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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.            )

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

PRINCIPAL FINANCIAL GROUP, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Notice of 2019 Annual Meeting
of Shareholders and Proxy Statement


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LOGO

Dear Fellow Shareholders:

You are invited to attend the annual meeting of shareholders on Tuesday, May 21, 2019, at 9:00 a.m., Central Daylight Time, at 711 High Street, Des Moines, Iowa. As we've done in the past, Principal is taking advantage of the Securities and Exchange Commission's rule that allows companies to provide proxy materials for the annual meeting via the Internet to registered shareholders.

The notice of annual meeting and proxy statement provide an outline of the business to be conducted at the meeting. We will also report on the progress of the Company 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 a proxy or voting instruction card and return it in the envelope provided (if these materials were received by mail) or vote by using the telephone or the Internet. Thank you for acting promptly.

Sincerely,

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Daniel J. Houston
Chairman, President and Chief Executive Officer

April 9, 2019


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Notice of Annual Meeting of Shareholders

Meeting Date:   Tuesday, May 21, 2019
Time:   9:00 a.m., Central Daylight Time
Location:   711 High Street, Des Moines, Iowa 50392

Agenda:

1.
Elect four Class III Directors;

2.
Hold an advisory vote to approve the compensation of our named executive officers;

3.
Ratify the appointment of Ernst & Young LLP as the Company's independent auditors for 2019; and

4.
Transact such other business as may properly come before the meeting.

The Company has not received notice of other matters that may be properly presented at the annual meeting.

You can vote if you were a shareholder of record on March 27, 2019. It is important that your shares be represented and voted at the meeting. Whether or not you plan to attend the meeting, please vote:

    Internet Telephone Mail

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Through the Internet: visit the website noted in the notice of Internet availability of proxy materials shareholders received by mail, on the proxy or voting instruction card, or in the instructions in the email message that notified you of the availability of the proxy materials.


By telephone: call the toll free telephone number shown on the proxy or voting instruction card or the instructions in the email message that notified you of the availability of the proxy materials.


Complete, sign and promptly return a proxy or voting instruction card in the postage paid envelope provided.

If you attend the meeting, you will need to register and present a valid, government issued photo identification. If your shares are not registered in your name (for example, you hold the shares through an account with your stockbroker), you will need to bring proof of your ownership of those shares to the meeting to register. You should ask the broker, bank or other institution that holds your shares to provide you with either a copy of an account statement or a letter that shows your ownership of Principal Financial Group, Inc. common stock on March 27, 2019. Please bring that documentation to the meeting to register.

By Order of the Board of Directors

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Karen E. Shaff
Executive Vice President, General Counsel and Secretary

April 9, 2019

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 21, 2019:

The 2018 Annual Report, 2019 Proxy Statement and other proxy materials are available at
www.principal.com.

Your vote is important! Please take a moment to vote by Internet, telephone or proxy or voting instruction card as explained in the How Do I Vote sections of this document.


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Table of Contents

Notice of Annual Meeting of Shareholders  

1

Table of Contents  

2

Director Qualifications, Director Tenure, Process for Identifying and Evaluating Director Candidates and Diversity of the Board

4

 

Proposal One—Election of Directors  

7

 

Corporate Governance  

13

Board Leadership Structure  


13

Role of the Board of Directors in Risk Oversight  

14

Succession Planning and Talent Development  

14

Majority Voting  

15

Director Independence  

15

Certain Relationships and Related Party Transactions  

15

Board Meetings  

16

Global Corporate Code of Conduct  

16

Board Committees  

16

Sustainability  

18

 

Directors' Compensation  

21

Fees Earned by Directors in 2018  


21

Directors Deferred Compensation Plan  

22

Restricted Stock Unit Grants  

22

Other Compensation  

22

Directors' Stock Ownership Guidelines  

23

Audit Committee Report  

23

 

Executive Compensation  

24

Compensation Discussion and Analysis  


24

2018 Company Performance Highlights  

25

2018 Compensation Highlights  

25

Compensation Program Philosophy and Policies  

26

Summary of Compensation Elements  

28

How We Make Compensation Decisions  

29

2018 Executive Compensation Decisions  

31

Base Salary  

32

Annual Incentive Pay  

33

Long-Term Incentive Compensation  

36

Timing of Stock Option Awards and Other Equity Incentives  

37

Benefits  

38

Change of Control and Separation Pay  

38

Stock Ownership Guidelines  

39

Claw Back Policy  

39

Trading Policy  

39

Succession Planning  

40

Human Resources Committee Report  

40

Risk Assessment of Employee Incentive Plans  

40

Summary Compensation Table  

41

Grants of Plan Based Awards for Fiscal Year End December 31, 2018  

43

Outstanding Equity Awards at Fiscal Year End December 31, 2018  

44

Option Exercises and Stock Vesting  

45

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CEO Pay Ratio  

45

Pension Plan Information  

46

Pension Distributions  

48

Pension Benefits  

48

Non Qualified Deferred Compensation  

49

Qualified 401(k) Plan and Excess Plan  

50

Severance Plans  

51

Change of Control Employment Agreements  

52

Potential Payments Upon Termination Related to a Change of Control  

54

 

Proposal Two—Advisory Vote to Approve Executive Compensation  

55

 

Proposal Three—Ratification of Appointment of Independent Registered Public Accountants  

56

Audit Fees  

56

Audit Related Fees  

56

Tax Fees  

56

All Other Fees  

56

 

Security Ownership of Certain Beneficial Owners and Management  

58

Section 16(a) Beneficial Ownership Reporting Compliance  


60

Questions and Answers About the Annual Meeting  

61

 

Appendix A Executive Compensation Benchmarking Study Participants  

A-1

Appendix B Non GAAP Financial Measure Reconciliations  

B-1

 

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2019 Proxy Statement        3


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Director Qualifications, Director Tenure, Process for Identifying and Evaluating Director Candidates and Diversity of the Board

The Nominating and Governance Committee regularly assesses the expertise, skills, backgrounds, competencies and other characteristics of Directors and candidates for Board vacancies considering the current Board makeup and the Company's strategic initiatives, risk factors, and other relevant circumstances. The Committee also assesses Directors' and candidates' personal and professional ethics, integrity, values and ability to contribute to the Board, including current employment responsibilities. In addition to personal attributes, the Board values experience as a current or former senior executive in financial services, in international business and with financial management or accounting responsibilities. Competencies valued by the Board include strategic and results orientation, comprehensive decision making, risk management and an understanding of current technology issues. The Committee periodically uses an outside consultant to assist with this responsibility, and these assessments provide direction in searches for Board candidates and in the evaluation of current Directors. The Committee reviews the performance of each Director whose term is expiring as part of the determination of whether to recommend his or her nomination for reelection to the Board. Input to this process is also received from the other Directors and management and an outside consultant may be engaged to assist with these reviews. Director performance and capabilities are evaluated against the characteristics and considerations noted above. Following the Committee's discussion, the outside consultant, if any, or the Committee Chair provides feedback to the Directors who were evaluated. The Board annually conducts a self-evaluation regarding its effectiveness, and the Audit, Finance, Human Resources and Nominating and Governance Committees also annually evaluate their respective committee's performance.

All Board members have:

Personal character that supports the Company's core value of integrity;

Training or experience that is useful to Principal in light of its strategy, initiatives and risk factors; and

A demonstrated willingness and ability to prepare for, attend and participate effectively in Board and Committee meetings.

Several current independent Directors have led businesses or major business divisions as CEO or President (Ms. Bernard, Mr. Dan, Dr. Gelatt, Mr. Hochschild, Mr. Mills, Ms. Nordin, Mr. Pickerell and Ms. Tallett). The following chart shows areas central to the Company's strategy, initiatives and operations for which independent Directors have specific training and executive level experience that assists them in their responsibilities.

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Though the Board does not have a formal diversity policy, diversity of the Board is a valued objective. Therefore, the Nominating and Governance Committee reviews the Board's needs and diversity in terms of race, gender, national origin, backgrounds, experiences and areas of expertise when recruiting new Directors. The current Board reflects these values, for example, in the gender (50% female) and racial (20% African American) composition of independent Directors.

The Board's diversity objective reflects the values of the Company as well. Principal has long been recognized as an exceptional place to work. In 2018, Forbes named Principal one of America's Best Employers. Pensions and Investments placed Principal at number seven on its list of Best Places to Work in Money Management for companies with 1,000 or more employees. IDG's Computerworld named Principal one of the 100 Best Places to Work in Information Technology for the 17th year. Principal is consistently recognized for its commitment to fostering a diverse and inclusive environment where employees can bring their best selves to work. Last year, we earned the number one spot on Forbes' list of Best Places for Women to Work. Principal was again named one of Working Mother magazine's 100 Best Companies, and was recognized for the 18th time as one of the National Association of Female Executives' Top Companies for Executive Women. Forbes placed Principal in the top ten on its list of America's Best Employers for Diversity and, for the third consecutive year, Principal earned a perfect score on the Human Rights Campaign Foundation's 2018 Corporate Equality Index. Principal was recognized as one of the Ethisphere Institute's World's Most Ethical Companies for the fifth consecutive year (and ninth year overall), emphasizing the commitment to leading ethical business standards and practices. Only five companies in the financial services industry earned this distinction in 2018. Principal was also named a Best place for Giving Back by the organization Great Place to Work, in recognition of our Volunteer Time Off policy and our contributions to community and charitable causes through corporate donations and employee fund matching programs.

The Board's effectiveness benefits from Directors who have the skills, backgrounds and qualifications needed by the Board and who also increase the Board's diversity. Director tenure and Board refreshment are important topics that receive considerable Board focus. The Board believes that its thorough Director performance reviews and healthy Board refreshment processes better serve Principal and its stakeholders than would mandatory term limits. Strict term limits would require that Principal lose the continuing contribution of Directors who have invaluable insight into Principal and its industry, strategies and operations because of their experience. Nevertheless, Directors' terms must not extend past the annual meeting following their 72nd birthday. The tenure of the independent Directors is listed below. The average tenure of Principal's independent Directors is 11.6 years.

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Four additional tenured Directors will be replaced over the next five years, continuing our process of regularly refreshing the talents and perspectives reflected on our Board. The tenure of the Directors, as reflected in the chart above, balances deep knowledge of the Company, its industry and relevant issues, with fresh perspectives and additional expertise, while providing the oversight and independence needed to meet the interests of our shareholders.

Communicating with stakeholders including clients, customers, employees, and investors, has always been an important part of how Principal conducts its business. Principal has had in place for some time a formal engagement process with shareholders around matters of corporate governance. These discussions provide us with helpful insight into shareholders' views on current governance topics, which are then discussed with the Nominating and Governance Committee and the full Board. This continuing process regularly supplements relevant communications regarding corporate governance made through the Company's website and by the Investor Relations staff.

 

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The Nominating and Governance Committee will consider shareholder recommendations for Director candidates sent to it c/o the Company Secretary. Director candidates nominated by shareholders are evaluated in the same manner as Director candidates identified by the Committee and search firms it retains. In addition, a stockholder or group of up to 20 stockholders, owning 3% or more of the Company's outstanding common stock ("Common Stock") continuously for at least three years, can nominate director candidates, constituting up to 20% of the Board, in the Company's annual meeting proxy materials.

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Proposal One—Election of Directors

The Board has three classes, each having a three-year term. All of the nominees are currently Directors of Principal. We expect that all the nominees will be able and willing to serve if elected. However, if, prior to the annual meeting of shareholders, any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted at the 2019 Annual Meeting for another person nominated as a substitute by the Board, or the Board may reduce the number of Directors.

