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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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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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[ ] Fee paid previously with preliminary materials.
[ ] 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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2) Form, Schedule or Registration Statement No.:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
PRINCIPAL FINANCIAL GROUP LOGO
April 3, 2003
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Principal Financial Group, Inc., to be held on Monday, May 19, 2003, 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 19, 2003
---------------------
The annual meeting of shareholders of Principal Financial Group, Inc. (the
"Company") will be held at 711 High Street, Des Moines, Iowa, on Monday, May 19,
2003, at 9:00 a.m., local time. The purposes of the meeting are to:
1. Elect five directors, each for a term of three years ending at the
annual meeting to be held in 2006 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, 2003; and
3. Act on any other business as may properly come before the meeting.
Shareholders of record at the close of business on March 21, 2003, 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 shown 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
enclosed postage-paid envelope.
By Order of the Board of Directors
-s- Joyce N. Hoffman
JOYCE N. HOFFMAN
Senior Vice President and Corporate
Secretary
April 3, 2003
TABLE OF CONTENTS
Voting Procedures And Security Ownership.................... 1
Proposal One -- Election Of Directors....................... 3
Governance Of The Company................................... 5
Compensation Of Directors................................... 8
Audit Committee Charter And Report.......................... 10
Proposal Two -- Ratification Of Appointment Of Independent
Auditors.................................................. 11
Security Ownership Of Certain Beneficial Owners And
Management................................................ 12
Executive Compensation...................................... 14
Annual Report On Form 10-K.................................. 28
Other Matters............................................... 28
Stock Held By Brokers, Banks and Nominees................... 28
Delivery Of Documents....................................... 29
Shareholders Proposals For 2004 Meeting..................... 29
Appendix A -- Audit Committee Charter....................... A-1
i
PROXY STATEMENT
PRINCIPAL FINANCIAL GROUP, INC.
711 HIGH STREET
DES MOINES, IOWA 50392-0100
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 19, 2003, 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 2002 were first sent to
shareholders on or about April 3, 2003.
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 in this proxy statement 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 21, 2003,
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. As of the Record Date, there were approximately 328,333,079 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 the other matter that is 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
"abstain" from voting. If you properly vote by proxy by any of the methods
described herein but do not specify
1
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 as of the Record Date (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" as of the Record Date, your
broker or other nominee will advise you whether you may vote by telephone or
through the Internet as an alternative to voting by mail.
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, five directors are to be elected to hold office
until the annual meeting of shareholders to be held in the year 2006, "Class II
Directors". Four of the nominees are currently directors of the Company. One
nominee has not previously served as a director of the Company. There is no
cumulative voting, and the five nominees receiving the most votes will be
elected by a plurality. The remaining directors of the Company, whose terms
expire in the year 2004 ("Class III Directors") or the year 2005 ("Class I
Directors"), will continue to serve in accordance with their previous election
or appointment. Donald M. Stewart, who has served as a director of the Company
since it was formed in 2001 and of Principal Life since 1979, will retire from
the Board at the time of the Annual Meeting. Arjun K. Mathrani, a new nominee
for director of the Company, has been nominated by the Board to fill the vacancy
in Class II.
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 II DIRECTORS FOR TERMS TO EXPIRE IN 2006.
J. BARRY GRISWELL, 54
J. Barry Griswell has been Chairman, President and Chief Executive Officer
of the Company and Principal Life since 2002, a director of the Company since
2001, and a Principal Life director since 1998. Prior thereto, he had been
President and Chief Executive Officer of the Company since April 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 Committee of the
Board.
CHARLES S. JOHNSON, 65
Charles S. Johnson has been a director of the Company since 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. Mr. Johnson is a member of the Human Resources
Committee of the Board.
RICHARD L. KEYSER, 60
Richard L. Keyser has been a director of the Company and Principal Life
since 2002. Mr. Keyser has served as Chairman of the Board of W.W. Grainger,
Inc., an industrial distributor of products used by businesses to maintain,
repair and operate their facilities. Mr. Keyser is also a director of Rohm and
Haas Company, a chemical company. Mr. Keyser currently serves on the Audit
Committee of the Board and has been appointed by the Board to serve on the
Nominating Committee beginning May 19, 2003, upon the election of Arjun K.
Mathrani to the Board. At such time, Mr. Keyser will no longer be a member of
the Audit Committee.
ARJUN K. MATHRANI, 58
Arjun K. Mathrani teaches courses in Finance and Banking at New York
University's Stern School of Business, at St. John's University, New York, and
at Cambridge University's Judge Institute of Management. In 1998, Mr. Mathrani
was the Chief Executive Officer of ING Barings in London. He retired from Chase
Manhattan Bank in 1997 where he served as Chief Financial Officer between 1994
and 1997. Between 1991 and 1994, Mr. Mathrani was Chase's Corporate Treasurer.
Mr. Mathrani served in a number of senior
3
international positions with Chase, including Head of Latin American Corporate
Banking (1988-1991), Country Manager for Korea (1984-1988), Senior Credit
Executive for Latin America (1979-1984), Credit Officer for Brazil and Argentina
(1978-1979), and as founder of Chase's Country Risk Management Program in 1976.
Upon his election at the Annual Meeting, Mr. Mathrani will serve on the Audit
Committee of the Board, at which time Mr. Keyser will no longer serve on the
Audit Committee of the Board.
ELIZABETH E. TALLETT, 54
Elizabeth E. Tallett has been a director of the Company since 2001, and of
Principal Life since 1992. Ms. Tallett has been a Principal of Hunter Partners,
LLC, which provides management services to developing life sciences companies,
since July 2002, and Chief Executive Officer of Marshall Pharmaceuticals, Inc.,
a specialty pharmaceutical company, since November 2000. She has also been
President and Chief Executive Officer of Dioscor Inc., a biopharmaceutical firm,
since 1996. Ms. Tallett was President and Chief Executive Officer of Ellard
Pharmaceuticals, Inc. and Galenor, Inc., both biopharmaceutical companies, from
1997-2002 and 1999-2000, respectively. 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 serves as Alternate Presiding Director of the Board and is Chair of the
Audit Committee and a member of the Executive and Board Affairs and Governance
Committees of the Board.
CONTINUING CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2004.
DAVID J. DRURY, 58
David J. Drury has been a director of the Company since 2001, and of
Principal Life since 1993. Prior to January 2002, he was Chairman of the Company
since April 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, 55
C. Daniel Gelatt has been a director of the Company since 2001, and of
Principal Life since 1988. Mr. Gelatt has been President of NMT Corporation, a
computer software and microfilm service business, since 1986. He serves as
Presiding Director of the Board and is Chair of the Board Affairs and Governance
Committee and a member of the Executive and Human Resources Committees of the
Board.
SANDRA L. HELTON, 53
Sandra L. Helton has been a director of the Company and Principal Life
since 2001. Ms. Helton has been Executive Vice President and Chief Financial
Officer of Telephone & Data Systems, Inc., a diversified telecommunications
corporation, since 1998. 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, 64
Victor H. Loewenstein has been a director of the Company since 2001, and of
Principal Life since 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, 56
Federico F. Pena has been a director of the Company since 2001, and of
Principal Life since 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
4
Senior Advisor from 1998-2000. Prior to joining Vestar, Mr. Pena was Secretary
of the U.S. Department of Energy from 1996-1998. He is a director of four mutual
funds in the Marsico Funds 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.
CONTINUING CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 2005.
BETSY J. BERNARD, 47
Betsy J. Bernard has been a director of the Company since 2001, and of
Principal Life since 1999. Ms. Bernard has been President of AT&T since October
2002. Prior to October 2002, she was Chief Executive Officer of AT&T Consumer
since 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-July 2000; President and Chief Executive Officer of US WEST Long
Distance from June 1998-August 1998; and President and Chief Executive Officer
of Avirnex Communications Group from December 1997-June 1998. She is the Chair
of the Nominating Committee and a member of the Board Affairs and Governance
Committee of the Board.
