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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.            )

Filed by the Registrant ý

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Check the appropriate box:

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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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LOGO

Notice of 2020 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 19, 2020, at 9:00 a.m., Central Daylight Time. Due to the emerging public health impact of the coronavirus outbreak (i.e., COVID-19) and to support the health and well-being of our shareholders and other stakeholders, we have decided that this year's annual meeting will be a completely virtual meeting of shareholders, which will be conducted solely online via live webcast. You will be able to participate in the annual meeting online, vote your shares electronically and submit your questions prior to and during the meeting by visiting: http://www.meetingcenter.io/210150695. The password for the meeting is PFG2020. There is no physical location for the annual meeting. 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 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,

GRAPHICS

Daniel J. Houston
Chairman, President and Chief Executive Officer

April 6, 2020


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LOGO


Notice of Annual Meeting of Shareholders

Meeting Date:   Tuesday, May 19, 2020
Time:   9:00 a.m., Central Daylight Time
Location:   This will be a virtual only meeting which you can join at: http://www.meetingcenter.io/210150695 The password for the meeting is PFG2020.

Agenda:

1.
Elect three Directors;

2.
Approve an amended and restated Directors stock plan;

3.
Approve an amended and restated employee stock purchase plan;

4.
Hold an advisory vote to approve the compensation of our named executive officers;

5.
Ratify the appointment of Ernst & Young LLP as the Company's independent auditors for 2020; and

6.
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 25, 2020. It is important that your shares be represented and voted at the meeting. Please vote by any one of the following methods:

    Internet Telephone Mail

     GRAPHIC


GRAPHIC


GRAPHIC

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.

By Order of the Board of Directors

GRAPHIC

Christopher J. Littlefield
Executive Vice President, General Counsel and Secretary

April 6, 2020

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 19, 2020:

The 2019 Annual Report, 2020 Proxy Statement and other proxy materials are available at
www.principal.com/annualmeeting.

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  

12

Board Leadership Structure  


12

Role of the Board in Risk Oversight  

13

Succession Planning and Talent Development  

13

Majority Voting  

14

Director Independence  

14

Certain Relationships and Related Party Transactions  

14

Board Meetings  

15

Global Corporate Code of Conduct  

15

Board Committees  

15

Environmental, Social & Sustainability  

17

 

Directors' Compensation  

21

Fees Earned by Non-Employee Directors in 2019  


21

Non-Employee Directors' Deferred Compensation Plan  

22

Restricted Stock Unit Grants  

22

Other Compensation  

23

Directors' Stock Ownership Guidelines  

23

Audit Committee Report  

23

 

Proposal Two—Approval of the Amended and Restated Principal Financial Group, Inc. Directors Stock Plan  

24

 

Proposal Three—Approval of the Amended and Restated Principal Financial Group, Inc. Employee Stock Purchase Plan  

29

 

Executive Compensation  

33

Compensation Discussion and Analysis ("CD&A")  


33

2019 Company Performance Highlights  

34

2019 Compensation Highlights  

35

Compensation Program Philosophy and Policies  

35

Summary of Compensation Elements  

37

How We Make Compensation Decisions  

38

2019 Executive Compensation Decisions  

40

Base Salary  

41

Annual Incentive Compensation  

41

Long-term Incentive Compensation  

43

Timing of Stock Option Awards and Other Equity Incentives  

45

Benefits  

45

Change of Control and Separation Pay  

46

Stock Ownership Guidelines  

46

Hedging Policy  

47

Repricing Policy  

47

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Claw Back Policy  

47

Trading Policy  

47

Gross-Up Policy  

47

Human Resources Committee Report  

47

Risk Assessment of Employee Incentive Plans  

48

Summary Compensation Table  

49

Grants of Plan Based Awards for Fiscal Year End December 31, 2019  

51

Outstanding Equity Awards at Fiscal Year End December 31, 2019  

52

Option Exercises and Stock Vesting  

53

2019 CEO Pay Ratio  

53

Pension Plan Information  

54

Pension Distributions  

56

Pension Benefits  

56

Non-Qualified Deferred Compensation  

57

Qualified 401(k) Plan and Excess Plan  

57

Severance Plans  

58

Change of Control Employment Agreements  

59

Potential Payments Upon Termination Related to a Change of Control  

61

 

Proposal Four—Advisory Vote to Approve Executive Compensation  

62

 

Proposal Five—Ratification of Appointment of Independent Registered Public Accountants  

63

Audit Fees  

63

Audit Related Fees  

63

Tax Fees  

63

All Other Fees  

63

 

Security Ownership of Certain Beneficial Owners and Management  

65

Section 16(a) Beneficial Ownership Reporting Compliance  

67

 

Questions and Answers About the Annual Meeting  

68

 

