mr. Griswell, 14 years; Mr. Drury, 36 years; Mr. Gersie, 31 years; Mr.
Aschenbrenner, 30 years; and Mr. Daley, 2 years. These executives will also
receive an additional benefit based on the service they earned prior to January
1, 1989.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement dated May 19, 2000,
with J. Barry Griswell pursuant to which Mr. Griswell will continue in his
capacity as the Company's President and Chief Executive Officer for an
employment term of three years from such date. This three-year term will
automatically be extended for additional two-year terms unless either Mr.
Griswell or the Company notifies the other of the intention not to extend the
agreement. Under this agreement, Mr. Griswell's annual salary was originally
established at $850,000 but is periodically adjusted in accordance with the
Company's regular policy, and Mr. Griswell participates in the Company's annual
and long-term incentive compensation plans and qualified and non-qualified
savings and retirement plans.
The employment agreement provides that Mr. Griswell will be entitled to
certain severance benefits in the event that his employment terminates under
certain circumstances. These benefits are substantially similar to the severance
benefits to which Mr. Griswell would be entitled pursuant to the "change of
control" agreement described below, except that in the case of a termination of
his employment where there has not
16
been a change of control, Mr. Griswell will generally be entitled to two times
the amounts indicated below, not three times.
The Company has entered into "change of control" employment agreements with
Mr. Griswell and each of the other Named Executive Officers. The purpose of
these agreements is to assure the covered executive that, following a "change of
control" (as defined in the agreements and as set forth below) or related
events, he will receive substantially comparable compensation and benefits and
have substantially comparable terms and conditions of employment as those he
enjoyed prior to the occurrence of such event. To that end, in the event of a
change of control, these agreements:
- mandate that the executive receive specified levels of salary, incentive
compensation and benefits for a period of not less than two years
following the occurrence of a change of control;
- provide for the immediate vesting of all options and shares of restricted
stock then held by each executive, unless, in the case of a merger or
similar acquisition, the applicable acquisition agreement provides that
the options are to be assumed by the acquirer, in which case only the
restricted stock will vest; however, there can be no exercise of options
nor distribution of restricted stock awards until eighteen months
following the completion of the Demutualization;
- provide for a payment to be made to each executive, within 10 days of a
change of control, of a pro rata portion of any annual bonus and/or
long-term incentive award then outstanding, in respect of the applicable
periods prior to the change of control;
- provide that, within 10 days of a change of control, the outstanding
account balances for each executive under any non-qualified deferral or
supplemental benefits program, whether vested or unvested, will vest and
be paid; and
- assure each executive of receiving a specified level of termination
benefits in the event that his employment is terminated without "cause"
or by the executive voluntarily for "good reason."
For this purpose, "good reason" means adverse changes in the terms and
conditions of the executive's employment, including:
- any failure to pay the executive's base salary or any required increase
in salary;
- any failure to pay the executive's annual bonus or any reduction in the
executive's annual bonus opportunity;
- any material adverse change in the executive's position (including
offices, titles or reporting requirements, but not reporting
responsibilities), authority or duties under the agreement; or
- any material reduction in the executive's aggregate compensation and
benefits or relocation of the executive to any office or location other
than the location at which he worked prior to the change of control.
The benefits to be paid or provided under the agreements upon a qualifying
termination include:
- a lump sum severance benefit equal to three times the sum of the
executive's annual base salary, target annual bonus and annualized target
long-term bonus; provided that the annualized target long-term bonus will
not be included as part of the severance benefits if the executive's
termination occurs on or after the third anniversary of the date we first
make a grant of stock options to a peer executive;
- the immediate vesting of all stock options and shares of restricted stock
or similar awards then held, except that there can be no option exercise
or distribution of restricted stock until eighteen months following the
completion of the Demutualization;
- a pro-rated annual bonus for the year of termination and a pro-rated
long-term incentive plan payment for each cycle then in progress, minus,
in each case, the amount, if any, paid in respect of such annual or
long-term incentive plan at the time of the change of control;
17
- the unpaid account balances under any non-qualified deferral or
supplemental benefits program, whether vested or unvested;
- the lump sum value of the additional retirement benefits the executive
would have accrued had he become fully vested in all such
previously-unvested benefits, accrued three additional years of service
and received the lump-sum severance benefits described above, excluding
the long-term incentive plan bonuses, as covered compensation during such
assumed additional years of service;
- an additional payment to offset any excise tax imposed under section 4999
of the Internal Revenue Code, but only if the after-tax amount of the
additional payment would exceed 10% of the after-tax benefits the
executive would receive if the executive's benefits were limited to an
amount such that the payments would not be subject to the excise tax; and
- the reimbursement for legal fees and other related expenses required to
secure, preserve or obtain benefits under the agreements.