The Board of Directors recommends that shareholders vote "For" all the nominees for election at the Annual Meeting.

Nominees for Class III Directors With Terms Expiring in 2019

    

Michael T. Dan
PHOTO
Age: 68
Director Since: 2006

Committees: Human Resources and
Nominating and Governance
  
Mr. Dan was Chairman, President and Chief Executive Officer of The Brink's Company, a global provider of secure transportation and cash management services, from 1999-2011. The Brink's Company had 70,000 employees worldwide, operations in over 100 countries and $3.8 billion in revenue in 2011. Prior to joining Brink's, Mr. Dan served as President of Armored Vehicle Builder, Inc.
  
Skills and Qualifications: In addition to leading and being responsible for financial management of Brink's, Mr. Dan has executive level experience in international operations, risk management, talent management, strategic planning, brand management, executive compensation, customer service, marketing and mergers and acquisitions.
  
Education: Studied business and accounting at Morton College in Cicero, Illinois, and completed the advanced management program at Harvard Business School.

    
    

C. Daniel Gelatt
PHOTO
Age: 71
Director Since: 1988 (Principal Life),
2001 (the Company)

Committees: Audit and
Human Resources
  
Dr. Gelatt has been President of NMT Corporation since 1987. NMT is an industry leader in mobile mapping and workforce automation software and has been providing analog and digital imaging services to clients worldwide for more than 40 years. He was an Assistant Professor in the Physics Department at Harvard University, where he earned his Ph.D., and was a research manager at the IBM T.J. Watson Research Center before joining the Gelatt Companies in 1982. He is a director of TPI Holdings, Inc., nPoint Inc., Trust Point Inc., NMT Corporation and Elmwood Corporation and a Trustee of Viterbo University.
  
Skills and Qualifications: In addition to leading and having financial responsibility for NMT and other Gelatt privately owned companies, Dr. Gelatt has an extensive background in software and nonlinear optimization and executive level experience in product development, talent management, marketing and strategic planning. He is a member of the Association for Computing Machinery and the IEEE.
  
Education: Bachelor's and master's degrees from the University of Wisconsin and M.A. and Ph.D. from Harvard University.

    

 

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Sandra L. Helton
PHOTO
Age: 69
Director Since: 2001

Committees: Audit (Chair),
Finance, and
Executive
 
Public Directorships: OptiNose, Inc. (Chair of Audit Committee), Covetrus Inc. (Chair of Audit Committee, member of Nominating and Governance Committee)
  
Former Public Directorships/Past 5 Years: Covance,  Inc.; Lexmark International, Inc.
  
Ms. Helton was Executive Vice President and Chief Financial Officer—Telephone and Data Systems,  Inc. ("TDS"), a diversified telecommunications organization that includes United States Cellular Corporation, from 1998 through 2006. In her role, Ms. Helton had responsibility for the Finance, Information Technology, and other corporate functions. Prior to joining TDS, Ms. Helton spent 26 years with Corning Incorporated, where she held engineering, strategy and finance positions, including Senior Vice President and Treasurer from 1991-1997. She also served as Vice President and Corporate Controller of Compaq Computer Corporation from 1997-1998.
  
Skills and Qualifications: Ms. Helton has global executive level experience in corporate strategy, finance, talent management, accounting and control, treasury, investments, information technology and other corporate administrative functions, as well as extensive corporate governance experience.
  
Education: Bachelor's degree in mathematics, summa cum laude, from the University of Kentucky, and an S.M. from Massachusetts Institute of Technology's Sloan School with double majors in Finance and Planning & Control.

    
    

Blair C. Pickerell
PHOTO
Age: 62
Director Since: 2015

Committees: Finance and
Nominating and Governance
  
Public Directorships: Link Real Estate Investment Trust (Nomination Committee and Chair of the Remuneration Committee); Dah Sing Banking Group Limited
  
Former Public Directorships/Past 5 Years: Dah Sing Financial Holdings Limited
  
Mr. Pickerell served as Head of Asia of Nikko Asset Management from 2010-2014 and Chairman Asia from 2014-2015. From 2007-2010, he was CEO, Asia, at Morgan Stanley Investment Management. He has also served as Chief Executive, Asia Pacific, of HSBC Asset Management and as Chairman of Jardine Fleming Funds.
  
Mr. Pickerell's current international service includes memberships on the Supervisory Committee for the Tracker Fund of Hong Kong; on the International Advisory Board of the Securities and Exchange Board of India; and as member of the International Advisory Council of Business and Economics of The University of Hong Kong.
  
Skills and Qualifications: In addition to his extensive leadership record in the investment and asset management and financial services industries, Mr. Pickerell has executive level experience in the retail consumer, talent management, international, marketing, mergers & acquisitions, product development and strategic planning. He is fluent in Mandarin Chinese.
  
Education: Bachelor's and master's degrees from Stanford University and an M.B.A. from Harvard Business School.

    

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Continuing Class I Directors With Terms Expiring in 2020

    

Betsy J. Bernard
PHOTO
Age: 63
Director Since: 1999 (Principal Life),
2001 (the Company)

Committees: Audit,
Human Resources (Chair), and
Executive
 
Public Directorships: Zimmer Biomet (member of the Audit Committee and Chair of the Governance Committee)
  
Former Public Directorships/Past 5 Years: SITO Mobile, Inc. (Lead Independent Director, member of Audit and Compensation Committees, Chair of the Nominating and Governance Committee)
  
Ms. Bernard was President of AT&T from October 2002 until December 2003 where she led more than 50,000 employees with AT&T Business, then a nearly $27 billion organization serving four million business customers. She was Chief Executive Officer of AT&T Consumer from 2001-2002, which served about 40 million consumers and contributed $11.5 billion to AT&T's normalized revenue in 2002. She was head of the consumer and small business division as Executive Vice President—National Mass Markets at Qwest Communications from 2000-2001, and responsible for all retail markets at U S West as Executive Vice President—Retail from 1998-2000. Ms. Bernard was a 2015 NACD Directorship 100 Honoree.
  
Skills and Qualifications: In addition to leading and being responsible for financial management of AT&T, Ms. Bernard has executive level experience in brand management, marketing to individuals and small businesses, sales, customer care, operations, product management, talent management, electronic commerce, executive compensation, strategic planning, technology and mergers and acquisitions.
  
Education: Bachelor's degree from St. Lawrence University, M.B.A. from Fairleigh Dickinson University, and an M.A. from Stanford University in the Sloan Fellow Program.

    
    

Jocelyn Carter-Miller
PHOTO
Age: 61
Director Since: 1999 (Principal Life), 2001 (the Company)

Committees: Finance (Chair) and
Nominating and Governance
  
Public Directorships: Arlo Technologies, Inc. (Audit Committee, Chair of Compensation Committee); Interpublic Group of Companies, Inc. (Audit and Executive Committees, Chair of Corporate Governance Committee)
  
Former Public Directorships/Past 5 Years: Netgear, Inc. (Audit and Compensation Committees)
  
Ms. Carter-Miller has been President of TechEd Ventures since 2005, which specializes in the development and marketing of high performance educational and personal empowerment programming. She was Executive Vice President and Chief Marketing Officer of Office Depot, Inc. from February 2002 until March 2004, with responsibility for the company's marketing for its 846 superstores, contract, catalog and e-commerce businesses in the United States and Canada and operations in 15 other countries. Before joining Office Depot, she was Corporate Vice President and Chief Marketing Officer of Motorola, Inc. with overall responsibility for marketing across its $30 billion revenue base and diverse businesses. She also had general management responsibility while at Motorola for network operations in Latin America, Europe, the Middle East and Africa. Prior to joining Motorola, she was Vice President, Marketing and Product Development at Mattel, Inc. She serves on non-profit boards, and is the Membership Chair for NACD Florida and a former President of the League of Women Voters of Broward County. Ms. Carter-Miller was a 2013 NACD Directorship 100 Honoree, a Savoy Power 300: 2016 Most Influential Black Corporate Directors, and a 2017 Directors & Boards Director to Watch.
  
Skills and Qualifications: In addition to her marketing leadership background, Ms. Carter-Miller has executive level experience in brand management, advertising, sales, multinational companies, international operations, talent management, mergers and acquisitions, product development, project management, strategic planning, technology and leadership development and training. She is also a certified public accountant.
  
Education: Bachelor's degree in Accounting from the University of Illinois and an M.B.A. in Finance and Marketing from the University of Chicago.

    

 

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Scott M. Mills
PHOTO
Age: 50
Director Since: 2016

Committees: Nominating and Governance (Chair) and
Human Resources
  
Mr. Mills has been President of BET Networks since January 1, 2018. Prior to that, he was Executive Vice President and Chief Administrative Officer of Viacom, Inc. from 2015 through 2017 and Executive Vice President of Human Resources and Administration from 2012 to 2015. Prior to that, he was President and Chief Operating Officer of Viacom's BET Networks unit, where he previously served as Chief Financial Officer and President of Digital Media. He worked in investment banking and served as Deputy Treasurer for the City of Philadelphia before joining BET.
  
Skills and Qualifications: Mr. Mills has executive level experience in accounting and finance, asset and investment management, executive compensation, talent management financial services, marketing, product development, strategic planning and technology.
  
Education: Bachelor's degree in economics from the Wharton School of the University of Pennsylvania.

    

Continuing Class II Directors With Terms Expiring in 2021

    

Diane C. Nordin
PHOTO
Age: 60
Director Since: 2017

Committees: Audit and
Human Resources
 
Public Directorships: Fannie Mae (Audit and Executive Committees, Chair of the Compensation Committee)
  
Ms. Nordin was a partner of Wellington Management Company, LLP, a private asset management company, from December 1995 to December 2011, having originally joined Wellington in 1991. Throughout her tenure, Ms. Nordin's responsibilities spanned product management, client relationship management and ultimately the oversight of Wellington's Fixed Income group where she was responsible for approximately 20 investment approaches and 130 investors globally. During her time at Wellington, Ms. Nordin served as Vice Chair of the Compensation Committee and Audit Chair of the Wellington Management Trust Company. Prior to joining Wellington, she worked at Fidelity Investments and Putnam Advisory. Ms. Nordin is a Director of Fannie Mae (since 2013) where she serves on the Audit Committee and chairs the Compensation Committee. Also, she is a director of Antares Capital, where she is Chair of the Compensation Committee (since 2016). She is a governor of the CFA Institute (since 2016) where she is Vice Chair and serves on the Compensation Committee and a Trustee of Wheaton College (since 2010) where she chairs the Investment Committee and serves on the Audit Committee. She formerly served as a Board member, Executive and Compensation Committee member and Investment Committee Chair of the Appalachian Mountain Club.
  
Skills and Qualifications: In addition to her extensive experience in the asset management business, Ms. Nordin has executive level experience in accounting and finance, talent management executive compensation, financial services, international operations, product development, risk management and strategic planning.
  

Education: Bachelor's degree from Wheaton College. Ms. Nordin is a Chartered Financial Analyst.

    

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Roger C. Hochschild
PHOTO
Age: 54
Director Since: 2015

Committees: Audit and
Finance
 
Public Directorships: Discover Financial Services
 
Mr. Hochschild has been Chief Executive Officer and President of Discover Financial Services since October 1, 2018. Prior to that, he was President and Chief Operating Officer of Discover Financial Services since 2004. He served as the Chief Administrative Officer, Executive Vice President and Chief Strategy Officer of Morgan Stanley from 2001 to 2004, Chief Marketing Officer of Discover Financial Services from 1998 to 2001 and a Senior Executive Vice President of MBNA America Bank from 1994 to 1998. He has been a Director for Chicago Public Media since October of 2016.
  