Appendix A 2020 Director Plan  

A-1

Appendix B 2020 Employee Stock Purchase Plan  

B-1

Appendix C Executive Compensation Benchmarking Study Participants  

C-1

Appendix D Non-GAAP Financial Measure Reconciliations  

D-1

 

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2020 Proxy Statement        3


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

The Board Nominating and Governance Committee (the "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 existing 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 desired characteristics and relevant considerations, including those noted above. Following the Committee's discussion, the outside consultant, if one is used, 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 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 Chief Executive Officer ("CEO"), President, or Executive Vice President (Mr. Auerbach, 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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Diversity of the Board is a valued objective, as reflected in the Board's Diversity Policy. Therefore, the Nominating and Governance Committee reviews the Board's needs and diversity, including in terms of age, 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 (45% female) and racial (18% 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 2019, Forbes named Principal one of America's Best Employers;

Pensions and Investments placed Principal 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 18th year, ranking No. 21;

Principal is consistently recognized for its commitment to fostering a diverse and inclusive environment where employees have the opportunity to thrive, advance, and share their unique perspectives.

In 2019, Principal ranked fifth in the nation on Forbes' list of Best Places for Women to Work, after holding the No. 1 spot the previous year;

Principal was again named one of Working Mother magazine's 100 Best Companies;

Principal was recognized for the 19th time as one of the National Association of Female Executives' Top Companies for Executive Women;

Forbes named Principal one of America's Best Employers for Diversity in 2019 and, again, in January 2020;

Principal earned a perfect score on the Human Rights Campaign Foundation's Corporate Equality Index, for the fourth and fifth consecutive year, respectively, in 2019 and 2020; and

 

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2020 Proxy Statement        5

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Principal was recognized as one of the Ethisphere Institute's World's Most Ethical Companies for the sixth consecutive year (and 10th year overall), emphasizing the commitment to leading ethical business standards and practices. Only five companies in the financial services industry earned this distinction in 2020.

Principal maintains 13 global Employee Resource Groups in which more than 4,000 employees participate that connect employees based on similar interests or aspects of diversity, including gender equality, LGTBQ+ issues, racial equality, enabling all abilities, and valuing military experience.

And that recognition is not limited to our American operations. Focusing just on our Chilean presence:

Principal Chile and Cuprum AFP ("Cuprum") were both recognized by Diario Financerio for their commitment to ethical business and integrity. The awards, given to only 49 companies, are based on an external party's evaluation of business practices and surveys of employees;

Cuprum was recognized for the fifth consecutive year with the Merco Talent award, which identifies the top 100 companies in Chile based on 'attracting and retaining talent'. Cuprum's 2019 ranking was 32, up four spots from 2018 ranking of 36; and

Principal Chile is one of the 20 most innovative companies in that country, according to a 2019 perception study issued by Best Place to Innovate in conjunction with the Adolfo Ibanez University Business School.

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, following retirements that will occur immediately following the 2020 Shareholders Meeting, is listed below. The average tenure of Principal's independent Directors will be 9.5 years.

GRAPHIC

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.

Two tenured Directors will retire immediately following our 2020 Annual Shareholders Meeting and an additional three directors will retire over the next five years continuing our process of regularly refreshing the talents and perspectives reflected on our Board.

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 its Investor Relations staff.

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 shareholder or group of up to 20 shareholders, 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.

6        2020 Proxy Statement

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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 2020 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 I Directors With Terms Expiring in 2023

    

Jonathan S. Auerbach
PHOTO
Age: 57
Director Since: 2019

Committees: Finance, and
Nominating and Governance
  
Mr. Auerbach has been Executive Vice President, Chief Strategy, Growth and Data Officer of PayPal, Inc. since 2015. In his role, he leads PayPal's global strategy, data science, business development, and M&A initiatives. Prior to joining PayPal, he was Chief Executive Officer of SingTel's Group Digital Life from 2013-2014 and spent over 26 years with McKinsey & Company serving in a variety of executive roles in Asia and North America, including leading the Asian Telecommunications, Media and Technology Practice, the Singapore Office and Southeast Asia Region, and the North American High-Tech Practice.
  
Skills and Qualifications: Mr. Auerbach has executive level experience in international, mergers & acquisitions, strategic planning and technology.
  
Education: Bachelor's degree from Dartmouth College, and a B.A. and M.A. from Oxford University.

    
    

Jocelyn Carter-Miller
PHOTO
Age: 62
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 also has passed the certified public accountant exam.
  
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: 52
Director Since: 2016

Committees: Audit, and
Human Resources
 
Mr. Mills has been Lead Director since January 2020.
 
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: 61
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 Vice Chair, Risk Policy Committee Executive Chair and a Director of Fannie Mae (since 2013) where she also 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 Chair. Ms. Nordin was formerly a Trustee of Wheaton College (2010-2019) where she chaired the Investment Committee and served 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. Ms. Nordin also serves on the NY Common Fund Investment Advisory Committee on a pro bono capacity.
  