JOCELYN CARTER-MILLER, 45
Jocelyn Carter-Miller has been a director of the Company since 2001, and of
Principal Life since 1999. Ms. Carter-Miller has been Executive Vice President
and Chief Marketing Officer of Office Depot, Inc. since February 2002. 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; and
Vice President and General Manager, Worldwide Networks Division from 1997-1998.
She is Chair of the Strategic Issues Committee and a member of the Audit
Committee of the Board.
GARY E. COSTLEY, 59
Gary E. Costley has been a director of the Company and Principal Life since
2002. Mr. Costley has been Chairman and Chief Executive Officer of International
Multifoods Corporation, a manufacturer and marketer of branded consumer food and
foodservice products in North America, 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, 61
William T. Kerr has been a director of the Company since 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. Prior to that time, he served as President and Chief Executive Officer of
Meredith from 1997-1998. 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 Affairs
and Governance Committees of the Board.
GOVERNANCE OF THE COMPANY
The business and affairs of the Company are managed under the direction of
the Board. The Board has established standing committees and adopted policies
and practices to assist it in fulfilling its responsibilities. During 2002, the
Board committee with responsibility for governance matters conducted a review of
the Company's corporate governance practices and policies. The purpose of the
review was to assess the Company's current practices and policies and to prepare
for compliance with new standards proposed by the New York Stock Exchange for
its listed companies and by the Sarbanes-Oxley Act of 2002, which became law on
July 30, 2002. The Committee recommended a number of actions as a result of its
review, which
5
subsequently have been addressed by the Board and its committees. These include
development of Director Independence Guidelines and review of each director's
situation under those guidelines for a determination of independence or
non-independence; changes to the Audit, Human Resources and Nominating Committee
charters and adoption of a new charter for the Board Affairs and Governance
Committee; a change in the membership of the Board Affairs and Governance
Committee so that it is comprised solely of independent directors, as are the
Audit, Human Resources and Nominating Committees; changes to the Policy on
Auditor Independence; a review of the Company's Statement of Business Practices
(which for purposes of the proposed New York Stock Exchange listing standards is
the Company's code of business conduct and ethics) and development of the
Company's Corporate Governance Guidelines. Information relating to the
governance of the Company may be found on the Company's website, at
www.principal.com.
The Board held five meetings in 2002, 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, except for Dr.
Stewart, who is retiring from the Board at the time of the Annual Meeting.
The Committees established by the Board include the following:
AUDIT COMMITTEE
The members of the Audit Committee are appointed by the Board after
considering the recommendations of the Nominating Committee. A director may be
appointed to or continue to serve on the Audit Committee only if the Board
determines that the director is "independent" and "financially literate" as
provided in 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. The Board has appointed Mr. Arjun K. Mathrani, a
candidate for director who has not previously served on the Board, to serve on
the Audit Committee upon his election at the Annual Meeting. At that time, Mr.
Keyser will no longer serve on the Audit Committee and will become a member of
the Nominating Committee.
The Audit Committee selects 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. The Committee must give pre-approval for any non-audit engagement of
the independent auditors and reviews fees for audit and non-audit services.
The Committee meets at least quarterly with financial management, the
internal auditor, and the external auditors of the Company to provide oversight
of the financial reporting process and system of internal controls. The
Committee reviews audit plans and results and also reviews and reports to the
Board on accounting policies and legal and regulatory compliance. The Committee
regularly meets alone with each of the internal auditor, primary independent
auditor, the Company's Chief Financial Officer and the Company's General
Counsel. The Committee reviews its charter and evaluates its performance
annually. The Committee held six meetings in 2002.
HUMAN RESOURCES COMMITTEE
The members of the Human Resources Committee (the Board's compensation
committee) are appointed by the Board after considering the recommendations of
the Nominating Committee. A director may be appointed to or continue to serve on
the Human Resources Committee only if the Board determines that the director is
independent as provided in applicable New York Stock Exchange listing standards.
The Human Resources Committee determines and reports to the Board on 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,
administers the Company's Incentive Pay Plan, Long-Term Performance Plan and
Stock Incentive Plan, oversees, generally, and 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. The Committee also reviews significant compensation, benefits and
general human resources topics that may apply on a broader scale across the
Company. The Committee has the sole authority to retain and terminate executive
compensation consulting firms to advise the Committee, including approval of
consulting fees and other
6
retention terms. The Committee reviews its charter and evaluates its performance
annually. The current members of the Human Resources Committee are Mr. Kerr,
Chair, Mr. Gelatt, Mr. Costley and Mr. Johnson. Ronald D. Pearson, who retired
from the Board on May 20, 2002, also served on the Human Resources Committee in
2002. When Mr. Pearson retired, Mr. Johnson joined the Committee. The Committee
held seven meetings in 2002.
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.
In April 2001, Principal Life, for itself, and an affiliate of Principal
Life for accounts it manages, purchased 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 purchased $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 purchased $5 million of an
aggregate $50 million of notes paying interest at 6.62% and maturing April 9,
2008. Principal Life and its affiliate purchased the notes in a transaction in
which an insurance company unaffiliated with the Company was the lead lender.
NOMINATING COMMITTEE
The members of the Nominating Committee are appointed by the Board. A
director may be appointed to or continue to serve on the Nominating Committee
only if the Board determines that the director is independent as provided in
applicable New York Stock Exchange listing standards. The Nominating Committee
determines criteria for selecting director candidates and Board committee
members, recommends a slate of candidates for election by shareholders at each
annual meeting and proposes candidates to fill vacancies on the Board. The
Committee also reviews and reports to the Board with respect to the independence
of directors, the performance of individual directors, recommendations for Board
committee assignments and directors to act as Presiding Director and Alternate
Presiding Director, and the content of the Company's code of business conduct
and ethics. The Nominating Committee also reviews and makes recommendations to
the Board regarding compensation of non-employee directors and reimbursement of
their expenses and administers the Directors Stock Plan and the Non-Employee
Directors Deferred Compensation Plan. The Committee has the sole authority to
retain and terminate search firms used to identify director candidates,
including approval of search firm fees and other retention terms. The Committee
reviews its charter and evaluates its performance annually. 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 current members of the Nominating Committee are Ms. Bernard,
Chair, Mr. Loewenstein, Dr. Stewart and Mr. Pena. Dr. Stewart will retire from
the Board effective May 19, 2003. Upon election of Mr. Mathrani as a director on
May 19, 2003, Mr. Keyser will join the Nominating Committee. See "Audit
Committee." The Committee held four meetings in 2002.
EXECUTIVE COMMITTEE
The members of the Executive Committee are appointed by the Board after
considering the recommendations of the Nominating 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. In practice, the Executive Committee
generally acts only on matters specifically
7
delegated to it by the Board and on matters of a more routine nature, and
matters to be acted upon must be approved by the independent members of the
Committee. The current members of the Executive Committee are Mr. Griswell,
Chair, Mr. Drury, Mr. Gelatt, Mr. Kerr, and Ms. Tallett. The Committee held five
meetings in 2002.
BOARD AFFAIRS AND GOVERNANCE COMMITTEE
The membership of the Board Affairs and Governance Committee is established
in its charter: the current Presiding Director, Alternate Presiding Director and
chairs of each of the Audit, Human Resources and Nominating Committees, if
different. A director may be appointed to or continue to serve on the Board
Affairs and Governance Committee only if the Board determines that the director
is independent as provided in applicable New York Stock Exchange listing
standards. The Board Affairs and Governance Committee reviews and reassesses at
least annually the adequacy of the Company's Corporate Governance Guidelines and
recommends proposed changes to the Board for approval, evaluates annually and
reports to the Board on the Board's overall performance and effectiveness and
makes recommendations to the Board and Board committees on governance matters,
and oversees evaluation of the Chief Executive Officer. The Committee also
oversees the annual self-evaluations of the Audit, Human Resources and
Nominating Committees of the Board. The Committee reviews its charter and
evaluates its performance annually. The current members of the Committee are Mr.
Gelatt, Chair, Ms. Bernard, Mr. Kerr, and Ms. Tallett. The Committee held four
meetings in 2002.