In addition, until the third anniversary of the date of the executive's
termination, the executive shall continue to receive welfare benefits, including
medical, prescription, dental, disability, salary continuance, individual life,
group life, accidental death and travel accident insurance plans and programs,
which are at least as favorable as the most favorable programs at the same costs
applicable to peer executives and their families who are actively employed after
such termination date.
Mr. Griswell has agreed that for two years, and the other Named Executive
Officers have agreed that for one year, following a termination of employment
that results in the executive receiving the severance benefits described above,
the executive will not engage or participate in, or become employed by or serve
as a director of or consultant to, a competing business; nor will the executive
solicit employees or customers, or interfere with the relationship we have with
our employees or customers.
For purposes of these agreements, a change of control will mean any one or
more of the following events:
- any person becoming the beneficial owner of 25% or more of the Common
Stock;
- the individuals then serving as members of the Board who were members of
the Board as of the date of the agreements cease for any reason to
constitute at least a majority of the Board, provided that, for this
purpose, any subsequently-appointed or elected member of the Board whose
election or nomination for election (unless such election, nomination or
appointment was in connection with an actual or threatened proxy contest)
was approved by a vote or written consent of at least a majority of the
incumbent directors then in office and the directors elected or nominated
in a manner consistent with the conditions of this provision shall be
treated as an incumbent director; or
- the consummation of a merger, reorganization, consolidation or similar
transaction other than a transaction immediately following which the
shareholders of the Company continue to own more than 60% of the voting
securities of the surviving corporation or its ultimate parent
corporation; or approval by the shareholders of the Company of a plan or
agreement for the sale or other disposition of all or substantially all
of its consolidated assets or a plan of liquidation.
However, if specific conditions are met, a reorganization transaction of
the type outlined in the third item above may not trigger the full protection
otherwise afforded to management under such agreements because the requisite
conditions will afford management reasonable protection that there will be a
reasonable continuity of the business conditions that existed prior to the
occurrence of such event. These conditions are that:
- immediately following any such transaction, the shareholders of the
Company must continue to own more than 40% of the voting securities of
the surviving corporation or its ultimate parent corporation;
- no person is or becomes the beneficial owner of 25% or more of the voting
securities of the corporation surviving such reorganization transaction,
or its parent;
18
- for two years, directors who were in office immediately preceding the
reorganization transaction continue to constitute not less than (i) a
majority of the Board if, immediately following any such transaction, the
shareholders of the Company continue to own more than 50% of the voting
securities of the surviving corporation or its ultimate parent
corporation or (ii) one member less than a majority of the Board, if
immediately following any such transaction, the shareholders of the
Company continue to own more than 40% but less than 50% of the voting
securities of the surviving corporation or its ultimate parent
corporation; and
- the person who was the chief executive officer of the Company immediately
prior to the first to occur of (x) the day prior to the first occurrence
of certain events leading to the transaction or (y) the day prior to the
effective date of the transaction shall serve as the chief executive
officer of the surviving corporation at all times during the period
commencing on the effective date and ending on the first anniversary of
the effective date.
If any of the conditions described in the second, third or fourth items
above cease to be satisfied, then the full benefit of the protection afforded
under such agreements will become operative.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report on executive compensation is submitted by the Human Resources
Committee of the Board (the "Committee"). The members of the Committee are
directors who are not employees or former employees of the Company or its
subsidiaries.
The Committee reviews and recommends to the Board the total compensation
for the Chief Executive Officer ("CEO") and the other executive officers of the
Company, including the other Named Executive Officers. Total compensation
includes base salary and annual and long-term incentive compensation.
The Committee is assisted by the Company's human resources department
personnel and, from time to time, by an independent compensation consultant.
They provide the Committee with statistical information and advice on
competitive compensation practices and trends in the marketplace, including
information derived from compensation surveys published by other independent
compensation consultants. During 2000 and 2001, in preparation for the
Demutualization, including the Company's initial public offering, members of the
Committee received special presentations and written materials from the
Committee's independent compensation consultant that compared its compensation
practices for executive officers to those of a number of other companies,
primarily leading life insurance companies and asset management and accumulation
companies, with which the Company and its businesses compete.
In addition to reviewing comparative compensation information, the
Committee takes into account in making its recommendations for base salary and
annual and long-term incentive opportunities the annual performance evaluations
for each executive officer. The performance of the CEO is evaluated in executive
session by the non-employee directors, reviewed with the CEO by the
Board-Management Committee, and considered by the Committee in determining the
CEO's compensation to be recommended to the Board. The performance of each of
the other executive officers is evaluated initially by the CEO or another
executive officer to whom each reports and then reported to and considered by
the Committee.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's compensation philosophy is to provide executive compensation
programs that are competitive with those offered by comparable companies engaged
in similar businesses in the financial services industry, that are performance
oriented, and that will assure that the Company's executives possess the skills
and talents necessary to advance the Company's goals. The overall objectives of
the Company's compensation philosophy are to:
- Attract, retain and motivate high-performing executives needed to
accomplish our corporate goals;
- Create a performance oriented environment in which executives earn
rewards based on individual performance and achievement of corporate
results;
19
- Align compensation and benefit offerings with business strategy, key
financial goals and competitive market data; and
- Align the financial interests of the Company's executives with those of
its shareholders through stock-based rewards and encouraging acquisition
and retention of company stock.