Skills and Qualifications: Mr. Hochschild has executive level experience in asset and investment management, retail consumer services, talent management executive compensation, financial services, marketing, mergers & acquisitions, product development, risk management and strategic planning.
  
Education: Bachelor's degree in economics from Georgetown University, and an M.B.A. from the Amos Tuck School at Dartmouth College.

    
    

Daniel J. Houston
PHOTO
Age: 57
Director Since: 2014

Committees: Executive (Chair)
  
Mr. Houston has been Chairman, President and Chief Executive Officer of the Company and Principal Life Insurance Company ("Principal Life") since 2016. Prior to that, he was President and Chief Executive Officer from August 2015—May 2016. He served as President and Chief Operating Officer from November 25, 2014—August 17, 2015. He joined Principal Life in 1984 and had several management positions, being named Senior Vice President in 2006 and President of Retirement and Income Solutions in 2008. He is Chairman-Elect of the board of directors of the American Council of Life Insurers and also serves on the boards of the Business Roundtable, Iowa Business Council, Greater Des Moines Partnership, Employee Benefits Research Institute, Iowa State University Business School Dean's Advisory Council, Partnership for a Healthier America and Community Foundation of Greater Des Moines.
  
Skills and Qualifications: Mr. Houston has operational expertise, global awareness, and deep talent leadership skills. During his career with the Company, he has worked in sales, managed numerous businesses and helped lead the transformation of the Company to a global investment management leader. He has extensive operational experience, as well as expertise in risk management, executive compensation, talent management marketing and sales, and mergers and acquisitions.
  
Education: Bachelor's of Science degree from Iowa State University.

    

 

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Elizabeth E. Tallett
PHOTO
Age: 70
Director Since: 1992 (Principal Life), 2001 (the Company)

Committees: Human Resources,
Nominating and Governance, and
Executive
  
Public Directorships: Meredith Corporation (Chair of Compensation and Nominating and Governance Committees), Qiagen, N. V. (Audit and Chair of Compensation Committees), Anthem, Inc. (Board Chair and member of Compensation and Nominating and Governance Committees)
  
Former Public Directorships/Past 5 Years: Coventry Health Care, Inc.
  
Ms. Tallett has been Lead Director since 2007.
  
Ms. Tallett was Principal of Hunter Partners, LLC, a management company for early to mid stage pharmaceutical, biotech and medical device companies, from July 2002 to February 2015. She continues to operate as a consultant to early stage pharmaceutical and healthcare companies. She has more than 30 years' experience in the biopharmaceutical and consumer industries. Ms. Tallett is Chair of the Finance Committee and Treasurer for Solebury School, PA (not for profit).
  
Skills and Qualifications: Ms. Tallett's senior management experience includes being President and Chief Executive Officer of Transcell Technologies, Inc., President of Centocor Pharmaceuticals, member of the Parke-Davis Executive Committee, and director of Worldwide Strategic Planning for Warner-Lambert. In addition to her leadership and financial management in pharmaceutical and biotechnology firms, she has executive level experience in multinational companies, international operations, economics, strategic planning, marketing, product development, talent management technology, executive compensation and mergers and acquisitions. Ms. Tallett was named an ODX Outstanding Director by the Financial Times in 2015.
  
Education: Bachelor's degree with honors in mathematics and economics from the University of Nottingham in England.

    

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Corporate Governance

The Company's Board and management regularly review best practices for corporate governance and modify our policies and practices as warranted. Our current best practices include:

Proxy access for shareholders owning three percent or more of the Company's Common Stock for a minimum of three years;

Majority of independent Directors (10 out of 11);

All key committees (i.e., Audit, Finance, Human Resources and Nominating and Governance Committees) are composed entirely of independent Directors;

Strong and experienced independent Lead Director;

Director resignation policy if the support of a majority vote of shareholders is not achieved;

Policy regarding Directors' service on other public company boards;

Board and committee self assessments conducted annually;

Director assessment conducted in connection with Director nomination process;

Robust stock ownership guidelines for Directors;

Diverse Board membership in terms of age, background, experience, gender, ethnicity and tenure;

Robust shareholder engagement program to obtain valuable feedback on our compensation and governance programs;

Annual review of CEO succession plan by the independent Directors with and without the CEO present;

Annual Board review of senior management long-term and emergency succession plans;

Multiple executive sessions involving solely independent Directors at each regularly-scheduled Board meeting; and

Robust policies and procedures concerning the identification of and monitoring for conflicts of interest across the organization.

Board Leadership Structure

The Board exercises flexibility in establishing a leadership structure that works best for Principal at any given time. Historically, the positions of Chairman of the Board and CEO have been held by two people or combined and held by one person, depending on circumstances. Currently, Daniel J. Houston is the Chairman and CEO. Since 1990, the Board has had a Lead Director because it is important that the independent Directors have a formally acknowledged leader in addition to the Chairman of the Board who leads the Board generally. The Board regularly reviews the effectiveness of this shared leadership. Whether to separate or combine the Chairman and CEO positions is based on factors such as the tenure and experience of the CEO and the broader economic and operating environment of the Company. Principal has separated the roles of Chairman of the Board and CEO during periods of management transition, with the prior Chairman retaining that position as the newly appointed CEO assumes new responsibilities. The Board prefers this flexible approach to a requirement that the positions of Chairman andCEO be combined or separate. Ms. Tallett, the Lead Director, was selected by the independent Directors. The Nominating and Governance Committee reviews the appointment of Lead Director annually.

The Lead Director and the Chairman jointly decide on the Board's agenda for each regular quarterly meeting, and the Lead Director seeks input from the other independent Directors. The Lead Director and Chairman share the duties of presiding at each Board meeting. The Chairman presides when the Board is meeting as a full Board. The Lead Director presides when the Chairman is not present; plans and leads executive sessions of independent Directors ("Executive Sessions"); leads the Board's annual self evaluation; calls special Board meetings if the Chairman is unable to act; and leads the Board's CEO succession planning discussions. Executive Sessions generally occur at the start and end of each regularly scheduled Board meeting, and were held in conjunction with each regularly scheduled Board meeting during 2018.

 

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Role of the Board in Risk Oversight

Risk management is an essential component of our culture and business model. Management within our business units and functional areas is primarily responsible for identifying, assessing, monitoring and managing risk exposures. The Company's Enterprise Risk Management program includes a Chief Risk Officer, whose team operates independently from the business units, and an Enterprise Risk Management Committee, composed of members from the executive management team, that provides enterprise wide oversight for material risks. The Company also has a robust internal audit function.

The Board oversees management's execution and performance of its risk management responsibilities. The Board reviews strategic threats, opportunities, and risks Principal and its businesses or functions are managing. This includes oversight of risks such as credit, market, liquidity, product, operational, cybersecurity, reputational and general business risk that are handled directly by the Board or by Board Committees as discussed below:

The Audit Committee:    risk and mitigation related to accounting, financial controls, legal, regulatory, ethics, compliance, operations and general business activities. The Audit Committee also oversees the framework and policies with respect to enterprise risk management.

The Finance Committee:    risk and mitigation related to liquidity, credit, market, product and pricing activities. The Finance Committee also oversees capital management, capital structure and financing, investment policy, tax planning, and key risks associated with significant financial transactions. The Finance Committee also provides guidance to the Human Resources Committee on the appropriateness of Company financial goals used in annual and long-term employee incentive compensation arrangements.

The Human Resources Committee:    risk and mitigation related to the design and operation of employee compensation arrangements to confirm they are consistent with business plans, do not encourage inappropriate risk taking and are appropriately designed to limit or mitigate risk. The Human Resources Committee also oversees succession planning and development for senior management.

The Nominating and Governance Committee:    risks and mitigation related to the Company's environmental, sustainability and corporate social responsibilities as well as the Company's political contribution activities. The Nominating and Governance Committee also monitors whether the Board and its committees have the collective skills and experience necessary to monitor the risks facing the Principal.

The Chief Risk Officer and other members of senior management provide reports and have discussions with the Board and its committees on our risk profile and risk management activities, including reviews of ongoing adherence to policy, impacts of external events, and how strategy, initiatives, and operations integrate with our risk objectives. The Board also receives input on these issues from external entities such as our independent auditor, regulators and consultants. These activities provide the Board with a greater understanding of the material risks we face, the level of risk in matters presented for Board approval, and how risks are related.

The Board views cybersecurity risk as an enterprise wide concern that involves people, processes, and technology, and accordingly treats it as a Board level matter. It embodies a persistent and dynamic threat to our entire industry and is not limited to information technology. The Board will remain focused on this critical priority by continuing to receive regular reports from the Chief Information Officer, the Chief Information Security Officer, and other professionals to ensure management has established and is proactively maintaining an enterprise wide cyber risk program including necessary policies and controls to manage the risk.

Succession Planning and Talent Development

The Board believes that succession planning for future leadership of the Company is one of its most important roles. The Board is actively engaged and involved in talent management and reviews succession at least annually. This includes a detailed discussion of our global leadership and succession plans with a focus on CEO succession planning as well as succession planning for key positions at the levels of senior vice president and above. In addition, the Human Resources Committee regularly discusses the talent pipeline for critical roles at a variety of organizational levels, including CEO. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events and the Human Resources Committee also receives regular updates on key talent indicators for the overall workforce, including diversity, recruiting and development programs.

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Majority Voting

In uncontested Director elections, Directors are elected by the majority of votes cast. If an incumbent Director is not elected and no successor is elected, the Director must submit a resignation to the Board, which will decide whether to accept the resignation. The Board's decision and reasons for its decision will be publicly disclosed within 90 days of certification of the election results.

Director Independence

The Board determines at least annually whether each Director is independent, using its independence standards in these determinations. These independence standards include the Nasdaq standards for independence and are on the Company's website, www.principal.com. The Board considers all commercial, banking, consulting, legal, accounting, charitable, family and other relationships (either individually or as a partner, shareholder or officer of an organization) a Director may have with the Company and its subsidiaries. The Board most recently made these determinations for each Director in February 2019, based on:

A review of relationships and transactions between Directors, their immediate family members and other organizations with which a Director is affiliated and the Company, its subsidiaries or executive officers;

Questionnaires completed by each Director regarding any relationships or transactions that could affect the Director's independence;

The Company's review of its purchasing, investment, charitable giving and other records; and

Recommendations of the Nominating and Governance Committee.

The Board affirmatively determined that the following Directors have no material relationship with the Company and are independent: Ms. Bernard, Ms. Carter-Miller, Mr. Dan, Dr. Gelatt, Ms. Helton, Mr. Hochschild, Mr. Mills, Ms. Nordin, Mr. Pickerell and Ms. Tallett. The Board also determined that all current members of the Audit, Finance, Human Resources and Nominating and Governance Committees are independent. No Director other than Mr. Houston has been employed by the Company at any time.

Some Directors have categorically immaterial relationships and transactions with Principal:

Ms. Bernard, Dr. Gelatt, Ms. Helton, Mr. Pickerell and Ms. Tallett are customers of the Company's subsidiaries. Prior to the Demutualization (see page 64), Directors were required to own an insurance policy or annuity contract issued by Principal Life. All insurance policies, annuity contracts and agreements for trust services held by Directors are on the same terms and conditions as those offered to the public.

The Gelatt family companies (Dr. Gelatt is the CEO) and an affiliated trust own insurance and pension products issued by Principal Life.