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 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 alignment of interests between such directors and
shareholders. Prior to November 26, 2002, the Human Resources Committee
administered the Directors Stock Plan. Beginning November 26, 2002 the
Nominating Committee assumed responsibility for administering the Directors
Stock Plan. As explained below, the Nominating Committee may from time to time
grant options, restricted stock or restricted stock units to non-employee
directors. No member of the Nominating 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. The Directors Stock Plan
provided for certain awards described below six months after completion of the
Demutualization, April 29, 2002, and provides for certain awards, also described
below, at each annual meeting thereafter. Any director first elected subsequent
to an annual meeting will receive the number of stock options and restricted
stock units, as described below, prorated based on the amount of time remaining
until the next annual meeting (with respect to stock options) and the amount of
time remaining in the director's term (with respect to restricted stock units).
On April 29, 2002, non-employee directors whose terms continued past the
2002 annual meeting each received options to purchase 2,000 shares of Common
Stock, and each non-employee director in office on May 20, 2002, the date of the
annual meeting, also received options to purchase 2,000 shares of Common Stock.
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
8
shares on the date the option is granted. Except as otherwise determined by the
Nominating 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 continued past the 2002 annual meeting
also received on April 29, 2002, and non-employee directors elected on May 20,
2002 received, grants of restricted stock units. The number received by each
director on April 29, 2002, was prorated with respect to the amount of time
remaining in such director's term, so that Class III directors received 1,500
restricted stock units, Class II directors received 750 and Class I directors
received none. Upon re-election at the 2002 annual meeting, Class I directors
received 1,500 restricted stock units. Each director re-elected at an annual
meeting will receive an additional 1,500 restricted stock units. Unless
otherwise determined by the Nominating Committee, 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 the term of such
director's class, 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 Nominating Committee
may also grant options, restricted stock or restricted stock units to any
non-employee director at any time, except that 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.
DIRECTORS MATCHING GIFT PROGRAM
Under the Directors Charitable Matching Gift Program, Principal Life
matches the charitable gifts of non-employee directors to institutions of higher
learning and eligible section 501(c)(3) organizations up to an annual aggregate
limit for each such director of $6,000 per calendar year during a director's
term and for each of the three years following the director's retirement from
the Board. The directors who make personal charitable gifts that Principal Life
matches derive no financial benefit since all charitable contribution tax
deductions for the Principal Life matching gifts accrue solely to Principal
Life.
DIRECTORS STOCK OWNERSHIP
The Board has established Common Stock ownership guidelines which require
that non-employee directors must attain, by the end of the five-year period
commencing with the director's initial receipt of stock options, an ownership
position with respect to Common Stock equal to four times the amount of the
annual retainer. Common Stock, deferred phantom-stock units under the Company's
Deferred Compensation Plan for Non-Employee Directors and restricted stock units
all qualify towards the ownership requirement as it applies to non-employee
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2002, Principal Residential Mortgage, Inc., the Company's mortgage
banking subsidiary, extended a mortgage loan in the ordinary course of its
business to James P. McCaughan, an executive officer of the Company. The
original amount of Mr. McCaughan's mortgage was $120,000, with an interest rate
of 5.625%. As of March 7, 2003, the outstanding balance of the loan was
$119,083.
9
AUDIT COMMITTEE CHARTER AND REPORT
AUDIT COMMITTEE CHARTER
The Audit Committee operates pursuant to a charter approved by the Board. A
copy of the charter as last amended by the Board on February 25, 2003, 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, 2002, 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.
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. The
Committee has discussed with Ernst & Young LLP its independence and Ernst &
Young LLP 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 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, 2002, for filing with the SEC. The Committee has also approved,
subject to shareholder ratification, the reappointment of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ending December 31, 2003.
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
10
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
Richard L. Keyser
PROPOSAL TWO -- RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to shareholder ratification, 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, 2003. 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
Audit Committee.
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 2002 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, 2002, and (ii) the review of
the Company's quarterly financial statements set forth in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June 30,
2002, and September 30, 2002, were approximately $1,753,000.
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
$3,993,000. Of this amount, approximately $1,916,000 represented recurring fees
primarily for audit-related services such as financial statement audits for
subsidiaries and other affiliated entities as required by law (e.g., financial
statement audits of domestic and international insurance companies, separate
accounts, employee benefit plans, investment advisors, and broker/dealers),
assistance with the application of new accounting standards to existing
operations and existing accounting standards to new transactions.
The balance of approximately $2,077,000 represented non-recurring fees,
primarily for tax and accounting services related to the Company's sale of
substantially all of BT Financial Group in 2002 (over 50% of the non-recurring
fees), special tax planning and compliance projects, and some assistance with
the Company's internal audit activities in information technology and
non-domestic subsidiaries. Effective January 1, 2003, the Audit Committee has
engaged a service provider other than the independent auditors to assist the
Company with its internal audit activities.
11
The Committee has determined that the non-audit services rendered by Ernst
& Young LLP during the Company's most recent fiscal year are compatible with
maintaining Ernst & Young LLP's independence.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise indicated below, the following table shows, as of March
7, 2003, 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.
Prior to April 29, 2002, due to restrictions contained in the Plan of
Conversion, the only shares of Common Stock that directors 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.
NUMBER OF SHARES PERCENT OF COMMON
NAME BENEFICIALLY OWNED(1) STOCK OUTSTANDING
---- ---------------------- -----------------
Northern Trust Corporation(2)............................ 37,983,944 11.27%
50 South LaSalle Street
Chicago, Illinois 60675
Betsy J. Bernard......................................... 2,126 *
Jocelyn Carter-Miller.................................... 2,170 *
Gary E. Costley.......................................... 4,000 *
David J. Drury(3)........................................ 44,080 *
C. Daniel Gelatt(4)...................................... 123,710 *
Sandra L. Helton......................................... 2,757 *
Charles S. Johnson....................................... 2,666 *
William T. Kerr.......................................... 2,737 *
Richard L. Keyser........................................ 3,000 *
Victor H. Loewenstein.................................... 2,158 *
Federico F. Pena......................................... 2,858 *
Donald M. Stewart........................................ 2,327 *
Elizabeth E. Tallett..................................... 2,633 *
John E. Aschenbrenner(3)................................. 36,011 *
Michael T. Daley(3)...................................... 17,758 *
Dennis P. Francis(3)..................................... 35,602 *
J. Barry Griswell(3)..................................... 89,810 *
James P. McCaughan....................................... 41,343 *
All directors and executive officers as a group (26
persons)............................................... 525,099 *
---------------
* The number of shares represents less than one percent of the number of
shares of Common Stock outstanding.
(1) Includes beneficial ownership of shares which each person named in this
table has the right to acquire on or before May 6, 2003 pursuant to
previously awarded stock options or, in the case of non-employee directors,
restricted stock units, as follows: Ms. Bernard, 2,000; Ms. Carter-Miller,
2,000; Mr. Costley, 2,000; Mr. Drury, 2,000; Mr. Gelatt, 2,000; Ms. Helton,
2,756; Mr. Johnson, 2,000; Mr. Kerr, 2,000; Mr. Keyser, 2,000; Mr.
Loewenstein, 2,000; Mr. Pena, 2,756; Dr. Stewart, 2,000; Ms. Tallett, 2,000;
Mr. Aschenbrenner, 15,068; Mr. Daley, 14,726; Mr. Francis, 33,905; Mr.
Griswell, 52,686;
12
Mr. McCaughan, 26,343; and all other executive officers as a group, 51,075.
All of the stock options previously awarded to Mr. Francis vested upon his
retirement on March 31, 2003.
(2) The information regarding beneficial ownership by Northern Trust Corporation
is based solely on a Schedule 13G filed by it with the SEC on February 13,
2003, which provided information as of December 31, 2002. According to the
Schedule 13G, Northern Trust has sole voting power with respect to 2,806,545
shares; shared voting power with respect to 1,356,674 shares; sole
investment power with respect to 37,231,008 shares; and shared investment
power with respect to 499,034 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, 2002, the Demutualization separate
account held 33,507,314 shares of Common Stock.