In line with this philosophy and these objectives, the Company's total
compensation for its executive officers with respect to 2001 is based on the
compensation components and practices discussed below. While, under the terms of
the Plan of Conversion, the Company was unable to use stock-based incentives for
executives during 2001, beginning in April, 2002 the Committee will be able to
grant stock options to the Company's executives and make long-term incentive
payments in stock as well as cash.
The Committee has endorsed a recommendation from the CEO and adopted a
policy which provides that each executive officer, over the five-year period
commencing with the Company's initial public offering, must attain a significant
ownership position with respect to Company stock based on an applicable multiple
of the executive officer's base salary.
COMPENSATION COMPONENTS AND PRACTICES
The key components of total compensation are: (1) base salary; (2) annual
incentives; (3) long-term incentives; and (4) benefits. The combination and
relative weighting of these components reflect the Committee's belief that
executive compensation should be closely tied to the Company's performance. The
Committee generally sets annual and long-term pay opportunities for the
Company's executives at the median for those companies with which the Company's
compensation practices are compared as described above. The Committee intends
that a substantial portion of each executive's total compensation be at risk
under annual and long-term incentive plans using performance measures as the
bases for awards. Generally, the greater the responsibility and scope of the
executive position within the Company, the greater will be the amount of total
compensation based on incentive plans.
(1) Base Salary
Executive officer base salaries are initially determined by evaluating the
responsibilities of the position held and the experience and performance of the
individual. These salary figures are compared to the competitive base salaries
for comparable positions based on statistical data provided or reviewed by the
Company's independent compensation consultant. The Committee reviews base
salaries for executive officers annually and recommends adjustments as
appropriate based on individual performance, executive salary trends and market
data.
(2) Annual Incentives
Under the PrinPay Plan, a target cash award opportunity is established
annually for each executive officer as a percentage of base salary. Actual award
amounts may be more or less than the target award opportunities and are based on
the satisfaction of a combination of corporate, business unit and individual
performance targets to which differing weights are assigned. For 2001, the
Committee approved for executive officers, including the Named Executive
Officers, target awards at ranges of 65% to 100% of base salary for achieving
performance at target and maximum awards of 130% to 200% of base salary for
achieving performance above target. Awards for the most senior executive
officers, including the Named Executive Officers, are based on corporate and
individual performance measures. The Committee set the corporate performance
award at 85% of target after making an adjustment as discussed under "Executive
Compensation -- Incentive Pay Plan." Attainment of individual performance
targets varied among the executive officers.
(3) Long-Term Incentives
LONG-TERM PERFORMANCE PLAN. Under the Company's Long-Term Performance
Plan, executive officers, including the Named Executive Officers, receive awards
if specified corporate performance objectives are achieved over a three
calendar-year performance period. For each participant and each performance
period,
20
the Committee establishes an incentive opportunity target (expressed as a
percentage of base salary for the first year in such period) and awards a number
of performance units based on such target based on the value of a performance
unit at the beginning of the period. At the time it establishes incentive
opportunity targets, the Committee also determines the financial and strategic
business goals against which corporate performance will be measured. At the end
of each three-year performance period, the Committee assesses actual financial
and strategic performance, determines what target levels have been achieved, and
following the procedures set forth in the Long-Term Performance Plan, determines
each participant's award using the value of a performance unit at the end of the
period. Awards under the Long-Term Performance Plan are approved by the Board.
For the three-year performance period ended December 31, 2001, the Company
achieved its financial and strategic performance goals as follows: by achieving
approximately 61% of target levels of earnings and the year-three return on
equity, and 99% of its customer/client satisfaction target level. The resulting
awards for the Named Executive Officers for the 1999-2001 performance period are
shown in the Summary Compensation Table. For the three-year performance period
beginning January 1, 2001, the Committee awarded performance units as described
above. The awards for the Named Executive Officers for the 2001-2003 performance
period are shown in the Long-Term Incentive Plans -- Awards Last Year Table and
represent incentive targets ranging approximately from 60% to 75% of base salary
in 2001.
STOCK INCENTIVE PLAN. Beginning April 29, 2002, the Company will be able
to grant stock-based incentives to its executive officers, including the Named
Executive Officers, under the Company's Stock Incentive Plan. Stock-based
incentives under this Plan may include stock options (both nonqualified options
and options qualifying as incentive stock options under the Internal Revenue
Code), stock appreciation rights, restricted stock and restricted stock units.
(4) Benefits
The Named Executive Officers also participate in the Company's broad-based
employee benefits program that includes a pension program, a savings and
investment plan, group health and disability coverage, group life insurance, and
other benefit plans.