Ms. Bernard, Ms. Nordin, Mr. Pickerell and Ms. Tallett are directors, and Messrs. Hochschild and Mills are executive officers of for profit entities, and Dr. Gelatt is a Director of a not for profit entity, with which the Company's subsidiaries conduct ordinary commercial transactions.

Certain Relationships and Related Party Transactions

Nippon Life Insurance Company ("Nippon Life"), which held approximately 6.3% of the Company's Common Stock at the end of 2018, is the parent company of Nippon Life Insurance Company of America ("NLICA"). Nippon Life, NLICA and Principal Life have had business relationships for more than 20 years. In 2018, Nippon Life and NLICA paid the following amounts to Principal Life or its affiliates: $179,327 for pension services for defined contribution plans maintained by NLICA and an affiliate (mostly paid by plan participants); $1,250 for deferred compensation plan services; $7,567,947 for investment services. The Company owns approximately three percent of the common stock of NLICA and Principal Life purchased public bonds with a market value at the end of 2018 of $61,150,000 during Nippon Life's $2 billion public issuance in October of 2012. NLI US Investments, Inc. ("NLI"), owns approximately 19.80% of Post Advisory Group, LLC ("Post"), an affiliate of the Company. During 2018, Post paid NLI an aggregate of $2,772,488.46 in dividends. Due to the longstanding relationship between Nippon and Principal Life, Nippon employees occasionally train on-site at Principal Life or at one of its affiliates. During 2018, Principal Life paid Nippon Life $134,996 in salary reimbursements in connection with these situations. Principal affiliates manage accounts holding securities issued by Nippon Life, and Nippon Life invests in funds managed by Principal affiiates.

 

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As of December 31, 2018, the Vanguard Group, Inc. managed funds holding in the aggregate 10.73% of the Company's Common Stock. During 2018 Principal Shareholder Services, Inc. paid Vanguard $44,551 for sub-transfer agent services. During 2018, Vanguard paid $1,228,848 in rent for lease of space to a borrower of the Principal Life general account. Principal Life and affiliates hold, or manage accounts holding, securities issued by Vanguard funds.

As of December 31, 2018, BlackRock, Inc. and certain subsidiaries collectively owned or managed funds holding in the aggregate 6.7% of the Company's common stock. During 2018, Principal Global Investors, LLC paid BlackRock Fund Advisors $1,789,443 in management fees associated with the Principal Funds, Inc. In 2018, Principal Life paid BlackRock, Inc. $2,597,513 for fees in connection with the use of the Aladdin system and $373,382 for software. In 2018, PGI Trust Company paid BlackRock Fund Advisors $64,377.34 in sub-advisory fees associated with the Morley Actively Managed Fund. In 2018, a Principal affiliate paid $20,503 in mangement fee rebates to a BlackRock affiliate. Principal Life and affiliates hold, or manage accounts holding, securities issued by BlackRock, Inc. BlackRock affiliates manage investment funds in which affiliates of the Company invest for their own or managed accounts.

Dwight Soethout, Vice President—Finance, is the spouse of Deanna D. Strable-Soethout, Executive Vice President and Chief Financial Officer. Mr. Soethout has been an employee of the Company since 1993. In 2018, he received approximately $599,284 in base salary, annual bonus and long-term incentive compensation from Principal Life. His compensation is commensurate with that of his peers. His employment and compensation were approved by the Human Resources Committee.

The Company maintains robust policies and procedures for the identification and monitoring of arrangements with related parties. The Nominating and Governance Committee or its Chair must approve or ratify all transactions with related parties that are not preapproved by or exempted from the Company's Related Party Transaction Policy (the "Policy"). At each quarterly meeting, the Committee reviews transactions with related parties and ratifies any transaction that is subject to the Policy if it determines it is appropriate and may attach conditions to that approval. Transactions involving employment of a relative of an executive officer or Director must be approved by the Human Resources Committee. The Company's Related Party Transaction Policy may be found at www.principal.com.

Board Meetings

The Board held 12 meetings in 2018, five of which were two day, in person meetings. No Director then in office attended less than 75% of the aggregate of the meetings of the Board and the committees of which the Director was a member. All of the Directors then on the Board attended the 2018 Annual Meeting except Dennis Ferro who left the Board in May 2018.

Global Corporate Code of Conduct

Each Director and officer of the Company has certified they comply with Principal's Global Code of Conduct, the foundation for ethical behavior across the organization. The Code is available at www.principal.com.

Board Committees

Only independent Directors may serve on the Audit, Human Resources and Nominating and Governance Committees. The Committees review their charters and performance annually. Committee charters of the Audit, Finance, Human Resources and Nominating and Governance Committees are available on the Company's website, www.principal.com.

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Membership and responsibilities of each of the Board Committees:

Committee
Responsibilities
Members
(*Committee Chair)

Meetings
Held in 2018

Audit

Appointing, terminating, compensating and overseeing the Company's independent auditor and selecting the lead audit partner;

Reviewing and reporting to the Board on the independent auditor's activities;

Approving all audit engagement fees and preapproving compensation of the independent auditor for non audit engagements, consistent with the Company's Auditor Independence Policy;

Reviewing internal audit plans and results;

Reviewing and reporting to the Board on accounting policies and legal and regulatory compliance;

Reviewing the Company's policies on risk assessment and management.

All members of the Audit Committee are financially literate and are independent, as defined in the Nasdaq listing standards, and Ms. Helton is a financial expert, as defined by the Sarbanes-Oxley Act.

Betsy Bernard
C. Daniel Gelatt
Sandra L. Helton*
Roger C. Hochschild
Diane C. Nordin





8
Human Resources

Evaluating the performance of the CEO and determining his compensation relative to his goals and objectives;

Approving compensation for all other officers of the Company and Principal Life at the level of Senior Vice President and above ("Executives");

Approving employment, severance or change of control agreements and perquisites for Executives;

Overseeing Executive development and succession planning;

Approving employee compensation policies for all other employees;

Approving equity awards;

Administering the Company's incentive and other compensation plans that include Executives;

Acting on management's recommendations for broad based employee pension and welfare benefit plans;

Reviewing compensation programs to confirm that they encourage management to take appropriate risks; discourage inappropriate risks and act consistently with the Company's business plan, policies and risk tolerance.

Betsy Bernard*
Michael T. Dan
C. Daniel Gelatt
Scott M. Mills
Diane C. Nordin
Elizabeth E. Tallett





6
Nominating
and
Governance

Recommends Board candidates, Board committee assignments and service as Lead Director;

Reviews and reports to the Board on Director independence, performance of individual Directors, process for the annual self evaluations of the Board and its performance and committee self evaluations, content of the Global Code of Conduct, Director compensation, and the Corporate Governance Guidelines;

Reviews environmental and corporate social responsibility matters as well as the Company's political contribution activities.

Jocelyn Carter-Miller
Michael T. Dan
Scott M. Mills*
Blair C. Pickerell
Elizabeth E. Tallett




6

 

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Committee
Responsibilities
Members
(*Committee Chair)

Meetings
Held in 2018

Finance

Assists the Board with financial, investment and capital management policies;

Reviews capital structure and plans, significant financial transactions, financial policies, credit ratings, matters of corporate finance, including issuance of debt and equity, shareholder dividends, proposed mergers, acquisitions and divestitures; Reviews and provides guidance on financial goals;

Oversees investment policies, strategies and programs; Reviews policies and procedures governing the use of financial instruments including derivatives; and assists the Board in overseeing and reviewing information regarding enterprise financial risk management, including the policies, procedures and practices to manage liquidity, credit market, product and pricing risks and tax planning.

Jocelyn Carter-Miller*
Sandra L. Helton
Roger C. Hochschild
Blair Pickerell




7
Executive Acts on matters delegated by the Board which must be approved by its independent members. Has the authority of the Board between Board meetings unless the Board has directed otherwise or as mandated by law and in the By Laws. Betsy J. Bernard
Sandra L. Helton
Daniel J. Houston*
Elizabeth E. Tallett



None

Sustainability

Doing what matters most for our global community

Principal aims to provide not only positive financial outcomes for our clients and customers, but also positive outcomes for the communities in which it operates across the globe. Our commitment means we will invest, conserve, volunteer and lead responsibly and sustainably to help realize the promise of a better future and a better world. We are, for example, humbled to have been named a Most Ethical Company by the Ethisphere Institute for the ninth year in 2018.

A full review of Principal's environmental, social and governance ("ESG") practices can be found in our Corporate Social Responsibility Report available on www.principal.com. A summary is below:

Giving back:    Helping people is an important part of the Principal culture, and our employees, along with the Principal Financial Group Foundation, work together to give back, with a focus on supporting people's progress toward long-term financial security. In the next five years, we are focusing on reaching 50,000 persons, ages 15-30, around the world and helping them earn and save more. Highlights of recent developments and results include:

Annually, Principal Foundation contributes more than $15 million through grants, employee and match giving, sponsorships, pro bono and in-kind donations. More than 1,500 organizations in 450 communities around the world benefit from our local action.

We've raised $17.7 million over 12 years in support of 130,000 Iowa children through our sponsorship of the Principal Charity Classic, an annual PGA TOUR Champions event.

3,124 Principal employees logged 40,057 volunteer hours in 2018.

Our Global Impact Experiences trips to India in 2017 and 2018 enabled eighteen employees, selected from around the world, to help young people in poverty build skills for future employment.

The Principal Foundation in 2019 launched a financial security collaborative powered by employees; this effort will focus on improving financial security for underserved working individuals.

Sustaining the environment:    Principal works to reduce its environmental impact while engaging our employees, stakeholders, and supply chain through awareness initiatives. Our results include:

We reduced our U.S. corporate carbon emissions by 35% against our 2010 baseline.

We recycled 87% of the materials removed during a multi-year corporate campus renovation.

We supported our employees' grassroots efforts keeping more than 8,960 pounds of electronics, plastic bags and paper out of landfills in 2018.

We composted or donated 75,442 lbs. of food from our corporate campus cafes in 2018.

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Three of our corporate campus buildings are LEED Certified.

We have consistently earned a CDP Leadership score on our response to the Carbon Disclosure Project's Climate Change questionnaire since 2013.

Investing responsibly:    Our flagship asset management affiliate, Principal Global Investors ("PGI"), integrates ESG investing principles into its approach to portfolio management across asset classes, and PGI's signatory status to the United Nations sponsored Principles for Responsible Investment gives us a voice in defining and shaping the ongoing global ESG discussion. As a result of its efforts, PGI received an A+ grade relative to the Principles for Responsible Investment following an assessment of its 2018 ESG investment practices. Integrating ESG factors takes place across all asset classes managed by PGI, with the specific approach determined by the applicable investment process and asset class.

The commitment to ESG issues of our equity securities investment management group, Principal Global Equities, is centered on one factor: the fiduciary responsibility owed to clients to act in their long-term interests. Principal Global Equities has over a decade of custom socially responsible and faith-based mandates for $2.5 billion of assets under management. ESG strategies utilized include the qualitative assessment of risk factors and change catalysts and the use of analytical tools to increase the understanding of risks and issues, recognizing that trends and scope for change matter more than nominal scores.

The investment analysts staffing our fixed income investment group, Principal Global Fixed Income, supplement their fundamental research with insights from ESG research providers. Robust and evolving training programs for our research analysts to enhance awareness of ESG considerations have been incorporated into its processes. The group manages nearly $159 million of assets in renewable energy and green bonds. Principal Global Fixed Income creates client-defined ESG portfolios by eliminating assets specified by a client and by:

Assigning a specific ESG signal for each issuer in their field and discussing any concerns about ESG issues during meetings with the issuer's corporate management teams; responses are incorporated into the assessment of the issuer's outlook and potential for inclusion in a client portfolio.