(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. Aschenbrenner, 568; Mr. Daley, 32; Mr. Drury, 701; Mr.
Francis, 707; and Mr. Griswell, 378.
(4) Includes 121,506 shares held by The Gelatt Corporation of which Mr. Gelatt
is a controlling shareholder, director and executive officer.
In addition to beneficial ownership of Common Stock, the Company's
directors and executive officers also hold different forms of "stock units" that
are not reported in the security ownership table but represent additional
financial interests that are subject to the same market risk as Common Stock.
These units include shares that may be acquired after May 6, 2003 pursuant to
previously awarded stock options and non-transferrable accounting-entry units
such as restricted stock units and phantom stock units issued pursuant to
Company stock-based compensation and benefit plans. The value of such units is
the same as the value of the corresponding number of shares of Common Stock.
See "Compensation of Directors" for a discussion of the restricted stock
units granted to non-employee directors under the Directors Stock Plan and the
phantom-stock units credited to directors who participate in the Company's
Deferred Compensation Plan for Non-Employee Directors. See "Long-Term
Performance Plan" for a discussion of the stock units credited to officers who
defer receipt of awards under that plan and "Additional Stock Ownership Plans"
for a discussion of other stock-based benefit plans.
As of March 7, 2003, the directors and executive officers named in the
security ownership table hold a pecuniary interest in the following number of
units: Ms. Bernard, 3,513; Ms. Carter-Miller, 3,513; Mr. Costley, 4,470; Mr.
Drury, 52,949; Mr. Gelatt, 3,513; Ms. Helton, 2,757; Mr. Johnson, 2,984; Mr.
Kerr, 3,788; Mr. Keyser, 2,756; Mr. Loewenstein, 3,513; Mr. Pena, 2,757; Dr.
Stewart, 2,756; Ms. Tallett, 2,756; Mr. Aschenbrenner, 116,028; Mr. Daley,
113,116; Mr. Francis, 5,623; Mr. Griswell, 472,015; and Mr. McCaughan, 136,409.
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
beneficial owners of more than ten percent (10%) of the Common Stock to file
with the SEC and the New York Stock Exchange initial reports of ownership and
reports of changes in 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,
or written representations from the reporting persons that no forms were
required to be filed, the Company believes that during fiscal year 2002 all
section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with except for the
following transactions. Two reports, covering an aggregate of two transactions,
were filed late by Norman R. Sorensen, Senior Vice President. One report
covering a single transaction was filed three business days late by Michael H.
Gersie, Executive Vice President and Chief Financial Officer, and one report
covering a single transaction was filed one business day late by each of Karen
E. Shaff, Senior Vice President and General Counsel, Ms. Tallett, a Director,
and Larry D. Zimpleman,
13
Executive Vice President. In addition, one report was filed late by Mr. Gelatt
to report indirect beneficial ownership of Common Stock held by a family trust
for the benefit of Mr. Gelatt's child.
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 of Principal Life.
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, 2002,
for services rendered during the fiscal years ended December 31, 2002, 2001 and
2000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------- ------------------------
AWARDS PAYOUTS
----------- ----------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(4) OPTIONS(#) PAYOUTS(8) COMPENSATION(9)
--------------------------- ---- -------- ---------- --------------- ----------- ---------- ---------------
J. Barry Griswell, ...... 2002 $982,692 $1,080,962 $ 8,178 158,060 $605,876 $54,852
Chairman, President 2001 919,231 845,692 4,254 516,963 38,935
and CEO(1) 2000 841,346 378,606 3,087 316,888 33,783
John E. Aschenbrenner, ... 2002 $428,462 $ 320,275 $ 1,445 45,205 $182,486 $19,604
Executive Vice 2001 384,615 225,000 306 237,309 15,435
President 2000 318,269 128,899 1,114 295,727 13,211
Michael T. Daley, ....... 2002 $420,769 $ 341,875 $ 0 44,180 $199,574 $19,491
Executive Vice 2001 387,030 228,928 247,887(5) 248,103 14,150
President 2000 175,590 71,114 32,285(6) 323,077 4,898
Dennis P. Francis, ...... 2002 $386,538 $ 333,969 $ 0 33,905 $205,297 $19,582
Senior Vice 2001 373,846 266,179 0 230,365 16,342
President 2000 358,654 170,899(3) 0 169,905 15,891
James P. McCaughan, ..... 2002 $346,154 $1,250,000 $ 24,917(7) 79,030 $ 0 $ 9,808
Executive Vice 2001 0 0 0 0 0
President 2000 0 0 0 0 0
---------------
(1) The Company requires Mr. Griswell to use corporate aircraft for all travel.
In 2002, the amount attributable to personal travel on corporate aircraft by
Mr. Griswell and his family members was $15,046.86. Mr. Griswell is
responsible for income taxes on that amount. The Company does not reimburse
Mr. Griswell for such taxes.
The Board of Directors has provided that Principal Life will match Mr.
Griswell's personal charitable gifts to institutions of higher learning and
eligible section 501(c)(3) organizations. For 2002, the Board provided that
Principal Life would match such personal gifts, on a five-to-one basis, up
to an annual aggregate limit of $50,000. Mr. Griswell derives no financial
benefits from this program since all charitable contribution tax deductions
for the Principal Life matching gifts accrue solely to Principal Life.
(2) Except as otherwise noted, the amounts shown for each year represent the
incentive compensation awards for that year paid in the following year under
the Company's Incentive Pay Plan.
(3) The amount shown includes $33,713 of incentive compensation paid pursuant to
the terms of the annual incentive compensation plan in effect during 2000
for vice presidents of Principal Global Investors, LLC, the Company's asset
management subsidiary (formerly known as Principal Capital Management, LLC).
(4) Except as otherwise noted, the amounts shown represent amounts reimbursed
for the periods shown for payment of taxes with regard to imputed income
attributable to spousal business travel.
14
(5) The amount shown represents reimbursement of relocation and moving expenses
of $143,910, payment of taxes on imputed income attributable to those
expenses of $101,585 and payment of taxes on imputed income attributable to
spousal business travel of $2,392.
(6) The amount shown represents reimbursement of relocation and moving expenses
of $18,034 and payment of taxes on imputed income attributable to those
expenses of $14,251.
(7) The amount shown represents reimbursement of relocation and moving expenses
of $15,000 and payment of taxes on imputed income attributable to those
expenses of $9,917.
(8) The amounts shown for each year represent the long-term incentive plan
awards, both paid and deferred in the following year under the Company's
Long-Term Performance Plan.
(9) 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, 2002, the Company's contributions to
the 401(k) Plan were as follows: Mr. Griswell, $4,125; Mr. Aschenbrenner,
$4,125; Mr. Daley, $4,125; Mr. Francis, $4,125; and Mr. McCaughan, $3,534.
The Company's contributions to the Excess Plan for that year were as
follows: Mr. Griswell, $50,727; Mr. Aschenbrenner, $15,479; Mr. Daley,
$15,366; Mr. Francis, $15,457; and Mr. McCaughan, $6,274.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS GRANT DATE VALUE
--------------------------------------------------------------------- ------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE GRANT DATE
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) EXPIRATION DATE(3) PRESENT VALUE $(4)
---- ------------ ------------------- ----------- ------------------ ------------------
J. Barry Griswell,
Chairman, President and
CEO........................ 158,060 10.59% $27.48 4/29/2012 1,609,051
John E. Aschenbrenner,
Executive Vice President... 45,205 3.03% $27.48 4/29/2012 460,187
Michael T. Daley,
Executive Vice President... 44,180 2.96% $27.48 4/29/2012 449,752
Dennis P. Francis,
Senior Vice President...... 33,905 2.27% $27.48 4/29/2012 345,153
James P. McCaughan,
Executive Vice President... 79,030 5.29% $27.48 4/29/2012 804,525
---------------
(1) Total options granted to employees during the fiscal year were 1,492,905.