CEO COMPENSATION
With respect to 2001, the Company's President and CEO, J. Barry Griswell,
was its most highly compensated officer. The Committee's recommendations to the
Board concerning Mr. Griswell's base salary, annual incentive award under the
PrinPay Plan, and awards under the Long-Term Performance Plan were based on the
considerations discussed below.
BASE SALARY. Under his employment agreement with the Company, Mr. Griswell
receives an annual base salary of $850,000 which is subject to periodic
increases in accordance with the Company's compensation practices. For 2001, the
Committee recommended to the Board of Directors that Mr. Griswell's base salary
be increased to $925,000. In addition to taking into account the Company's and
Mr. Griswell's performance, that determination was based on information received
by the Committee from its independent compensation consultant which compared Mr.
Griswell's compensation as the CEO of the Company with the compensation received
by other chief executive officers of leading life insurance companies and asset
accumulation and management companies with which the Company competes. The Board
approved this recommended base salary for Mr. Griswell effective January 13,
2001. The total base salary earned by Mr. Griswell for 2001 was $919,231.
ANNUAL INCENTIVE. In determining the 2001 annual incentive award for Mr.
Griswell under the PrinPay Plan, the Committee evaluated the performance of the
Company and Mr. Griswell. Mr. Griswell's total award opportunity under the plan
for achieving target performance in 2001 was set at 100% of his base salary. His
maximum award for achieving performance above target was set at 200% of base
salary. The corporate performance component of Mr. Griswell's annual incentive
award (which the Committee decided at the start of the plan year should be
weighted at 80% for his position) was determined as described above for the
other executive officers. Mr. Griswell's individual performance component (which
the Committee decided at the
21
start of the plan year should be weighted at 20% for his position) was
determined by the Committee by evaluating his performance in relation to the
individual goals to which the Board-Management Committee and Mr. Griswell had
agreed. These individual goals were directed towards achieving quarterly and
annual financial goals for operating earnings, return on equity, growth and
profitability of key businesses, human resource development and succession
planning, and leadership of the organization. The Committee determined Mr.
Griswell achieved most and exceeded many of the individual goals established for
the year.
In view of these accomplishments, the Committee recommended an annual
incentive award for Mr. Griswell for 2001 of $845,692. This award represents 92%
of his target award opportunity of 100% of base salary and reflects the
company-wide adjustment made to the corporate performance component under the
PrinPay Plan and the award under that plan in recognition of his individual
performance.
LONG-TERM INCENTIVES. Mr. Griswell participates in the Long-Term
Performance Plan. Based on the relationship of performance results to target
levels discussed above, Mr. Griswell received a long-term incentive payment of
$516,963 relating to the three-year performance period ended December 31, 2001.
For the three-year performance period beginning January 1, 2001, Mr. Griswell
was awarded performance units based on an incentive target equal to 75% of his
base salary for 2001. The Committee approved the Company's financial targets to
be achieved over the 2001-2003 performance period under the Long-Term
Performance Plan. These long-term pay opportunities are intended to put a
substantial portion of Mr. Griswell's total compensation at risk, depending upon
his effectiveness in helping the Company achieve its financial and strategic
business goals.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public company for annual compensation over $1,000,000 paid to
its chief executive officer and four other most highly compensated executive
officers. There are exceptions to this deduction limit, including one for
certain performance based compensation. When a private company completes a
public offering, as the Company did in 2001, the deduction limit does not apply
to any remuneration paid pursuant to a compensation plan or agreement that
existed before the public offering. In the case of the Company, this exception
applies until one of the following events occurs: the expiration or material
modification of the plan or agreement, the issuance of all stock or other
compensation allocated under the plan, or the annual shareholders meeting in
2005. All of the Company's current compensation plans and agreements that apply
to its Named Executive Officers were in existence prior to the Company's public
offering. The Committee intends to monitor the potential impact of Section
162(m) on the Company's compensation arrangements and to qualify to the extent
reasonable the Named Executive Officers' compensation for deductibility under
applicable tax laws. The Committee, however, may approve compensation
arrangements that could lead to the Company's loss of a tax deduction when it
believes that action is appropriate to attract and retain qualified individuals
to serve as senior executive officers of the Company and to reward those
individuals for successful performance.
William T. Kerr, Chair
Gary E. Costley
C. Daniel Gelatt
Ronald D. Pearson
22
PERFORMANCE GRAPH
The following graph sets forth a comparison of cumulative total return for
the Common Stock of the Company ("PFG"), the Standard & Poor's 500 Index ("S&P
500"), and the Standard & Poor's 500 Financials Index ("S&P 500 Financials"),
adjusted to assume the reinvestment of dividends, from October 23, 2001 (the
first day of trading of Common Stock following the Company's initial public
offering) to December 31, 2001. It assumes $100 invested in each of the Common
Stock, the S&P 500 and the S&P 500 Financials.