Assigning an explicit numeric ESG score which is factored into the "fundamentals" component of a "fundamentals, technical, and valuations" framework, and accounts for 10% of that score.

Our real estate asset management affiliate, Principal Real Estate Investors ("PrinREI"), uses a unique ESG framework called the Pillars of Responsible Property Investing ("PRPI") initiative to help drive asset management and fiduciary governance and deliver positive financial and environmental results for 175 assets totalling more than 35 million square feet of real estate with a gross asset value of approximately $10.8 billion. The Principal Real Estate Investors Responsible Property Investing Policy covers all phases of the real estate investment lifecycle and guides PrinREI's approach to real estate investment and management for these properties.

The PRPI philosophy integrates ESG within every aspect of PrinREI's investment process for these assets, including:

All potential investments are evaluated using a process that includes ESG considerations, including a formal review of ESG aspects such as utility performance, certifications, sustainability programs and policies, and climate risk and resilience features.

Assets are continuously monitored to identify and capitalize on ESG value-creation opportunities and risk reduction efforts. For example, properties participating in the PRPI initiative are required to track utility performance on a monthly basis, implement operational best practices, and engage tenants in building-level sustainability efforts. A new pilot effort will assess property-level climate risk with the goal of strengthening the ability to identify and manage these risks portfolio-wide. Also, a recently broadened appraisal scope requires the review and valuation of high-performance and energy-efficient attributes of properties.

PrinREI discloses and promotes building-level sustainability attributes to potential buyers.

PrinREI has incorporated ESG considerations into lending activities, including developing a Responsible Property Investing Lending Policy to detail ESG practices and strategies regarding real estate lending. PrinREI tracks the sustainability attributes of properties on which it manages mortgage debts, monitors exposure to natural hazards and other risks, and maintains a working group focused on improving ESG performance.

PrinREI's recent achievements include (all as of the third quarter of 2018):

18.5% energy savings in the PRPI portfolio since 2008, avoiding over $52.5 million in energy costs.

61 ENERGY STAR certified buildings in the PRPI portfolio.

 

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57 LEED certified buildings in the PRPI portfolio.

89% of the office portfolio managed by PrinREI is green certified (LEED/ENERGY STAR).

Named a 2018 ENERGY STAR Partner of the Year, Sustained Excellence award winner.

Two participating private funds received 4-Star designations from GRESB (formerly known as the Global Real Estate Sustainability Benchmark) in 2018.

Received an A+ from the Principles for Responsible Investment Direct Property Module in 2018.

Advancing a culture of diversity and inclusion:    Principal defines diversity as "the mix" and inclusion as making the most of "the mix." Our robust diversity and inclusion effort manifests itself in a variety of ways, including nearly a dozen active employee resource groups, inclusion programs, Board diversity, and recruitment of world class talent. Recent highlights include:

Women and minorities comprise 55% of our Board.

Ranked No. 6 on Forbes 2018 list of America's Best Employers for Diversity.

Ranked No. 1 on Forbes 2018 list of America's Best Employers for Women.

Earned a perfect score on the 2019 Human Rights Campaign Foundation's Corporate Equality Index, scoring the maximum 100 points for the fourth consecutive year.

Earned the 2018 Military Friendly Employer designation by Victory Media.

Named one of the 2018 National Association for Female Executives Top Companies for Executive Women, the 17th time that Principal has been so honored.

Named one of the 2018 Working Mother 100 Best Companies for Women, the 16th consecutive year in which Principal has received this award.

Promoting diversity among suppliers:    Just as we value diversity among our employees, we value diversity among our suppliers and partners to help create innovative solutions and build stronger communities. Our Supplier Diversity Program seeks qualified businesses to help meet current and future business needs. Principal is affiliated with a number of supplier diversity organizations to provide these connections, including: Women's Business Enterprise National Council, National Minority Supplier Development Council, United States Hispanic Chamber of Commerce, U.S. Pan Asian American Chamber of Commerce, National Gay & Lesbian Chamber of Commerce, National Veteran Owned Business Association, U.S. Business Leadership Network Disability Supplier Diversity Program, and Financial Services Roundtable for Supplier Diversity.

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Directors' Compensation

Directors serve on the Boards of the Company, Principal Life and Principal Financial Services, Inc. Directors who are also employees do not receive any compensation for their service as Directors. The Company provides competitive compensation to attract and retain high quality non-employee Directors. A substantial proportion of non-employee Director compensation is provided in the form of equity to help align such Directors' interests with the interests of shareholders.

The non-employee Director compensation program is reviewed annually. The Nominating and Governance Committee uses the Board's independent compensation consultant for this purpose. During 2018, Compensation Advisory Partners conducted an annual comprehensive review and assessment of Director compensation. The Company targets non-employee Director compensation at approximately the median of the peer group used for Executive compensation comparisons ("Peer Group") (see pages 30-31), which aligns with its Executive compensation philosophy. Director compensation did not change as a result of Compensation Advisory Partners November 2018 review because it is generally positioned at the median of compensation within Principal's Peer Group. It was last changed effective November 27, 2017.

  Effective
November 27, 2017
Annual Cash Retainers(1)  
  -    Board $100,000
  -    Audit Committee Chair $20,000
  -    Human Resources Committee Chair $20,000
  -    Finance Committee Chair $20,000
  -    Nominating & Governance Committee Chair $20,000
  -    Other Committee Chairs $10,000
  -    Lead Director $25,000
Annual Restricted Stock Unit Retainer(2) $165,000
(1)
Paid in two semiannual payments, in May and November, on a forward looking basis.

(2)
Grants are made at the time of the annual meeting.

Fees Earned by Non Employee Directors in 2018

 
 
 
 
Name
Fees Earned or
Paid in Cash

Stock
Awards(1)

Total
Betsy J. Bernard $ 117,500 $ 164,950 $ 282,450
Jocelyn Carter-Miller $ 120,000 $ 164,950 $ 284,950
Michael T. Dan $ 105,000 $ 164,950 $ 269,950
C. Daniel Gelatt Jr. $ 100,000 $ 164,950 $ 264,950
Sandra L. Helton $ 120,000 $ 164,950 $ 284,950
Roger C. Hochschild $ 102,500 $ 164,950 $ 267,450
Scott M. Mills $ 120,000 $ 164,950 $ 284,950
Diane C. Nordin $ 100,000 $ 164,950 $ 264,950
Blair C. Pickerell $ 100,000 $ 164,950 $ 264,950
Elizabeth E. Tallett $ 125,000 $ 164,950 $ 289,950
(1)
These amounts reflect the grant date fair value of awards made in 2018 determined in accordance with FASB Accounting Standards Codification ("ASC") Topic 718. These awards do not reflect actual amounts realized or that may be realized by the recipients. While the 2014 Director Stock Plan (which was approved by shareholders) allows some discretion in determining the dollar value of RSUs that may annually be awarded, it imposes a maximum limit of $230,000 ($500,000 for an Independent Chairman) on the size of the annual award that may be made.

 

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Non-Employee Directors' Deferred Compensation Plan

Non employee Directors may defer the receipt of their cash compensation under the Deferred Compensation Plan for Non-Employee Directors of Principal Financial Group, Inc. This Plan has four investment options:

Phantom units tied to the Company's Common Stock;

The Principal LargeCap S&P 500 Index R5 Fund;

The Principal Real Estate Securities R5 Fund; and

The Principal Core Plus Bond R5 Fund.

The returns realized on these funds during 2018 were:

 
 
Investment Option
1 Year Rate Of Return
(12/31/2018)

Principal Financial Group, Inc. Employer Stock Fund

–34.42%

Principal LargeCap S&P 500 Index R5 Fund

–4.76%

Principal Real Estate Securities R5 Fund

–4.47%

Principal Core Plus Bond R5 Fund

–1.94%

Restricted Stock Unit Grants

Non-employee Directors receive an annual grant of Restricted Stock Units ("RSUs") under the Principal Financial Group, Inc. 2014 Directors Stock Plan. RSUs are granted at the time of the annual meeting, vest at the next annual meeting and are deferred at least until the date the Director leaves the Board. At payout, the RSUs are converted to shares of Common Stock. Dividend equivalents become additional RSUs, which vest and are converted to Common Stock at the same time and to the same extent as the underlying RSU. The Nominating and Governance Committee has the discretion to make a prorated grant of RSUs to Directors who join the Board at a time other than at the annual meeting. While the 2014 Director Stock Plan (which was approved by shareholders) allows some discretion in determining the dollar value of RSUs that may annually be awarded, it imposes a maximum limit of $230,000 ($500,000 for an Independent Chairman) on the size of the annual award that may be made.

As of December 31, 2018, each non-employee Director had the following aggregate number of outstanding RSUs, including additional RSUs received as the result of dividend equivalents:

 
 
Director Name
Total RSUs Outstanding
Fiscal Year End 2018
(Shares)

Betsy J. Bernard

46,468

Jocelyn Carter-Miller

48,653

Michael T. Dan

39,275

C. Daniel Gelatt

51,748

Sandra L. Helton

46,468

Roger C. Hochschild

11,531

Scott M. Mills

7,543

Diane C. Nordin

3,971

Blair C. Pickerell

10,297

Elizabeth E. Tallett

51,208

Other Compensation

Principal Life matches charitable gifts up to $16,000 per non-employee Director per year. These matching contributions are available during a Director's term and the following three years. Principal Life receives the charitable contribution tax deductions for the matching gifts.

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Directors are reimbursed for travel and other business expenses they incur while performing services for the Company. When Directors' spouses/partners accompany them to the annual Board strategic retreat, Principal pays for some of the travel expenses and amenities for Directors and their spouses/partners, such as meals and social events. Directors are also covered under the Company's Business Travel Accident Insurance Policy and Directors' and Officers' insurance coverage. In 2018 the total amount of perquisites provided to non-employee Directors was less than $10,000 per Director.

Directors' Stock Ownership Guidelines

To encourage Directors to accumulate a meaningful ownership level in the Company, the Board has had a "hold until retirement" stock ownership requirement since 2005. All RSU grants must be held while a Director is on the Board, and may only be converted to Common Stock when the Director's Board service ends. The Board has a guideline that Directors own interests in Common Stock equal to five times the annual Board cash retainer within five years of joining the Board. Directors have been able to achieve this level of ownership through the RSU hold until retirement requirement. Once this guideline is met, Directors do not need to buy additional stock if the guideline is no longer met due to a reduction in stock price, if the Director's ownership level is not reduced because of share sales.

Audit Committee Report

The Audit Committee oversees the Company's financial reporting process. Company management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The Committee reviewed with management the audited financial statements for the fiscal year ended December 31, 2018, and discussed 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 discussed with Ernst & Young LLP, the Company's independent auditor, the matters required to be discussed by the applicable Public Company Accounting Oversight Board ("PCAOB") standards. These standards require the independent auditor to communicate (i) the auditor's responsibility under standards of the PCAOB; (ii) an overview of the planned scope and timing of the audit; and (iii) significant findings from the audit, including the qualitative aspects of the entity's significant accounting practices, significant difficulties, if any, encountered in performing the audit, uncorrected misstatements identified during the audit, other than those the auditor believes are trivial, if any, any disagreements with management, and any other issues arising from the audit that are significant or relevant to those charged with governance.