(2) The per-share option exercise price equals the closing price of the Common
Stock on the date of grant.
(3) Options granted to the Named Executive Officers under the Stock Incentive
Plan are exercisable for ten years after the date of grant, except in the
event of such participant's death, disability or approved retirement. In the
event of a participant's death, disability or approved retirement, options
granted to the participant become immediately exercisable by the
participant, or participant's beneficiary, if applicable, and may be
exercised at any time prior to the earliest of the expiration of the term of
the option or three years from the date of death or termination of
employment, as applicable. In addition, the Plan of Conversion provides that
no stock options granted under the Stock Incentive Plan may become
exercisable until 18 months following completion of the Demutualization,
which is April 29, 2003.
(4) The amounts are based on the Black-Scholes option pricing model. Material
assumptions incorporated into this model in estimating the value of the
options are consistent with those required by Statement of
15
Financial Accounting Standards No. 123 (Accounting for Stock-Based
Compensation) and include the following:
a. Exercise price based on 100% of the fair market value of the
shares on the date of grant.
b. Expected option term before exercise of six (6) years which based
on market data represents the typical period that options are held
prior to exercise.
c. Interest rate of 4.73%.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY(1)
SHARES ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT
NAME ON EXERCISE(#) VALUE REALIZED($) FISCAL YEAR END(#) FISCAL YEAR END($)(2)
---- --------------- ----------------- ------------------- ---------------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------------- ---------------------
J. Barry Griswell,
Chairman, President and
CEO........................ 0 0 0/158,060 0/418,859
John E. Aschenbrenner,
Executive Vice President... 0 0 0/45,205 0/119,793
Michael T. Daley,
Executive Vice President... 0 0 0/44,180 0/117,077
Dennis P. Francis,
Senior Vice President...... 0 0 0/33,905 0/89,848
James P. McCaughan,
Executive Vice President... 0 0 0/79,030 0/209,430
---------------
(1) "In-the-Money" options are options whose base (or exercise) price was less
than the market price of Common Stock at December 31, 2002.
(2) Assuming a stock price of $30.13 per share, which was the closing price of a
share of Common Stock reported for the New York Stock Exchange-Composite
Transactions on December 31, 2002.
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. For the 2002 PrinPay Plan, these components were
(1) corporate and individual in the case of the Chief Executive Officer,
Executive Vice Presidents and Senior Vice Presidents with service unit
responsibilities, (2) corporate, business unit and individual in the case of
Senior Vice Presidents with business unit responsibilities, (3) corporate,
business unit and individual or corporate and individual in the case of other
senior employees, and (4) corporate and business unit or corporate only in the
case of all other participants. The relative weight of each of these components
varies for each participant depending on the participant's level in the Company.
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
16
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 2002, the Committee determined that the result obtained for
corporate performance should be set at 100% 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. The plan provides that, for any three year
performance period, the Human Resources Committee may select the performance
objectives it deems appropriate. The plan provides that the Committee may select
such objectives as achievement of a designated level of return on equity,
operating earnings, earnings before interest, taxes, depreciation and
amortization and total shareholder return. 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 to determine the value of performance units at
the beginning and end of the 2000-2002 performance period (and prior performance
periods) and at the beginning of the 2001-2003 performance period. The units in
the 2001-2003 performance period were converted to a valuation based on the
price of the Common Stock using the average trading price of the Common Stock
during the last 20 trading days in June 2002. The value of a performance unit at
the beginning of the 2002-2004 performance period was based on the average
trading price of the Common Stock during the 20-day period beginning April 29,
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, 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 the participant.
The Long-Term Performance Plan permits the 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 the three year performance period ended
December 31, 2002, the Committee determined that the Company achieved its
financial performance goals by achieving 57.3% of target levels of earnings and
the year-three return on equity. This adjustment affected all participants.
Listed below are the awards granted under the Long-Term Performance Plan in
2002 with respect to the 2002-2004 performance period.
17
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS IN UNITS
NUMBER OF PERIOD UNTIL BASED ON CURRENT FORMULA
PERFORMANCE MATURATION -----------------------------------
NAME UNITS (1) OR PAYOUT THRESHOLD(2) TARGET MAXIMUM
---- ----------- ------------ ------------- -------- --------
J. Barry Griswell, Chairman, President
and CEO............................. 17,756 12/31/04 3,551 $17,756 35,512
John E. Aschenbrenner, Executive Vice
President........................... 7,031 12/31/04 1,406 $ 7,031 14,062
Michael T. Daley, Executive Vice
President........................... 6,871 12/31/04 1,374 $ 6,871 13,742
Dennis P. Francis, Senior Vice
President........................... 5,540 12/31/04 1,108 $ 5,540 11,080
James P. McCaughan, Executive Vice
President........................... 8,878 12/31/04 1,776 $ 8,878 17,756
---------------
(1) The number of performance units granted was determined by reference to the
average trading price of the Common Stock during the 20-day period beginning
April 29, 2002 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 2002-2004 performance period are based
upon achievement of prescribed levels of the risk based capital ratio of
Principal Life, consolidated GAAP equity, return on equity and operating
earnings for the Company.
ADDITIONAL STOCK OWNERSHIP PLANS
As a result of having become a publicly-held 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 delayed the Company's full use of such compensation and the
exercise and distribution of stock-based awards. For example, until April 29,
2003, eighteen months after completion of the Demutualization, no stock options
granted under the Stock Incentive Plan may become exercisable, except in cases
of death or disability or other limited circumstances.
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 from the date of grant.
18
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 completion of the Demutualization unless the shareholders
vote to increase the maximum number. Under the plan as currently administered,
participating employees are granted options, each with a term of one calendar
quarter, to purchase shares of Common Stock. The option exercise price, or the
price at which the Common Stock may be purchased, is 85% of the fair market
value of the shares as of the date of grant or the date of exercise, whichever
is less. 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 balance
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"). Effective January 1, 2002, the
Company adopted a cash balance pension plan applicable to all new employees on
and after that date. Employees whose service commenced prior to January 1, 2002
and are eligible for retirement benefits will receive the higher of the
traditional benefit formula or the benefit provided by the cash balance formula
upon retirement. The SERP provides for supplemental pension benefits in excess
of the benefit provided by the qualified defined benefit retirement plan.
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 $19,920 (maximum allowed in 2002), 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
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.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------
REMUNERATION 10 15 20 25
------------ ------- ------- ------- ------- 30 35
------- -------
$700,000......................... 124,309 186,463 248,617 310,771 372,926 435,080
$800,000......................... 142,880 214,320 285,760 357,200 428,640 500,080
$900,000......................... 161,451 242,177 322,903 403,629 484,354 565,080
$1,000,000....................... 180,023 270,034 360,046 450,057 540,069 630,080
$1,100,000....................... 198,594 297,891 397,189 496,486 595,783 695,080
$1,200,000....................... 217,166 325,749 434,331 542,914 651,497 760,080
$1,300,000....................... 235,737 353,606 471,474 589,343 707,211 825,080
$1,400,000....................... 254,309 381,463 508,617 635,771 762,926 890,080
$1,500,000....................... 272,880 409,320 545,760 682,200 818,640 955,080
$1,600,000....................... 291,451 437,177 582,903 728,629 874,354 1,020,080
$1,700,000....................... 310,023 465,034 620,046 775,057 930,069 1,085,080
$1,800,000....................... 328,594 492,891 657,189 821,486 985,783 1,150,080
$1,900,000....................... 347,166 520,749 694,331 867,914 1,041,497 1,215,080
$2,000,000....................... 365,737 548,606 731,474 914,343 1,097,211 1,280,080
$2,100,000....................... 384,309 576,463 768,617 960,771 1,152,926 1,345,080
19
YEARS OF SERVICE
-------------------------------------------------------------
REMUNERATION 10 15 20 25
------------ ------- ------- ------- ------- 30 35
------- -------
$2,200,000....................... 402,880 604,320 805,760 1,007,200 1,208,640 1,410,080
$2,300,000....................... 421,451 632,177 842,903 1,053,629 1,264,354 1,475,080
$2,400,000....................... 440,023 660,034 880,046 1,100,057 1,320,069 1,540,080
The plans will provide pension benefits for Messrs. Griswell,
Aschenbrenner, Daley, Francis and McCaughan. Average final compensation under
the retirement plans will be based on each executive's salary and annual bonus
under the PrinPay plan. These amounts with respect to 2002 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, 2002, were as
follows: Mr. Griswell, 15 years; Mr. Aschenbrenner, 31 years; Mr. Daley, 3
years; Mr. Francis, 36 years and Mr. McCaughan, nine months. These executives
will also receive an additional benefit based on any 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 been a change of control, Mr. Griswell will
generally be entitled to two times the amounts indicated below, not three times.