[PERFORMANCE LINE GRAPH]
PRINCIPAL FINANCIAL GROUP,
INC. S&P 500 S&P 500 FINANCIALS
-------------------------- ------- ------------------
10/23/2001 100.00 100.00 100.00
10/31/2001 107.14 97.73 97.15
11/30/2001 109.29 105.24 104.09
12/31/2001 114.29 106.16 106.36
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain without charge a copy of the Company's Annual
Report on Form 10-K, including financial statements and financial statement
schedules, required to be filed with the SEC pursuant to the Exchange Act for
the fiscal year ended December 31, 2001, by calling 800-986-3343, select option
1 or 2 (for English or Spanish), then option 4 (Investor Relations), by
downloading the report from the Investor Relations section of the Company's
Internet site at www.principal.com, or by writing to the Company's Investor
Relations Department, Principal Financial Group, 711 High Street, Des Moines,
Iowa, 50392-0420, Attention: Linda Stoffel.
OTHER MATTERS
The management is not aware that any matters other than those set forth
herein will be presented for action at the Annual Meeting. However, if any other
matter should properly come before the meeting, the persons authorized by the
accompanying proxy will vote and act with respect thereto according to their
best judgment in the interests of the Company.
DELIVERY OF DOCUMENTS
HOUSEHOLDING OF MATERIALS
Pursuant to a notice sent by the Company to its eligible shareholders, the
Company is sending only one copy of this proxy statement and the Annual Report
to those households in which multiple shareholders share the same address unless
the Company has received instructions from a shareholder requesting receipt of
23
separate copies of these materials. If you are a shareholder of the Company who
shares the same address as other shareholders of the Company and would like to
receive a separate copy of this proxy statement or the Annual Report or future
proxy statements, information statements and annual reports, please contact
Linda Stoffel at 800-986-3343, select option 1 or 2 (for English or Spanish),
then option 4 (Investor Relations) or write to the Company's Investor Relations
Department, Principal Financial Group, 711 High Street, Des Moines, Iowa,
50392-0420, Attention: Linda Stoffel. Indicate which materials you want and the
address to which they should be mailed. If you share the same address as
multiple shareholders and would like the Company to send only one copy of future
proxy statements, information statements and annual reports, please contact
Mellon Investor Services at 866-781-1368, or write to them at P. O. Box 3338,
South Hackensack, New Jersey 07606.
ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS
The Company is offering its shareholders the opportunity to consent to
access future proxy materials and annual reports electronically. Electronic
access could save the Company a significant portion of the costs associated with
printing and mailing annual meeting materials, and the Company hopes that
shareholders find this service convenient and useful. By providing the
appropriate information when you vote by proxy via the Internet, you may consent
to access future proxy materials and/or annual reports electronically. If you
consent, and the Company elects to provide you with electronic access to future
proxy materials and/or annual reports, the Company will send you a notice by
United States mail explaining how to access these materials but will not send
you paper copies of these materials unless you request them. The Company may
also choose to send one or more items to you in paper form despite your consent
to access them electronically. Your consent will be effective until you revoke
it by terminating your registration at the website www.InvestorDelivery.com. In
addition, if you consent to electronic access, you will be responsible for your
usual Internet charges (e.g., online fees) in connection with the electronic
access of the proxy materials and annual report.
SHAREHOLDERS PROPOSALS FOR 2003 MEETING
In order for shareholder proposals for the 2003 annual meeting of
shareholders to be eligible for inclusion in the Company's proxy statement, they
must be received by the Company at its principal office in Des Moines, Iowa, no
later than December 10, 2002. In addition, all proposals for inclusion in the
proxy statement must comply with all of the requirements of SEC Rule 14a-8 under
the Exchange Act. In addition, a proposal may not be presented at the 2003
annual meeting and no persons may be nominated for election to the Board at that
meeting unless the Company receives notice of the proposal or nomination between
January 20, 2003 and February 19, 2003. Your notice should be addressed to Ms.
Joyce N. Hoffman, Senior Vice President and Corporate Secretary, Principal
Financial Group, 711 High Street, Des Moines, Iowa 50392-0300. Your notice must
comply with certain other requirements set forth in the Company's By-Laws, a
copy of which may be obtained from the Corporate Secretary of the Company.
April 9, 2002
24
APPENDIX A -- AUDIT COMMITTEE CHARTER
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF PRINCIPAL FINANCIAL GROUP, INC.
(ADOPTED MAY 21, 2001)
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the integrity of the financial reporting processes and systems of
internal accounting and financial controls of the Company, (2) the compliance by
the Company with legal and regulatory requirements and (3) the independence and
performance of the Company's internal and external auditors. In doing so, it is
the responsibility of the Audit Committee to maintain free and open
communications between the Audit Committee, independent and internal auditors,
management and the Board of Directors.