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: 55
Director Since: 2015

Committees: Finance and
Nominating and Governance (Chair)
 
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: 58
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 of the board of directors of the American Council of Life Insurers and also serves on the boards of the 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: 71
Director Since: 1992 (Principal Life), 2001 (the Company)

Committees: Human Resources,
Nominating and Governance, and
Executive
  
Public Directorships: Meredith Corporation (Nominating and Governance Committee, and Chair of Compensation Committee), Qiagen, N. V. (Audit and Nominating Committees, and Chair of Compensation Committee), Anthem, Inc. (Board Chair and member of Compensation and Nominating and Governance Committees)
  
Ms. Tallett was Lead Director from 2007 until the end of 2019.
  
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 Board of Trustees for Solebury School, PA (not for profit) and a member of the University of Nottingham Sports Board
  
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.

    

Continuing Class III Directors With Terms Expiring in 2022

    

Michael T. Dan
PHOTO
Age: 69
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.

    

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Sandra L. Helton
PHOTO
Age: 70
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: 63
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 (Risk Management and Compliance Committee); First Pacific Company Limited (Finance and Corporate Governance Committees)
  
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 Council of the Faculty of Business and Economics of The University of Hong Kong; and Chairman of the Harvard Business School Association 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 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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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 (11 out of 12);

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

Strong 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;

Board Diversity Policy and a diverse and inclusive 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 and CEO be combined or separate. Mr. Mills, 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 on the agenda 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 2019.

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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 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. The Human Resources Committee also oversees succession planning and development for senior management.

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 all key executive positions. In addition, the Human Resources Committee regularly discusses the talent pipeline for critical roles at a variety of organizational levels, including CEO. A comprehensive review of executive talent, including assessments by an independent consulting firm, determines participants' readiness to take on additional leadership roles and identifies the developmental and coaching opportunities needed to prepare them for greater responsibilities. High potential leaders are given

 

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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. In addition, the Company has an emergency succession plan for the CEO that is reviewed by the Board annually.

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 2020, 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: Mr. Auerbach, 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 71), 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. Auerbach, 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

As of December 31, 2019, the Vanguard Group, Inc. managed funds holding in the aggregate 11.24% of the Company's Common Stock. During 2019 Principal Shareholder Services, Inc. paid Vanguard $55,247 for sub-transfer agent services. During 2019, Vanguard paid $966,694 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. Vanguard provides mutual fund distribution services pursuant to a contract with Principal Funds Distributors, Inc. ("PFD"), for which PFD paid vanguard $133,314 in 2019.

As of December 31, 2019, BlackRock, Inc. (together with its affiliates "BlackRock") and certain subsidiaries collectively owned or managed funds holding in the aggregate 8.4% of the Company's common stock. During 2019, Principal Global Investors, LLC paid BlackRock Fund Advisors $1,934,629 in management fees associated with the

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Principal Funds, Inc. In 2019, Principal affiliates paid BlackRock $3,008,133 for fees in connection with the use of, and services and consulting furnished in connection with, the Aladdin system. 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.

Nippon Life Insurance Company ("Nippon Life"), which held approximately 6.3% of the Company's Common Stock at the end of 2019, 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 2019, Nippon Life and NLICA paid the following amounts to Principal Life or its affiliates: $242,636 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; and $8,589,699 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 2019 of $63,737,500 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 2019, Post paid NLI an aggregate of $4,563,760 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 2019, Principal Life paid Nippon Life $134,996 in salary reimbursements in connection with these situations. A Principal affiliate in Japan paid Nippon Life $3,304 for administration of its defined contribution plan. Principal affiliates hold, and manage accounts holding, securities issued by Nippon Life, and Nippon Life invests in funds managed by Principal affiliates.

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 2019, he received approximately $599,641 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 11 meetings in 2019, 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. While Director attendance is not mandatory, the Company's annual shareholder meeting is scheduled on a date that coindices with a regularly-scheduled quarterly Board Meeting. In 2019, all Directors save one attended the annual shareholders meeting in person.

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 investors.principal.com/investor-relations/our-business/corporate-governance/default.aspx.

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 2019

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 Bernard1
C. Daniel Gelatt2
Sandra L. Helton*
Scott Mills
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;

Overseeing our global inclusion strategy;

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*1
Michael T. Dan
C. Daniel Gelatt2
Scott M. Mills
Diane C. Nordin
Elizabeth E. Tallett*3





7
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.