On March 14, 2002, the Company agreed to hire James P. McCaughan as
Executive Vice President and Global Head of Asset Management of Principal Life.
Mr. McCaughan's base salary was established at $500,000. Mr. McCaughan also
received reimbursement of certain relocation and moving costs. Mr. McCaughan
participates in the Company's annual and long-term incentive compensation plans
and qualified and non-qualified savings and retirement plans. Mr. McCaughan's
target award opportunities under PrinPay, the Long-Term Performance Plan and the
Stock Incentive Plan are set at 250%, 50% and 200% of his base salary,
respectively. Mr. McCaughan's incentive compensation awards under the PrinPay,
Long-Term Performance and Stock Incentive Plans are guaranteed at 100% of all
relevant targets for 2002, and at 80% of all relevant targets for 2003. Mr.
McCaughan was treated as though he had been employed for the full 2002 calendar
year with regard to the determination of his bonus under these plans.
Should Mr. McCaughan's employment be terminated prior to March 31, 2004,
without "cause," as that term is defined in the change of control agreement
described below, the Company has agreed to pay him the base salary and PrinPay
award he would have received through March 31, 2004, had his employment not been
terminated. If he is terminated after March 31, 2004 without cause, the Company
has agreed to pay him one year's base compensation, and one year's PrinPay award
at 100% of all relevant targets, and any other accrued entitlements in
accordance with the terms of the relevant plan.
On April 26, 2000, the Company hired Michael T. Daley as Executive Vice
President of Principal Life. Mr. Daley's base salary was established at
$350,000, subject to periodic increases in accordance with the Company's
compensation practices. Mr. Daley participates in the Company's annual and
long-term incentive compensation plans and qualified and non-qualified savings
and retirement plans.
20
Mr. Daley was treated as though he had been employed in 1998, 1999 and for
the full 2000 calendar year with regard to the Company's Long-Term Performance
Plan. In 2001 and 2002, therefore, he received bonuses under that plan with
respect to the 1998-2000 and 1999-2001 performance periods equivalent to what he
would have received had he been employed in 1998, 1999 and the full 2000
calendar year. He also received reimbursement of certain relocation costs.
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;
21
- 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;
- 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;
22
- 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;
- 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 Board of Directors has determined
that each director who is a member of the Committee must be independent as
provided in applicable New York Stock Exchange listing standards.
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. For this purpose, the Committee compares the Company's
executive compensation practices 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 the case of the CEO, the Committee, in addition to reviewing comparative
compensation information, takes into account the CEO's and Company's performance
in making its recommendations for the CEO's base salary and annual and long-term
incentive opportunities. In the case of the other executive officers, the
Committee reviews comparative compensation information, and, in making
recommendations on their base salaries and incentive opportunities, takes into
account the CEO's evaluation of their performance.
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;
- Target annual and long-term compensation opportunities at the median for
those companies with which the Company's compensation practices are
compared as described above;
23
- Create a performance-oriented environment in which executives earn
rewards based on individual performance and achievement of corporate
results, with total compensation significantly increasing or decreasing
based on business results and individual performance;
- 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 by 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 2002 was based on the
compensation components and practices discussed below. Under the terms of the
Plan of Conversion, stock-based incentives for executive officers became
available for use by the Company beginning April 29, 2002. The first annual
awards of stock options under the Stock Incentive Plan were made to all
executive officers on that date, as described below. In addition, the Committee
approved a plan for conversion of formula-based units granted for the 2001-2003
performance cycle and deferred formula-based awards from prior performance
periods under the Long-Term Performance Plan into units valued on the basis of
the Common Stock. Beginning with the 2002-2004 performance cycle, all units
granted under the Long-Term Performance Plan are valued on the basis of the
Common Stock.
In third quarter 2002, the Company began expensing all stock options,
retroactive to January 1, 2002, as part of its commitment to providing investors
with clear, accurate and timely disclosure.
The Committee has adopted a policy which provides that each senior officer
must attain, by the end of the five-year period commencing with the officer's
initial receipt of stock options, a significant ownership position with respect
to Common Stock, measured as a multiple of the senior officer's base salary.
Common Stock, deferred stock-based unit awards under the Long-Term Performance
Plan, interests in Common Stock under the 401(k) Plan and phantom-stock units
under the supplemental non-qualified defined contribution excess plans all
qualify towards this ownership requirement. The required ownership positions as
multiples of base salary are five times, three times, two times and one time for
the CEO, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents,
respectively.
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 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 the amount of total compensation that will be at risk through the use of
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, market
data and internal equity.
(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 2002, PrinPay
Plan awards for the Chief Executive Officer
24
and the Executive Vice Presidents were based on corporate and individual
performance measures. The 2002 award for the other Named Executive Officer,
Dennis P. Francis, like the awards of other Senior Vice Presidents with business
unit responsibilities, was based on corporate, business unit and individual
performance measures. The 2002 awards for Senior Vice Presidents with service
unit rather than business unit responsibilities were based on corporate and
individual performance measures. For 2002, the Committee approved for executive
officers, including the Named Executive Officers, target awards at ranges of 40%
to 250% of base salary for achieving performance at target and maximum awards of
80% to 500% of base salary for achieving performance above target. Subject to
the Company's and applicable business unit performance and the limitations
stated in the plan, the award earned may be increased or decreased on the basis
of the officer's individual performance. The Committee set the corporate
performance award at 100% 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, 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 and 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 goals
against which corporate performance will be measured. At the end of each
three-year performance period, the Committee assesses actual financial
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 for executive officers under the Long-Term Performance Plan are
approved by the Board.
For the three year performance period ended December 31, 2002, the
Committee set the performance score at 57.3% of target after making an
adjustment as discussed under "Executive Compensation -- Long-Term Performance
Plan." The resulting awards for the Named Executive Officers for the 2000-2002
performance period are shown in the Summary Compensation Table. For the
three-year performance period beginning January 1, 2002, the Committee awarded
performance units to executive officers as described above based on incentive
targets ranging from 20% to 50% of base salary. The awards for the Named
Executive Officers for the 2002-2004 performance period are shown in the
Long-Term Incentive Plans -- Awards In Last Fiscal Year Table and represent
incentive targets ranging approximately from 40% to 50% of base salary in 2002.
STOCK INCENTIVE PLAN. The Committee may award stock-based incentives 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.
On April 29, 2002, the Committee granted the first annual award of
non-qualified stock options to each executive officer, including the Named
Executive Officers. The options vest ratably over three years beginning on April
29, 2003, expire on April 29, 2012, and have an exercise price of $27.48, the
closing price of the Common Stock on the grant date.
The options granted to the Named Executive Officers in 2002 are shown in
the Option/SAR Grants in Last Fiscal Year Table. The Committee determines the
options it will grant executive officers under the plan by considering the
percentage of total compensation competitors, as described above, award in the
form of options and other forms of equity compensation for comparable positions.
Utilizing this information, the Committee sets target award opportunities for
equity compensation, expressed as a percentage of base salary. Actual grants may
range from 0% to 150% of these targets based on a variety of factors such as
individual performance and the importance of retaining the executive officer
("Adjusted Target Award Opportunity").