The members of the Audit Committee shall meet the composition, independence
and experience requirements of the New York Stock Exchange. The members and the
chairperson of the Audit Committee shall be appointed by the Board on the
recommendation of the Nominating Committee. In the absence of the chairperson,
the chairperson of the Board may appoint an acting chairperson of the Audit
Committee.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Audit Committee shall meet not less than four times per year and shall
make regular reports to the Board.
The Audit Committee shall:
1. Annually evaluate Committee compliance with this Charter. Review
and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval. Publish this Charter at least
every three years in accordance with SEC regulations.
2. Review the annual audited financial statements with management
and independent auditors, including major issues regarding accounting and
auditing principles, practices and judgments as well as the adequacy of
internal controls that could significantly affect the Company's financial
statements.
3. Review an analysis prepared by management and the primary
independent auditor of significant financial reporting issues and judgments
made in connection with the preparation of the Company's financial
statements.
4. Review with the primary independent auditor any problems or
difficulties the auditor may have encountered and any management letter
provided by the auditor and the Company's response to that letter. Such
review should include any difficulties encountered in the course of the
audit work, including any restrictions on the scope of activities or access
to required information.
5. In consultation with management, independent auditors and
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Review the Company's major financial risk
exposures and the steps management has taken to monitor and control such
exposures.
6. Review with management and as desired, the primary independent
auditor, the Company's quarterly financial statements prior to the release
of quarterly earnings. This review may include the entire Audit Committee,
or the Chair only, as determined in each case by the Chair.
7. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the primary independent auditor,
internal auditor or management.
8. Recommend to the Board the appointment and audit fees of the
primary independent auditor, which firm shall be selected by and is
ultimately accountable to the Audit Committee and the Board.
A-1
9. Evaluate together with the Board the performance of the primary
independent auditor and, if so determined by the Audit Committee, recommend
that the Board replace the primary independent auditor.
10. Approve other significant compensation to be paid to the primary
independent auditor consistent with the Principal Financial Group, Inc.
Policy on Auditor Independence.
11. Receive periodic written reports from the primary independent
auditor delineating all relationships between the auditor and the Company;
discuss such reports with the auditor on an annual basis, and if so
determined by the Audit Committee, recommend that the Board take
appropriate action to satisfy itself of the independence of the auditor.
12. Review the primary independent auditor's audit plan and discuss
scope, staffing, locations, reliance upon management and internal audit and
general audit approach.
13. Discuss with the primary independent auditor the matters required
to be discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
14. Review the appointment, performance and replacement of the senior
internal auditing executive.
15. Review the significant issues reported to management prepared by
the internal auditing department and management's responses.
16. Review the budget, plan, changes in plan, activities,
organization structure and qualification of the internal audit department,
as needed.
17. Obtain reports from management, the Company's senior internal
auditing executive and the primary independent auditor that the Company's
subsidiary/foreign affiliated entities are in conformity with applicable
legal requirements and the Company's Statement of Business Practices.
18. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
19. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and
with the Company's Statement of Business Practices.
20. Review with the Company's counsel any legal matters that may have
a material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators or
governmental agencies.
21. Meet at least annually with the senior internal auditing
executive and the primary independent auditor in separate executive
sessions.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditors. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and independent auditors or to assure
compliance with laws and regulations and the Company's Statement of Business
Practices.
A-2
================================================================================
Voting Instruction Card Please mark
your votes as
indicated in
this example [X]
--------------------------------------------------------------------------------
Directors' Proposals (p. 3)
Directors recommend a vote "FOR"
--------------------------------------------------------------------------------
1. Elect all Withhold
Director For* Authority
Nominees
[ ] [ ]
*To withhold authority for any nominee, write the number preceding the nominee's
name on the lines below. Director Nominees:
(01) Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley,
(04) William T. Kerr
Withhold authority for: _________ _________ _________ _________
--------------------------------------------------------------------------------
--------------------------------
Ratification of Auditors (p. 9)
Directors recommend a vote "FOR"
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
--------------------------------
Principal Financial Group [Logo]
Signature(s) ___________________________________________ Date __________________
Note: Please sign as name appears above. When signing as administrator or
trustee, please give full title as such.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Vote by Mail or Telephone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Telephone Vote on the Internet
Mark, sign and date Call toll-free Access the Internet
your Proxy Card and 800-435-6710 on a address:
return it in the touch-tone phone. http://www.eproxy.com/pfg
enclosed Have this card handy to cast your vote.
postage-paid - you will be asked Have this card handy
envelope or mail to OR to enter your OR when you access the
Mellon Investor control number website. You will be
Services, PO Box located in the box prompted to enter
3517, S. Hackensack, below. your control number
NJ 07606-3865. located in the box
below.
EE 9048
If you vote by telephone or on the Internet you do NOT need
to mail in your Voting Instruction Card.