The Committee received from Ernst & Young LLP, the written disclosures and letter required by applicable requirements of the PCAOB regarding the independent auditor's communications with the Committee concerning independence. The Committee has discussed with Ernst & Young LLP its independence and Ernst & Young LLP has confirmed in its 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 approved) that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the Securities and Exchange Commission (SEC). The Committee has also approved, subject to shareholder ratification, the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2019.

The Committee does not have the responsibility 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 auditor and management. In giving our recommendation to the Board, the Committee has relied on (i) management's representation that such financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles, and (ii) the report of the Company's independent auditor with respect to such financial statements.

Sandra L. Helton, Chair
Betsy J. Bernard
C. Daniel Gelatt
Roger C. Hochschild
Diane C. Nordin

 

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Executive Compensation

Contents:
Page
Compensation Discussion & Analysis ("CD&A") 24

2018 Company Performance Highlights

25

2018 Compensation Highlights

25

Compensation Program Philosophy and Policies

26

Summary of Compensation Elements

28

How we make Compensation Decisions

29

2018 Executive Compensation Decisions

31

Base Salary

32

Annual Incentive Pay

33

Long-term Incentive Compensation

36

Timing of Stock Option Awards and Other Equity Incentives

37

Benefits

38

Change of Control & Separation Pay

38

Stock Ownership Guidelines

39

Claw Back Policy

39

Trading Policy

39

Succession Planning

40

Human Resources Committee Report

40

Risk Assessment

40

Compensation Tables


 

Summary Compensation Table

41

Grants of Plan Based Awards Table

43

Outstanding Equity Awards Table

44

Option Exercises and Stock Vesting Table

45

CEO Pay Ratio

45

Pension Benefits

48

Potential Payments Upon Termination Related to Change of Control

54

Compensation Discussion and Analysis (CD&A)

The CD&A describes Principal Financial Group, Inc.'s Executive compensation objectives and philosophy. It also describes our 2018 compensation program and reviews the outcomes, including the Company's financial performance in 2018. Our "Named Executive Officers" in 2018 were—

Daniel J. Houston, Chairman, President and Chief Executive Officer.    Mr. Houston has overall responsibility for all businesses of the organization. He joined the company in 1984 and assumed his current position in 2015. He previously served as President and Chief Operating Officer, overseeing all global businesses, and the Retirement and Investor Services and U.S. Insurance Solutions segments of the organization.

Deanna D. Strable-Soethout, Executive Vice President and Chief Financial Officer.    Ms. Strable-Soethout plays a central role in driving and managing long-term strategies for innovation-fueled company growth, including responsibility for corporate strategy and capital markets. She joined the company in 1990 and assumed her current position in 2017. She previously served as Executive Vice President and President of U. S. Insurance Solutions with overall accountability for individual life, nonqualified deferred compensation, individual disability and group benefits.

James P. McCaughan, President, Global Asset Management.    Mr. McCaughan was the head of the Principal Global Investors segment of our operations until September 30, 2018.

Patrick G. Halter, Chief Executive Officer, Principal Global Investors.    Mr. Halter has responsibility for overseeing the operations of Principal Global Investors, its 15 investment boutiques, and the fund and distribution teams. He joined the company in 1984 and assumed his current position in 2018. He previously served as the Chief Operating Officer of Principal Global Investors.

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Timothy M. Dunbar, President, Global Asset Management.    Mr. Dunbar has responsibility for overseeing all of Principal's asset management capabilities including Principal Global Investors, Principal International investment operations, the General Account, and RobustWealth, a recent digital investment advice acquisition of Principal. He joined the company in 1986 and assumed his current position in 2018. He previously served as the Chief Investment Officer.

Luis Valdés, President, International Asset Management & Accumulation.    Mr. Valdés is responsible for managing the Company's operations outside of the United States in the international asset management and accumulation segment. He has been associated with the company since 1995 and assumed his current position in 2011. He previously served as the President of Principal Financial Group Latin America.

2018 Company Performance Highlights:

In 2018, Principal generated $1.5 billion of net income attributable to Principal Financial Group and a record $1.6 billion of non-GAAP operating earnings(1), an 8% increase from 2017 on a reported basis.

We deployed $1.4 billion of capital in 2018, or 90% of net income. We take a balanced and disciplined approach to capital deployment—we returned $1.2 billion of capital to shareholders through common stock dividends and share repurchases in 2018 and we deployed $140 million through strategic acquisitions, including expansion in Asia and a digital advice platform.

Over the course of 2018, our assets under management decreased by $42 billion, or 6 percent, to $627 billion at year-end, primarily due to unfavorable market performance and foreign currency exchange.

2018 was another year of strong execution in a volatile macroeconomic environment. Competitive and macroeconomic challenges remain, but we go forward from a position of strength with strong underlying fundamentals and the benefit of diversification.

Our total shareholder return performance over the past five years was positioned well ahead of our asset manager peers and was slightly behind our insurance peers. Our total shareholder return methodology includes the share price return and cash dividends paid during the time period.

GRAPHIC

*
Insurance Peers include: Ameriprise, Lincoln National Corporation, Manulife, Metlife, Prudential, Sun Life Financial, Unum, and Voya

**
Asset Manager peers include: Affiliated Managers Group, Franklin Resources, Invesco, and T. Rowe Price

2018 Compensation Highlights

In 2018, the Company's shareholders voted to approve the Company's Executive compensation program. Of the votes cast, 96% supported the Executive compensation program. The Company considered the shareholders'

   


(1)
This is a non-GAAP financial measure. See non-GAAP financial measure reconciliations in Appendix B.

 

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    approval of the compensation program to be approval of the Company's compensation philosophy, which has not changed since that vote.

Based on our 2018 annual performance achievements, many of which are outlined above, 2018 Annual incentive payouts for Named Executive Officers averaged 81% of target.

Based on the Company's three-year average return on equity ("ROE")(2) and three-year average book value per share(3) performance, the 2016-2018 PSUs vested on December 31, 2018 and 113% of the target number of shares were paid out in February 2019, according to the established performance scale, and approval by the Human Resources Committee.

Compensation Program Philosophy and Policies

Compensation Philosophy—our compensation programs are designed to:

Attract and retain talented Executives and motivate them to perform at the highest level and contribute significantly to the Company's long-term success;

Reinforce the Company's pay for performance culture by making a significant portion of total compensation variable and by differentiating awards based on Company and individual performance in achieving short and long-term financial and strategic objectives;

Have a greater percentage of compensation to be at risk for Executives who bear higher levels of responsibility for the Company's performance;

Align the interests of Executives and other stakeholders, including shareholders, customers and employees, by having a significant portion of the Executives' compensation in stock and requiring Executives to hold stock; and

Support important corporate governance principles and established best practices.

   


(2)
Return on equity ("ROE") is defined as (i) income from continuing operations before income taxes per the audited Consolidated Statements of Operations less net realized/unrealized capital gains (losses) and preferred stock dividends declared during such calendar year divided by (ii) the average equity excluding other comprehensive income available to common stockholders.

(3)
Book value per share is defined as total ending common equity excluding other comprehensive income divided by number of common shares outstanding end of year.

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Compensation Policies—Principal's Executive compensation program incorporates the following best practices:

  Independent Consultant   The Human Resources Committee's independent compensation consultant is selected and retained by the Committee to advise on Executive and Director compensation and does no other work for the Company. The independent compensation consultant to the Human Resources Committee is Compensation Advisory Partners.  
  Risk Review   The Human Resources Committee annually reviews an analysis of the Company's incentive compensation plans to ensure they are designed to create and maintain shareholder value, provide rewards based on the long-term performance of the Company and do not encourage excessive risk.  
  Emphasis on Variable Compensation:   Most of our Executive compensation is variable and linked to meeting our short term and long-term financial and strategic goals and to the performance of the Company's stock over time. 92 percent of our CEO's 2018 target compensation and an average of 82% of our other Named Executive Officer's target total compensation are variable and tied to Company performance.  
  Executive Ownership   Executives receive a significant portion of their compensation in stock, as noted in the chart on page 32, and are required to own a meaningful amount of stock in the Company, both of which contribute to strong alignment of management and shareholder interests.  
  Prohibition on Hedging   Principal prohibits all employees, including Named Executive Officers, from purchasing any Principal securities on margin (except for exercising stock options), engaging in short sales or trading in any put or call options; and purchasing, directly or indirectly, any financial instrument (including prepaid variable forward contracts, equity swaps, collars and exchange funds) that is designed to hedge or offset any decrease in the market value of Principal securities.  
  Clawback Policy   Principal has a compensation recovery policy that applies to Executives. Principal can recover incentive compensation if the amount of the compensation was based on achievement of financial results that were subsequently restated if the Committee decides that the Executive engaged in fraud or intentional misconduct that caused the restatement of the Company's financial statements, and if the amount of the Executive's incentive compensation or equity award would have been lower had the financial results been properly reported. Principal can also cancel or recover incentive compensation received in the event of either reputational or financial harm to the Company that arises directly or indirectly from an Executive's misconduct, gross negligence, misfeasance or nonfeasance.  
  Market Severance Protection   Our change of control agreements with Executives provide market based severance protection and do not provide excise tax gross ups.  
  Limited Perquisites   We do not provide perquisites to Executives that are not offered to all employees, except one physical examination per year, business spousal travel, and gifts of nominal value given to all sales conference attendees.  
  No Repricing   We have not repriced underwater stock options and we will not do so without shareholder approval.  
  Tax and Accounting Efficiency   Our programs are designed, to the extent possible, to be financially efficient from tax, accounting, cash flow and share dilution perspectives.  
  No Gross Ups   Executives do not receive any income tax gross ups.  

 

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Summary of Compensation Elements:

 
Compensation
Component

 
Objective
 
Description and 2018 Highlights
 
  Base Salary   Provides fixed income based on the size, scope and complexity of the Executive's role, Executive's historical performance and relative position compared to market pay information   In 2018, the Committee increased Executives' base salaries, as detailed on page 32.  
  Annual Incentive
Compensation
  Motivates and rewards annual corporate performance as well as the Executive's contribution to achieving our annual objectives.   A range of earnings opportunity, expressed as percentages of base salary and corresponding to three levels of performance (threshold, target and maximum), is established for each Executive. Actual bonuses depend on achievement relative to the key financial measures, corporate and divisional goals, as outlined on pages 33-36.

Based on the Committee's assessment of performance, actual bonuses for 2018 averaged 81% of target as detailed on page 36.
 
  Long-Term Incentive
Compensation
  Motivates and rewards long term corporate performance as well as the Executive's contribution to achieving our long-term objectives. Reinforces the link between the interests of the Executives and shareholders. Encourages retention.   Each year, the Committee establishes the long-term award opportunity for each Named Executive Officer. One half of the award is granted in stock options and the other half in PSUs. Using equal amounts of PSUs and options creates a balance between achieving operating performance objectives and increases in shareholder value.

The PSUs vest based on continued service (except for retirees, when they vest over time) and meeting financial objectives over a three year period (with each three year period treated as a "Performance Cycle"). The PSUs granted in 2017 for the 2017-2019 and in 2018 for the 2018-2020 Performance Cycles will vest based on performance scales for three-year average Return on Equity (ROE) and Pre-Tax Return on Net Revenue, each weighted 50% over the performance period. Payout on the ROE metric is modified based on three year Book Value per Share versus certain threshold goals. Details of the program are outlined on pages 36-38.