25
The Committee administers the plan so that actual grants typically do not exceed
the sum of all grants if all grants were made at target. The Committee
calculates the actual number of options it will award to an executive officer by
dividing the present value of one option, utilizing the Black-Scholes model (but
adjusting for the possibility of forfeitures of options), into the Adjusted
Target Award Opportunity.
(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 2002, the Company's Chairman, 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 and Stock Incentive Plan were based on the considerations
discussed below.
BASE SALARY. Under his employment agreement with the Company entered into
in 2000, Mr. Griswell receives an annual base salary of $850,000 which is
subject to periodic increases in accordance with the Company's compensation
practices. In 2001, the Board of Directors set Mr. Griswell's annual base salary
at $925,000. In 2002, the Committee recommended to the Board of Directors that
Mr. Griswell's base salary be increased to $1,000,000. In addition to taking
into account the Company's and Mr. Griswell's performance, the Committee based
its recommendation on information received by the Committee from its independent
compensation consultant which compared Mr. Griswell's compensation as the CEO of
the Company to 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 March 8, 2002. The total base salary earned by Mr.
Griswell for 2002 was $982,692.
ANNUAL INCENTIVE. In determining the 2002 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 2002 was set at 100% of his base salary. The
Committee set his maximum award for achieving performance above target 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 100% for his position) was determined as described above
under "Executive Compensation -- Incentive Pay Plan." Mr. Griswell's individual
performance was determined by the Committee by evaluating his performance in
relation to the individual goals to which the 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, resulting in an individual performance factor of 110% of target. As
provided in the plan, this individual performance factor was then multiplied by
the actual corporate performance factor to arrive at an award of $1,080,926.
This award represents 110% of his target award opportunity of 100% of base
salary and reflects both 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.
26
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
$605,876 relating to the three-year performance period ended December 31, 2002.
For the three-year performance period beginning January 1, 2002, Mr. Griswell
was awarded performance units based on an incentive target equal to 50% of his
base salary for 2002. The Committee approved the Company's financial targets to
be achieved over the 2002-2004 performance period under the Long-Term
Performance Plan.
Mr. Griswell participates in the Stock Incentive Plan. In 2002, his target
award opportunity was 200% of his base salary. Based on the factors described
above, Mr. Griswell was awarded 158,060 stock options on April 29, 2002.
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. The Committee believes that it is
generally in the Company's best interests to comply with section 162(m). The
Committee also believes, however, that there may be circumstances in which the
Company's interests are best served by maintaining flexibility, whether or not
compensation is fully deductible under section 162(m).
William T. Kerr, Chair
Gary E. Costley
C. Daniel Gelatt
Charles S. Johnson
27
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 the Common Stock following the Company's initial public
offering) to December 31, 2002. It assumes $100 invested in each of PFG, the S&P
500 and the S&P 500 Financials.
Monthly PFG S&P500 S&P 500 Fin
10/23/01 100.000 100.000 100.000
10/31/01 107.143 97.721 97.148
11/30/01 109.286 105.217 104.087
12/31/01 114.286 106.138 106.366
01/31/02 121.190 104.590 104.697
02/28/02 116.000 102.572 103.179
03/31/02 120.476 106.430 110.049
04/30/02 132.381 99.978 107.112
05/31/02 144.762 99.241 106.934
06/30/02 147.619 92.172 101.859
07/31/02 136.714 84.989 93.782
08/31/02 139.667 85.545 95.700
09/30/02 124.667 76.248 84.510
10/31/02 133.571 83.407 92.157
11/30/02 139.286 87.842 95.951
12/31/02 144.667 82.682 90.809
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, 2002, 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: Amy Wiseman.
OTHER MATTERS
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.
STOCK HELD BY BROKERS, BANKS AND NOMINEES
If you plan to attend the Annual Meeting, please bring evidence of your
ownership of Common Stock as of the Record Date, March 21, 2003. A letter from
your broker or bank or a photocopy of a current account statement will be
accepted as evidence of ownership.
28
DELIVERY OF DOCUMENTS
HOUSEHOLDING OF MATERIALS
Pursuant to a notice sent by the Company to its eligible shareholders in
2002, 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 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, please contact Amy Wiseman 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: Amy Wiseman. 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, LLC 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. You may consent to access
future proxy materials and/or annual reports electronically via the Internet at
www.melloninvestor.com/isd, or you can mail your written consent to Mellon
Investor Services, LLC, P.O. Box 3338, South Hackensack, New Jersey 07606. 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.
SHAREHOLDER PROPOSALS FOR 2004 MEETING
In order for shareholder proposals for the 2004 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 5, 2003. 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 2004
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, 2004 and February 18, 2004. Your notice should be addressed to 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 3, 2003
29
APPENDIX A -- AUDIT COMMITTEE CHARTER
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF PRINCIPAL FINANCIAL GROUP, INC.
The Audit Committee is appointed by the Board to monitor (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, (3) the qualifications and independence of the
Company's primary independent auditor, and (4) the performance of the Company's
internal and primary independent auditors. The Audit Committee shall prepare the
report required by the rules of the Securities and Exchange Commission to be
included in the Company's annual proxy statement. 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 financial expertise requirements of the New York Stock Exchange Listing
Standards and Section 10A of the Securities Exchange Act of 1934, and the rules
promulgated thereunder. 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 be directly responsible for the appointment,
termination, compensation and oversight of all of the work the Company's primary
independent auditor performs for the Company, whether audit, audit related, tax
or other, and 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 primary
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 addressing such matters as the quality and
integrity of the Company's financial statements, the Company's compliance with
legal and regulatory requirements and the performance of the independent and
internal auditors. Director's fees are the only compensation that an Audit
Committee member may receive from the Company.
The Audit Committee shall:
1. Annually evaluate Committee performance and 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 and quarterly financial statements with
management and the primary independent auditor, including disclosures made
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations," earnings press releases and financial information and
earnings guidance provided to analysts and rating agencies, prior to the
release of quarterly and annual earnings.
3. Receive timely reports from the Company's primary independent
auditor of (1) all critical accounting policies and practices to be used;
(2) all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments and
the treatment preferred by the auditors; and (3) other material written
communications between the primary independent auditor and management.
4. 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.
A-1
5. 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.
6. In consultation with management, the primary independent auditor
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.
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. Appoint the primary independent auditor and approve all audit
engagement fees and terms with the primary independent auditor, which firm
shall be selected by and is directly accountable to the Audit Committee.
The Audit Committee is directly responsible for the oversight of the
primary independent auditor.
9. Evaluate the performance of the primary independent auditor and,
if so determined by the Audit Committee, replace the primary independent
auditor.
10. Pre-approve all engagements and compensation to be paid to the
primary independent auditor consistent with the Principal Financial Group,
Inc. Policy on Auditor Independence. The pre-approval of engagements may be
delegated to a single member of the Audit Committee.
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, take appropriate action to satisfy
itself of the independence of the auditor.
12. Review the independent auditor's internal quality control
procedures; any material issues raised by the most recent internal quality
control review, or peer review of the firm or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out
by the firm, and any steps taken to deal with any such issues.
13. Review the primary independent auditor's audit plan and discuss
scope, staffing, locations, reliance upon management and internal audit and
general audit approach.
14. 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.
15. Review the appointment, performance and replacement of the
senior internal auditing executive.
16. Review the significant issues reported to management prepared by
the internal auditing department and management's responses.
17. Review the budget, plan, changes in plan, activities,
organization structure and qualification of the internal audit department,
as needed.
18. 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.
19. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
20. 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.
A-2
21. 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.
22. Review the Company's policies with respect to risk assessment
and risk management.
23. Set clear hiring policies for employees or former employees of
the primary independent auditor.
24. Establish procedures for (a) the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and (b) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
25. Review personal loans the Company has to directors and executive
officers.
26. Meet at least annually with the senior internal auditing
executive, the primary independent auditor, and management 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 primary independent auditor.
Nor is it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the primary independent auditor or
to assure compliance with laws and regulations and the Company's Statement of
Business Practices.