================================================================================
================================================================================
Principal Financial Group [Logo] VOTING INSTRUCTION CARD
The signer of this Voting Instruction Card hereby authorizes Bankers Trust
Company, NA of Des Moines, Iowa, the Trustee for The Principal Select Savings
Plan for Employees and The Principal Select Savings Plan for Individual Field
(Plan), as holder of Plan assets invested in Principal Financial Group, Inc.
common stock, to vote in person or by proxy, all shares credited to my Plan
account as of March 22, 2002, the record date, at the 2002 Annual Meeting of
Shareholders to be held on May 20, 2002, or at any adjournments or postponements
thereof.
Your vote for the election of Directors for the terms set forth in the Proxy
Statement may be indicated on the reverse side of this card. Nominees are: (01)
Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley, and (04)
William T. Kerr.
You must indicate how the underlying Principal Financial Group, Inc. shares
allocated to your Plan account are to be voted by the Trustee by checking the
boxes on the reverse side of this form. If you complete the voting instruction
but give no directions, the Trustee will vote your shares for the election of
all listed nominees and in accordance with the Directors' recommendations on the
matters listed on the front of this card. If you do not complete the voting
instructions, the Trustee will vote your shares as the Trustee determines in its
discretion.
Your voting instruction must be received no later than 4:00 p.m. Eastern
Daylight Time, May 15, 2002 in order for the Trustee to vote your shares as you
instructed.
Your vote is important. Please vote by mail, by phone or on the Internet. To
vote by mail, please sign and date the front of this card and return promptly in
the enclosed postage-paid envelope; or mail to Mellon Investor Services, PO Box
3517, S. Hackensack, NJ 07606-3865.
================================================================================
================================================================================
Voting Instruction Card Please mark
your votes as
indicated in
this example [X]
--------------------------------------------------------------------------------
Directors' Proposals (p. 3)
Directors recommend a vote "FOR"
--------------------------------------------------------------------------------
1. Elect all Withhold
Director For* Authority
Nominees
[ ] [ ]
*To withhold authority for any nominee, write the number preceding the nominee's
name on the lines below. Director Nominees:
(01) Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley,
(04) William T. Kerr
Withhold authority for: ________ ________ ________ ________
--------------------------------------------------------------------------------
--------------------------------
Ratification of Auditors (p. 9)
Directors recommend a vote "FOR"
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
--------------------------------
Principal Financial Group [Logo]
Signature(s) ___________________________________________ Date __________________
Note: Please sign as name appears above. When signing as administrator or
trustee, please give full title as such.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Vote by Mail or Telephone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Telephone Vote on the Internet
Mark, sign and date Call toll-free Access the Internet
your Proxy Card and 800-435-6710 on a address:
return it in the touch-tone phone. http://www.eproxy.com/pfg
enclosed Have this card handy to cast your vote.
postage-paid - you will be asked Have this card handy
envelope or mail to OR to enter your OR when you access the
Mellon Investor control number website. You will be
Services, PO Box located in the box prompted to enter
3517, S. Hackensack, below. your control number
NJ 07606-3865. located in the box
below.
EE 9055
If you vote by telephone or on the Internet you do NOT need
to mail in your Voting Instruction Card.
================================================================================
================================================================================
Principal Financial Group [Logo] VOTING INSTRUCTION CARD
The signer of this Voting Instruction Card hereby authorizes Northern Trust
Investments, Inc., Portfolio Manager of the Stock Separate Account, to vote, as
agent for Principal Life Insurance Company, in person or by proxy all shares
(inclusive of fractional shares) attributable to units credited to my account as
of March 22, 2002, the record date, at the 2002 Annual Meeting of Shareholders
to be held on May 20, 2002, or at any adjournments or postponements thereof.
Your vote for the election of Directors for the terms set forth in the Proxy
Statement may be indicated on the reverse side of this card. Nominees are: (01)
Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley, and (04)
William T. Kerr.
You must indicate how your shares are to be voted by the Portfolio Manager by
checking the boxes on the reverse side of this form. If you complete the voting
instruction but give no directions, Northern Trust will vote your shares for the
election of all listed nominees and in accordance with the Directors'
recommendations on the matters listed on the front of this card. If you do not
complete the voting instruction, Northern Trust will vote your shares in the
same proportion as the shares held in the Separate Account as to which Northern
Trust has received voting instructions.
Your voting instruction must be received no later than 4:00 p.m. Eastern
Daylight Time, May 15, 2002 in order for the Portfolio Manager to vote your
shares as you instructed.
Your vote is important. Please vote by mail, by phone or on the Internet. To
vote by mail, please sign and date the front of this card and return promptly in
the enclosed postage-paid envelope; or mail to Mellon Investor Services, PO Box
3517, S. Hackensack, NJ 07606-3865.