The PSUs granted in 2016 for the 2016-2018 Performance Cycle were based on three-year average ROE and Pre-Tax Return on Net Revenue, each weighted 50%. Payout on the ROE metric is modified based on three year Book Value per Share versus certain threshold goals. For the 2016-2018 Performance Cycle, the awards vested and paid out at 113% of the target number of PSUs based on our ROE performance of 13.8%, Pre-Tax Return on Net Revenue of 32.1%, and Book Value per Share of $42.71.
 

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Compensation
Component



 



Objective


 



Description and 2018 Highlights


 

  Benefits   Protects against catastrophic expenses and provides retirement savings opportunities.   Named Executive Officers participate in most of the same benefit plans as the Company's other U.S. based employees, including health, life, disability income, vision and dental insurance, an employee stock purchase plan, 401(k) plan and pension plan. Executives also participate in non- qualified retirement plans (defined benefit and defined contribution). Mr. Halter does not, and Mr. McCaughan did not participate in the pension or non- qualified retirement plans. Mr. Dunbar participated in the pension plans and non-qualified retirement plans when he was working in non-investment roles.  
  Perquisites   Modest additional benefits to help attract and retain Executive talent and enable Executives to focus on Company business with minimal disruption.   Executives are eligible for one physical examination per year, business spousal travel and gifts of nominal value given to all sales conference attendees.  
  Termination Benefits   Provides temporary income following an Executive's involuntary termination of employment, and, in the case of a change of control; helps ensure the continuity of management through the transition.   Refer to pages 38-39 for a discussion of our change of control and separation benefits. These benefits do not include excise tax gross ups.  

How We Make Compensation Decisions

Human Resources Committee Involvement

The Human Resources Committee

Oversees the development and administration of the Company's compensation and benefits policies and programs;

Evaluates CEO performance results;

Makes the compensation decisions for the CEO;

Approves the compensation program and compensation for Executives;

Reviews and approves corporate incentive goals and objectives relevant to compensation;

Evaluates the competitiveness of each Executive's total compensation; and

Approves changes to the Executive's total compensation package.

Compensation Advisory Partners advises the Committee on the Executive compensation program and also advises the Nominating and Governance Committee on compensation for non employee Directors (see pages 21-23). Compensation Advisory Partners receives compensation from the Company only for its work in advising these Committees. Compensation Advisory Partners does not and would not be allowed to perform services for management. The Committee assessed the independence factors in applicable SEC rules and Nasdaq Listing Standards and other facts and circumstances and concluded that the services performed by Compensation Advisory Partners did not raise any conflict of interest.

No member of management, including the CEO, has a role in determining his or her own compensation; and the CEO is not present when the Committee discusses his compensation. The Committee consults with the independent Directors regarding the CEO's performance and then determines the compensation earned by the CEO for the current year and the CEO's compensation opportunity for the following year.

 

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Each year the CEO, with input from the Human Resources Department and the compensation consultant, recommends the amount of base salary increase (if any), annual incentive award and long-term incentive award for Executives other than himself. These recommendations are based on the Executive's performance, performance of the business areas for which the Executive is responsible (if applicable) and other considerations such as retention. The Human Resources Committee reviews these recommendations and approves compensation decisions for Executives.

The role of the Independent Compensation Consultant & Interaction with Management

The Human Resources Committee has the sole authority to hire, approve the compensation of and terminate the engagement of the compensation consultant.

The compensation consultant usually conducts a comprehensive review of the Company's Executive compensation program every other year. In the years in which the compensation consultant does not conduct a compensation study, the Committee makes compensation decisions, in part, on survey data provided by the Human Resources Department and input provided by the compensation consultant. A review of executive compensation was conducted in 2018. The comprehensive study of Executive Compensation conducted by the Committee's compensation consultant reviews all aspects of the design and structure of the Company's total Executive compensation program, and includes:

Interviews with Executives and Directors to discuss business strategy and the implications for human resources and compensation policy;

A competitive review of compensation opportunities for each of the Named Executive Officers compared to the pay opportunities of similarly situated executives at the Peer Group companies (see below);

An analysis to ensure that total share dilution and the economic costs of long-term incentives are reasonable and affordable for the Company; and

A review of Executive compensation plans against potential risks. Compensation Advisory Partners conducted a review of the Company's Executive compensation plans in 2018, and determined that the Company's Executive compensation programs are well designed, support the Company's business strategy, and do not provide incentives to Executives to take inappropriate risks.

The compensation consultant:

Attended seven meetings of the Committee in 2018, as requested by the Committee Chair; and

Reviewed and commented on drafts of the Compensation Discussion & Analysis and related compensation tables for the proxy statement.

Use of Compensation Data

The Committee reviews the Peer Group of companies it uses to compare Executive compensation as part of the compensation consultant's biennial study. The compensation consultant recommends an appropriate Peer Group of public, similarly sized, diversified financial services, insurance and asset management companies, considering the Company's and the competitors' strategy, mix of business and size, as measured primarily by annual revenues, market capitalization and total assets. These companies are the major competitors in one or more of the Company's businesses, but none represent the exact business mix of the Company. Principal targets compensation for the Named Executive Officers at the median of the compensation of the named executive officers at the Peer Group companies. The companies in the Peer Group were reviewed in 2018 as part of the compensation review and Eaton Vance and Legg Mason were removed as they are smaller relative to Principal based on revenue market capitalization and/or operating income. Unum Group was added because it is only slightly smaller than Principal

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and it has similar business lines. The companies in the Peer Group used in Compensation Advisory Partners' 2018 analysis to assist in decisions on 2019 compensation were:

  Insurance Asset Managers  
       
 

Ameriprise Financial

Affiliated Managers Group

 
 

Lincoln National

Franklin Resources

 
 

ManuLife

Invesco

 
 

MetLife

T. Rowe Price

 
 

Prudential Financial

   
 

Sun Life Financial

   
 

Unum Group

   
 

Voya Financial

   

The Committee also uses annual data from third party industry surveys for its compensation decisions.(4) Every two to three years, the Company's non cash benefit programs are compared with those of more than 100 diversified financial services companies. This is a larger group than the Peer Group because the information is used for our broad based employee benefit programs. Benefit programs are also compared against those of local employers in Des Moines, Iowa as the Company has a significant employee population there.

Each year, the Committee reviews the total compensation paid to the Executives by reviewing tally sheets, which include base salaries, annual and long-term incentive awards earned, deferred compensation, outstanding equity awards, benefits, perquisites, and potential payments under various termination scenarios.

The Committee uses this information to analyze the value of compensation actually delivered versus the compensation opportunities established by the Committee, and it is also used in making compensation and compensation plan design decisions.

2018 Executive Compensation Decisions

In general, Principal's pay philosophy is to target the market median of the Peer Group for executive's total compensation, with actual compensation varying based on performance and tenure.

The Committee made compensation decisions for the Named Executive Officers based on:

The Company's strategic and human resources objectives;

Competitive data for the Peer Group and for a broader group of diversified financial services companies (see Appendix A for a complete list of these companies);

Corporate and individual performance on key initiatives;

Economic conditions;

The CEO's compensation recommendations for other Executives;

Advice of the Committee's consultant; and

How the elements of compensation contribute to and interrelate to total compensation.

The Committee also considers the tax and accounting consequences of each element of compensation. For taxable years through 2017, the Committee tried to maximize the tax deductibility to Principal of compensation under available exceptions to the application of Section 162(m) of the Internal Revenue Code ("Tax Code"), while simultaneously providing competitive compensation that enhanced our business objectives. This Tax Code section limits Principal from deducting annual compensation exceeding $1 million for our CEO and other persons who either are or beginning in 2018, were required to be named in our public company disclosure for any year after 2017 ("Covered Employees"). For taxable years prior to 2018, there was an exception to this 162(m) limitation for performance based compensation meeting certain criteria, but this exception has generally been repealed for taxable years after 2017 (subject to certain limited grandfathering of compensation payable pursuant to binding written agreements outstanding on November 2, 2017). The Committee considers the impact of this change in the applicable federal income tax laws as it makes and implements decisions regarding compensation that will be

   


(4)
The surveys used were the McLagan Investment Management survey, Towers Watson U.S. Financial Services Studies Executive Database and the Towers Watson Diversified Insurance Study of Executive Compensation. The names of the companies participating in these surveys are included in Appendix A.

 

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payable after 2017. Tax deductibility affects the net cost of the compensation payable by Principal to Covered Employees, and is one factor to be considered in designing competitive and effective compensation programs. Other factors, such as the need to provide our senior executives compensation that is competitive with that payable in the marketplace, that retains their services and that provides appropriate incentives to achieve our business plans and objectives, may cause the Committee to continue to provide compensation opportunities that are generally consistent with those previously provided, despite the probability that at least some of the compensation payable to some or all of the Covered Employees will not be tax deductible after 2017.

The chart below shows the 2018 target total compensation for our Named Executive Officers as well as the proportion of their compensation tied to Company performance. Most compensation paid to our Named Executive Officers is variable and at risk as reflected in the chart below.

GRAPHIC

Base Salary

When determining base salary for each Executive, the Committee considers the Peer Group median for comparable executive positions as well as the survey data referenced above, the Executive's performance and work experience, the importance of the position to the Company and how difficult it would be to replace the Executive. The table below provides the historical base salaries(1) of the Named Executive Officers.

 
Named Executive Officer
 
2016
 
2017
 
2018
 
Percent Increase
2017 to 2018

 
Houston $ 800,000 $ 900,000 $ 900,000 0.0%
  Strable-Soethout   $ 535,000   $ 562,000   $ 595,500   6.0%  
Dunbar(2) $ 492,000 $ 507,000 $ 600,000 18.3%
  Halter           $ 575,000      
McCaughan $ 666,000 $ 679,500 $ 693,000 2.0%
  Valdés   $ 591,500   $ 603,500   $ 615,500   2.0%  
(1)
Salaries displayed in the table are as of December 31 of the year noted. This information differs from salary information in the Summary Compensation Table as the table includes salary earned and paid in the year noted. Changes in base salary are effective in March of each year.

(2)
Mr. Dunbar's percentage increase is due to a promotion in September 2018. The percent increase is based on his salary at time of promotion.

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Annual Incentive Compensation

From 2004 through 2018, Named Executive Officers earned annual cash bonuses under the Principal Financial Group, Inc. Annual Incentive Plan. This plan was approved by shareholders in 2004, and, as adopted was designed to comply with the performance based exception to Section162(m) of the Tax Code, such that these incentives payable to Named Executive Officers could be tax deductible to the Company. As previously noted, the performance-based exception to Section 162(m) has been repealed with respect to taxable years starting in 2018. Accordingly, incentives paid under the Annual Incentive Plan will not be deductible to the extent paid to Covered Employees subject to the limitations contained in Section 162(m) whose aggregate compensation, inclusive of such incentives, exceed $1 million.