A-3
EE 9039-1
--------------------------------------------------------------------------------
Voting Instruction Card Please mark
your votes as [X]
indicated in
this example
--------------------------------------------------------------------------------
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) J. Barry Griswell, (02) Charles S. Johnson, (03) Richard L. Keyser, (04)
Arjun K. Mathrani, (05) Elizabeth E. Tallett
Withhold authority for: _________ _________ ________ _________ _________
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ratification of Auditors (p. 11)
Directors recommend a vote "FOR"
FOR [ ] AGAINST [ ] ABSTAIN [ ]
--------------------------------------------------------------------------------
Signature(s)________________________________________________ Date ______________
Note: Please sign as name appears above. When signing as administrator or
trustee, please give full title as such.
[Logo] Principal
Financial
Group
.................................................................................
- FOLD AND DETACH HERE -
Vote by Mail or Phone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Phone Vote on the Internet
Mark, sign and date your Call toll-free Access the Internet
Voting Instruction Card 800-435-6710 on a address:
and return it in the OR touch-tone phone. You OR http://www.eproxy.com/pfg
enclosed postage-paid will be asked to enter to cast your vote. You
envelope. the control number in will be prompted to
the box below. enter the control number
in the box below.
If you vote by telephone or on the Internet, you do NOT need to mail in your Voting Instruction Card.
Your voting instruction must be received no later than 11 PM, EDT, May 14, 2003.
--------------------------------------------------------------------------------
EE 9055-1
--------------------------------------------------------------------------------
[Logo] Principal VOTING INSTRUCTION CARD
Financial
Group
The signer of this Voting Instruction Card hereby authorizes Northern Trust
Investments, Inc., Portfolio Manager of the Principal Financial Group, Inc.
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 21, 2003, the record date, at the
2003 Annual Meeting of Shareholders to be held on May 19, 2003, 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)
J. Barry Griswell, (02) Charles S. Johnson, (03) Richard L. Keyser, (04) Arjun
K. Mathrani, and (05) Elizabeth E. Tallett.
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 11:00 p.m. Eastern
Daylight Time, May 14, 2003 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. Instructions for voting by phone or Internet
are on the reverse side.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Voting Instruction Card Please mark
your votes as [X]
indicated in
this example
--------------------------------------------------------------------------------
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) J. Barry Griswell, (02) Charles S. Johnson, (03) Richard L. Keyser, (04)
Arjun K. Mathrani, (05) Elizabeth E. Tallett
Withhold authority for: _________ _________ ________ _________ _________
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ratification of Auditors (p. 11)
Directors recommend a vote "FOR"
FOR [ ] AGAINST [ ] ABSTAIN [ ]
--------------------------------------------------------------------------------
Signature(s)________________________________________________ Date ______________
Note: Please sign as name appears above.
[Logo] Principal
Financial
Group
.................................................................................
- FOLD AND DETACH HERE -
Vote by Mail or Phone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Phone Vote on the Internet
Mark, sign and date your Call toll-free Access the Internet
Voting Instruction Card 800-435-6710 on a address:
and return it in the OR touch-tone phone. You OR http://www.eproxy.com/pfg
enclosed postage-paid will be asked to enter to cast your vote. You
envelope. the control number in will be prompted to
the box below. enter the control number
in the box below.
If you vote by telephone or on the Internet, you do NOT need to mail in your Voting Instruction Card.
Your voting instruction must be received no later than 11 PM, EDT, May 14, 2003.
--------------------------------------------------------------------------------
EE 9048-1
--------------------------------------------------------------------------------
[Logo] Principal VOTING INSTRUCTION CARD
Financial
Group
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 21, 2003, the record date, at the 2003 Annual Meeting of
Shareholders to be held on May 19, 2003, 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)
J. Barry Griswell, (02) Charles S. Johnson, (03) Richard L. Keyser, (04) Arjun
K. Mathrani, and (05) Elizabeth E. Tallett.
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
instruction, the Trustee will vote your shares as the Trustee determines in its
discretion.
Your voting instruction must be received no later than 11:00 p.m. Eastern
Daylight Time, May 14, 2003 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. Instructions for voting by phone or Internet
are on the reverse side.
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Proxy Card Mark Here -------
for Address | |
Changes or | |
Comments -------
PLEASE SEE REVERSE SIDE
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Directors' Proposals (p. 3)
Directors recommend a vote "FOR"
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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) J. Barry Griswell, (02) Charles S. Johnson, (03) Richard L. Keyser, (04)
Arjun K. Mathrani, (05) Elizabeth E. Tallett
Withhold authority for: _________ _________ ________ _________ _________
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Ratification of Auditors (p. 11)
Directors recommend a vote "FOR"
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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I consent to access future Annual Reports [ ]
and Proxy Statements and other financial
information electronically via the
Internet. (p. 29) If you have previously
consented to receive proxy materials
electronically, please see reverse side.
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 Phone or Internet
24 Hours a Day, 7 Days a Week
Vote by Mail Vote by Phone 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 OR touch-tone phone. You OR http://www.eproxy.com/pfg
enclosed postage-paid will be asked to enter to cast your vote. You
envelope. the control number in will be prompted to
the box below. enter the control number
in the box below.
Votes by phone or Internet must be completed by 11 p.m. Eastern Daylight Time, May 18, 2003.
If you vote by phone or on the Internet, you do NOT need to mail in your Proxy Card.
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- FOLD AND DETACH HERE -
[Logo] Principal
Financial
Group
Annual Meeting Admission Ticket
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Annual Meeting of
Principal Financial Group, Inc.
Shareholders
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Monday, May 19, 2003, 9:00 a.m. local time
Auditorium
711 High Street, Des Moines, Iowa
------------------------------------------
To expedite meeting check-in, please bring
this Admission Ticket.
------------------------------------------
EE 9040-1
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PROXY CARD
This proxy is solicited on behalf of the Board of Directors of Principal
Financial Group, Inc. for the Annual Meeting of Shareholders to be held at
9:00 a.m. local time, May 19, 2003 in the Auditorium at the corporate
headquarters of Principal Financial Group, Inc.
The Shareholder signing on the reverse side hereby appoints Michael H.
Gersie, Karen E. Shaff and Joyce N. Hoffman, and each of them, proxies
with full power of substitution, to vote all shares of Principal Financial
Group, Inc. common stock held in the name of the Shareholder at the Annual
Meeting of Shareholders 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) J. Barry Griswell, (02) Charles S. Johnson, (03)
Richard L. Keyser, (04) Arjun K. Mathrani, and (05) Elizabeth E. Tallett.
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. Instructions for
voting by phone or Internet are on the reverse side.
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Address Change/Comments
(Mark the corresponding box on the reverse side)
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.................................................................................
- FOLD AND DETACH HERE -
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View Proxy Materials Online Instead of Receiving Them By Mail
If you gave your consent to access proxy materials electronically by March 21,
2003, proxy materials are not enclosed in this mailing. To view or print the
Annual Report and the Proxy Statement, visit www.principal.com/2003proxy.
If you have not yet registered your consent to access future proxy materials
electronically, you can register your consent by Internet or mail. By Internet:
You will be given the option to give consent when you access your account on the
web. See instructions below.
By Mail: Mark the appropriate box on the attached Proxy Card (see reverse side)
and return it in the enclosed postage-paid envelope.
Even if you choose online access to proxy materials, you will continue to
receive proxy cards in the mail. Proxy cards include the website address where
proxy materials can be viewed and printed. You may cancel your consent to access
proxy materials electronically by sending a written request to Mellon Investor
Services, PO Box 4425, S. Hackensack, NJ 07606-2025.
View Your Stock Account on the Internet 24 Hours a Day, 7 Days a Week
Visit Investor ServiceDirect(R) at www.melloninvestor.com/isd to access account
information and maintain your stock account. After a simple and secure process
of establishing a Personal Identification Number (PIN), you will be able to log
into the system. This service is provided by Mellon Investor Services, transfer
agent for Principal Financial Group, Inc.
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For more information about our products and services call us at
800-986-EDGE (3343) or visit us at www.principal.com, 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) [Logo] Principal
Financial
Group
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