================================================================================
================================================================================
Proxy Card Please mark
your votes as
indicated in
this example [X]
--------------------------------------------------------------------------------
Directors' Proposals (p. 3)
Directors recommend a vote "FOR"
--------------------------------------------------------------------------------
1. Elect all Withhold
Director For* Authority
Nominees
[ ] [ ]
*To withhold authority for any nominee, write the number preceding the nominee's
name on the lines below. Director Nominees:
(01) Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley,
(04) William T. Kerr
Withhold authority for: ________ ________ ________ ________
--------------------------------------------------------------------------------
--------------------------------
Ratification of Auditors (p. 9)
Directors recommend a vote "FOR"
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
--------------------------------
I consent to access future Annual
Reports and Proxy Statements and other
financial information electronically via
the Internet. (p. 24) [ ]
I plan to attend the Annual Meeting. [ ]
Signature(s) ______________________________________________ Date _______________
Note: Please sign as name appears above. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Vote by Mail or Telephone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Telephone Vote on the Internet
Mark, sign and date Call toll-free Access the Internet
your Proxy Card and 800-435-6710 on a address:
return it in the touch-tone phone. http://www.eproxy.com/pfg
enclosed Have this card handy to cast your vote.
postage-paid - you will be asked Have this card handy
envelope or mail to OR to enter your OR when you access the
Mellon Investor control number website. You will be
Services, PO Box located in the box prompted to enter
3517, S. Hackensack, below. your control number
NJ 07606-3865. located in the box
below.
If you vote by telephone or Internet, you will be prompted to choose access to
all future proxy materials (Annual Reports, Proxy Statements and other financial
information) via the Internet. If you choose online access to proxy materials,
you will continue to receive a Proxy Card in the mail. The Proxy Card will
include the website address and other necessary information to view proxy
materials online.
Votes by telephone and Internet must be completed by 4 p.m.
Eastern Daylight Time, May 17, 2002.
If you vote by telephone or on the Internet you do NOT need to
mail in your Proxy Card.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Principal Financial Group [Logo]
Annual Meeting Admission Ticket
------------------------------------------
Annual Meeting of
Principal Financial Group, Inc.
Shareholders
------------------------------------------
Monday, May 20, 2002, 9:00 a.m. local time
Auditorium
711 High Street, Des Moines, Iowa
------------------------------------------
To expedite meeting check-in, please bring
this Admission Ticket.
------------------------------------------
EE 9040
================================================================================
================================================================================
PROXY CARD
This proxy is solicited on behalf of the Board of Directors of the Principal
Financial Group, Inc. for the Annual Meeting of Shareholders to be held on May
20, 2002.
The Shareholder signing on the reverse side hereby appoints Michael H. Gersie,
J. Barry Griswell and Joyce N. Hoffman, and each of them, proxies with full
power of substitution, to vote all shares of the Principal Financial Group, Inc.
common stock held in the name of the Shareholder at the Annual Meeting of
Shareholders to be held at 9:00 a.m. local time, May 20, 2002 in the Auditorium
at the corporate headquarters of the Principal Financial Group, Inc., and at any
adjournment thereof, upon all subjects that may properly come before the
meeting, including the matters described in the Proxy Statement, subject to any
directions indicated on the front of this card. If no directions are given, the
proxies will vote for the election of all listed nominees and in accordance with
the Directors' recommendations on the matters listed on the front of this card,
and at their discretion on any other matter that may properly come before the
meeting.
Your vote for the election of Directors for the terms set forth in the Proxy
Statement may be indicated on the reverse side of this card. Nominees are: (01)
Betsy J. Bernard, (02) Jocelyn Carter-Miller, (03) Gary E. Costley, and (04)
William T. Kerr.
Your vote is important. Please vote by mail, by phone or on the Internet. To
vote by mail, please sign and date the front of this card and return promptly in
the enclosed postage-paid envelope; or mail to Mellon Investor Services, PO Box
3517, S. Hackensack, NJ 07606-3865.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Your Principal Financial Group shareholder account information
is available on the Internet.
Visit Investor ServiceDirect(SM) (ISD) at https://vault.melloninvestor.com/isd
to access information about and maintain your Principal Financial Group, Inc.
stock account. After a simple and secure process of establishing a Personal
Identification Number (PIN), you will be able to log in to the system and look
up histories, maintain your account information, and obtain information about
how to sell and transfer your shares of the Principal Financial Group, Inc.
stock. Key sections of the site are:
Account Status Purchase/Sell Account Management
> Book-Entry History > Sell Shares > Consent Update
> Certificate History > Taxpayer Certification
> Price History > Address Change
> 1099 History > Issue Certificate
> Forms and Material
> Householding
Get up-to-date information about your Principal Financial Group, Inc.
stock 24 hours a day, 7 days a week.
This service is provided by Mellon Investor Services, transfer
agent for the Principal Financial Group, Inc.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
For more information about our products and services, call us at
800-986-EDGE (3343) or visit the Principal Financial Group on
the World Wide Web.
The Principal home page at www.principal.com is your source for information,
including company news releases, details on our product and
service solutions and up to the minute information
for shareholders and the investment community.
WE UNDERSTAND WHAT YOU'RE WORKING FOR(SM)
Principal Financial Group [Logo]