The maximum aggregate bonus amount available under the Annual Incentive Plan for any calendar year for the Named Executive Officers is 2% of annual operating income for that year ("Bonus Pool"). For 2018, the maximum bonuses were:

 
Named Executive Officer
 
Maximum Award as
Percentage of the
Annual Incentive Pool

 
Maximum
Potential Award
Payment

 
CEO (Houston) 35% $13.0 million
  Second highest Paid Covered Employee (McCaughan)   25%   $9.3 million  
Third highest Paid Covered Employee (Halter) 20% $7.4 million
  Fourth highest Paid Covered Employee (Valdés)   10%   $3.7 million  
CFO (Strable-Soethout) 10% $3.7 million

The Committee sets the target and maximum annual incentive awards for each Named Executive Officer. The Committee may use its negative discretion to reduce the awards actually payable. After this reduction, maximum annual incentive opportunities are generally 200% of the target annual incentive opportunity. The Committee approved the following target awards for Named Executive Officers in each of the past three years:


Annual Incentive Targets (as a percentage of base salary)

 
Named Executive Officer
 
2016
 
2017
 
2018
 
Houston 350 % 350 % 350%
  Strable-Soethout   100 %   150 %   150%  
Dunbar(1) 80 % 80 % 400%
  Halter(2)           350%  
McCaughan 300 % 400 % 400%
  Valdés   75 %   100 %   100%  
(1)
As of September 15, 2018, recognizing Mr. Dunbar's promotion to President, Principal Global Asset Management, his annual incentive increased from 80% to 400%

(2)
As of September 15, 2018, recognizing Mr. Halter's promotion to CEO & President—PGI, his annual incentive increased from 325% to 350%.

In establishing the target award opportunity for Messrs. Houston, McCaughan, Dunbar, Halter and Valdés and Ms. Strable-Soethout, the Committee considered the median incentive targets for comparable executive positions in the Peer Group companies, as well as the survey data referenced above. The target award opportunity for Mr. McCaughan, Mr. Dunbar and Mr. Halter has increased consistent with market practice for award opportunities for senior executives in asset management, which are higher than target annual incentive opportunities in other industries.

 

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The Annual Incentive Plan terminated on December 31, 2018, and going forward, Named Executive Officers will participate in the Principal Financial Group Incentive Pay Plan (PrinPay Plan), the Company's broad-based annual incentive compensation plan for employees. Awards are calculated based on eligible earnings during the plan year. The PrinPay Plan links annual incentive pay to individual employee results and overall company performance and profitability. Annual financial and non-financial goals for company performance and individual performance are set. After establishing the company score, an employee's individual goal performance is used to determine the individual score an employee receives. The corporate component emphasizes the importance of overall corporate results and includes non-GAAP operating earnings and a variety of other financial and non-financial metrics. The Human Resources Committee may also consider factors that could not have been anticipated when corporate goals were established and adjust the score up or down.

Performance Goal Setting and Measurement Process

September:    The Board meets to review the Company's long-term strategy.

November:    The CEO, CFO and Division Presidents recommend preliminary financial goals for the Company and business units and strategic initiatives for the next year. The Finance Committee reviews the proposed goals, underlying assumptions of the goals and initiatives, key drivers of financial performance, trends and business opportunities and advises the Board and Human Resources Committee on the appropriateness of the financial goals.

February:    The Human Resources Committee reviews and approves the final goals for the Company, the CEO and the other Executives with input from the Finance Committee and Board based on prior year end financial results. All employees develop individual performance goals with their leaders that support the Company's goals.

The Committee reviewed 2018 performance on key financial measures and corporate and divisional goals to determine the 2018 annual bonus for the Named Executive Officers under the Annual Incentive Plan. The Committee does not use any particular weighting for these goals; these measures are used as guideposts when the Committee exercises its discretion in its subjective evaluation of these factors. In determining corporate performance for 2018, the Committee reviewed Company achievements on these key financial goals:

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  Goal   2018 Assessment    
  1. Achieve appropriate Non-GAAP Operating Earnings and earnings per share.   For 2018, the target for Non-GAAP Operating Earnings(1) was $1,675M and the target for Non-GAAP Operating Earnings per diluted share was $5.71. 2018 Non-GAAP Operating Earnings were $1,598M and Non-GAAP Operating Earnings per share(1) was $5.53.  
  2. Capital—Ensure sufficient capital and liquidity to maintain strong financial strength ratings relative to peers and to be able to execute upon our strategy.   All capital and liquidity measures are within target ranges.  
  3. Investments—Take actions to invest in optimal assets on a risk-adjusted basis. Acquire assets during the year in alignment with the Tactical Asset Allocation.   a)
b)
Achieved a 17 basis point spread on acquired assets, above the target range.
2018 bond and commercial mortgage loan credit losses were $28.2M, below the estimated ranges.
 
  4. Minimize credit loss.   Assets acquired during the year aligned with the Company's Tactical Asset Allocation plan for the period. The portfolio was managed to contain credit-related losses and impairments within an overall range of 6-9 basis points after-tax. Performance relative to the credit loss goal was better than (below) the desired original range, aided by very strong performance in commercial mortgage losses and a benign overall economic environment. The result continues below long-run pricing assumptions, as appropriate for this time in the credit cycle.  
  5. Total Company
Revenue/Net Revenue
  Mr. Houston and Ms. Strable-Soethout had goals for total company revenue and net revenue. The Company had total revenue(2) of $14,425M against a goal of $14,440M and net revenue(2) of $6,093M relative to a goal of $6,045M. In addition, Mr. Valdés had Net Revenue goals specific to the business units they oversee, and Mr. McCaughan and Mr. Halter had an Operating Revenue less Pass-Through Commissions goal for Principal Global Investors:  
                           
 
            Named Executive Officer   Net
Revenue Goal
  Net
Revenue Result
     
 
            Valdés—Principal International   $871M   $728M      
 
                           
                           
 
            Named Executive Officer   Operating
Revenue less
Pass-Through
Commission Goal
  Operating
Revenue less
Pass-Through
Commission Result
     
 
            McCaughan—Principal Global Investors   $1,391M   $1,571M      
 
            Halter—Principal Global Investors   $1,391M   $1,571M      
 
                           
  6. Risk Management.   The Company's risk management program remains effective and integrated, and our risk culture is sound. For example, we retained our "strong" ERM rating with Standard & Poors.  

(1)
This is a non-GAAP financial measure. See non-GAAP financial measure reconciliations in Appendix B.

 

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2019 Proxy Statement        35


Table of Contents

Final Annual Incentive Pay Award Determination

The following table shows the annual incentive award for each of the Named Executive Officers whose annual incentive opportunities are determined under the Annual Incentive Plan. Since Mr. Dunbar's annual incentive award was determined under the PrinPay Plan, he is not listed in this table. The column "Reduction from Maximum Award" shows the amount by which the Committee reduced the maximum bonuses to determine the awards paid.

Name
2018
Salary

2018
Target

Final
Award

% of
Target

Reduction From
Maximum Award

Houston

$ 900,000 350%  $ 2,544,000 81% $ 10,456,000

Strable-Soethout

$ 595,500 150%  $ 721,000 81% $ 2,979,000

Halter

$ 575,000 332% (1) $ 1,623,000 85% $ 5,777,000

McCaughan

$ 693,000 400%  $ 1,713,000 81% $ 7,587,000

Valdés

$ 615,500 100%  $ 471,000 77% $ 3,229,000
(1)
Mr. Halter's pro-rated target for 2018 is 332% (325% for January 1, 2018 through September 14, 2018 and 350% for September 15, 2018 through December 31, 2018).

Mr. Dunbar received a bonus from the PrinPay Plan. His award was determined by multiplying his eligible earnings by his 2018 pro-rated target of 174%. That number was then multiplied by the corporate score of 85% times his individual performance score of 95%, resulting in an annual incentive award of $766,833.

Executives may defer annual awards into the Excess Plan, as illustrated in the footnote to the Non Equity Incentive Compensation column of the Summary Compensation Table, on pages 41-43.

Long-term Incentive Compensation

The long-term incentive compensation program is designed to align the interests of Executives and shareholders. The compensation the Executives receive reflects the degree to which multiyear financial objectives are achieved and shareholder value is increased. The long-term focus of the compensation programs supports the Company's businesses, for which long-term performance is critical, such as retirement products, life insurance and asset management. The long-term incentive compensation program also encourages collaboration among Executives in pursuing corporate wide goals.

The Committee establishes a target long-term incentive award opportunity for each Named Executive Officer, stated as a percentage of each Named Executive Officer's base salary, based on Peer Group and survey data, and on the advice of its independent compensation consultant. The Committee uses the following factors to adjust the target award and determine the actual award to be granted to each Named Executive Officer ("Award Granted"):

Current competitive market data;
The Named Executive Officer's past performance;
The Named Executive Officer's current compensation;
Retention concerns;
Tenure in role;
The importance of the Named Executive Officer to the Company over the long term;
The potential impact the Named Executive Officer could have on the Company's results; and
The Executive's performance relative to the Named Executive Officer's peers within the Company.

The compensation ultimately received by Named Executive Officers may vary considerably from the grant date fair value of the Award Granted, due to the Company's performance and changes in share price that occur after the grant.

2018 Long-Term Incentive Target & Grant (as % of base salary)
Named Executive Officer
Target %
Award Granted

Houston

750% 750%

Strable-Soethout

275% 275%

Dunbar(1)

175% 225%

Halter(2)

275% 280%

McCaughan

350% 350%

Valdés

225% 250%
(1)
Mr. Dunbar's long-term incentive target increased to 400% effective with his promotion on September 15, 2018. The Human Resources Committee of the Board of Directors will consider Mr. Dunbar's new target when granting long-term incentive awards in February 2019.

(2)
Mr. Halter's long-term incentive target increased to 300% effective with his promotion on September 15, 2018. The Human Resources Committee of the Board of Directors will consider Mr. Halter's new target when granting long-term incentive awards in February 2019.

36        2019 Proxy Statement

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Table of Contents

Executives' long-term compensation is provided as non-qualified stock options and PSUs, which each represent 50% of the total grant date fair value. PSUs entitle the Executive to earn shares of Common Stock if certain levels of performance are achieved. The Committee uses stock options as part of the long-term incentive program because options are an effective way to link an Executive's compensation to changes in shareholder value. The weighting is not based on a specific formula or algorithm and is intended to create a balance between the achievement of specific operating objectives and changes in shareholder value based on the Committee's judgment, which may change from time to time. Mr. Halter was a Senior Vice President when long-term compensation was awarded in February 2018. His long-term compensation was provided as non-qualified stock options (35% of the total grant date fair value), PSUs (40% of the total grant date fair value) and RSUs (25% of the total grant date fair value). Beginning in 2019, Mr. Halter's long-term compensation will be provided as non-qualified stock options and PSUs, each representing 50% of the grant date fair value.

Stock options have a ten year term and an exercise price equal to the closing price on the date of grant. Stock options vest in three equal annual installments starting on the first anniversary of the grant date.

PSUs vest based on continued service and achieving financial objectives over a three year period (with each three year period treated as a "Performance Cycle"). Executives may defer the receipt of PSUs.

For the 2018 PSUs, the performance threshold is met if either of the following goals is met:

Three year average operating ROE(5) of 7.5%; or
$2 billion cumulative pretax operating income ("OI")(6)

If either the ROE or OI objective is met or exceeded, the number of units earned is determined using two performance measures, each weighted 50%, to determine the percentage of target PSUs actually earned.

Average operating ROE: this measure was selected because it reflects the efficient use of Company capital in generating profits.

    Book Value per Share(7) threshold tied to ROE performance measure:

      If the average Book Value per Share is between $40.22 and $44.82, the ROE performance score will be reduced by 50%.

      If the average Book Value per Share is below $40.22, the ROE performance score will be reduced to 0%.

Average Pre-tax Return on Net Revenue(8) was selected as a measure because it is common among asset management peers and reflects the efficient use of Company expenditures in generating profits.
2018-2020 PSU Performance Scale
Performance Level
Threshold
Award

Target
Award

Maximum Award
(150% of
Target)

 
Payout (% of Target)(1) 50% 100% 150%  
Average ROE 7.1% 14.4% 18.7%  
Average Pre-tax RONR 29.6%