Jonathan S. Auerbach
Jocelyn Carter-Miller
Michael T. Dan
Roger C. Hochschild*
Blair C. Pickerell
Elizabeth E. Tallett





4

1
Until May 18, 2020

2
Until May 19, 2020

3
Effective May 18, 2020

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Committee
Responsibilities
Members
(*Committee Chair)

Meetings
Held in 2019

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.

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




8
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. Bernard1
Sandra L. Helton
Daniel J. Houston*
Elizabeth E. Tallett



None

Environmental, Social & 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 we operate 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. For example, we are humbled to have been named a Most Ethical Company by the Ethisphere Institute for the tenth year in 2020.

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. 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. Over the next five years, our goal is to reach 50,000 persons, ages 15-30, around the world and help them earn and save more. In addition, 70% of grants are financial security-focused, supporting professional skill-building or access to savings, credit-building and financial coaching.

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 $23 million over 13 years in support of 130,000 Iowa children each year through our sponsorship of the Principal Charity Classic, an annual PGA TOUR Champions event.

Principal employees numbering in excess of 2,760 logged 56,611 volunteer hours in 2019.

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.

Principal Asset Management (Indonesia) was featured in "66 People and Organizations Moving Social Entrepreneurship and Impact Investment in Indonesia" published by Angel Investor Network Indonesia, in recognition of the Principal Philanthropy Social Impact Bond Fund. The fund invites investors to donate their returns to selected social organizations that pursue social and environmental causes aligned with the United Nations' Sustainable Development Goals;

 

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

We are on track to exceed our goal to have reduced, by the end of 2020, our direct and indirect greenhouse gas emissions from Principal-owned sources by 30% compared to a 2010 baseline.

We recycled 87% of the materials removed during a recent 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 and more than 4,914 pounds of those materials in 2019.

We composted or donated 142,674 pounds of food from our corporate campus cafes in 2019, compared to 75,443 pounds in 2018.

Three of our corporate campus buildings are LEED Certified, and two others are in the certification process.

Principal maintained a score of A- for the seventh year in a row on the CDP (formerly known as the Carbon Disclosure Project) questionnaire for the 2019 disclosure cycle.

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. Our ESG integration approach is determined by the specific boutique investment process and asset class. We want to highlight here the ESG approaches taken by four of our asset management affiliates, PGI, Principal Global Equities ("PGE"), Principal Global Fixed Income, and Principal Real Estate Investors. As a result of its efforts, PGI received an A grade relative to the Principles for Responsible Investment following an assessment of its 2019 ESG investment practices.

Our equity securities investment management group, PGE, centers its ESG commitment on the fiduciary responsibility owed to clients to act in their long-term interests. PGE has over a decade of custom socially responsible and faith-based mandates for $3.1 billion of assets under management. PGE works beyond the nominal score to incorporate qualitative assessment of risk factors and change catalysts and the use of analytical tools to increase the understanding of risks and issues, in order to report ESG trends for our clients.

Managed appropriately, we believe ESG integration contributes to enhanced long-term returns and reduced risks. Consistent with our overall investment philosophy, our ESG approach focuses on fundamental change. It is embedded directly within our research process in assessing the fundamental attributes of companies. Our focus is not limited to companies that rate highly according to third-party research providers, but rather companies that are demonstrating a commitment to improvement. In short, we encourage companies to always strive to be better versions of themselves. Our focus and commitment can therefore be summarized by our guiding purpose: By encouraging corporations to be leaders on sustainability through better long-term stewardship of human, natural and financial resources, we play an active role in the betterment of society.

Our fixed income investment affiliate, Principal Global Fixed Income, integrates ESG into all levels of the investment process. Investment analysts supplement their fundamental research with insights from ESG research providers including MSCI and ISS. The group manages nearly $3.9 billion of assets in socially responsible mandates. 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, uses a unique ESG framework called the Pillars of Responsible Property Investing ("PRPI") initiative to help drive asset management and fiduciary governance. PrinREI strives to deliver positive financial and environmental results for 165 assets totaling more than 34.6 million square feet of real estate with a gross asset value of approximately $11.1 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, management, and lending efforts.

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The PRPI philosophy integrates ESG within every aspect of Principal Real Estate Investor's investment process for these assets, as follows:

Acquisitions and development: All potential investments undergo a formal review that includes the following ESG considerations: utility performance, certifications, sustainability programs and policies, and climate risk and resilience features.

Operations and management: 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. We completed a climate risk assessment pilot program to strengthen our ability to identify and manage portfolio-level and property-level resilience strategies while aligning with Task Force on Climate-related Financial Disclosures recommendations. As a result, we created property-level guidance to help our assets improve resilience to identified climate risks from the assessment. Finally, our appraisal scope requires the review and valuation of high-performance and energy-efficient attributes of properties.

Dispositions: Principal Real Estate Investors discloses and promotes building-level sustainability attributes to potential buyers, including historical utility performance data.

Lending: Principal Real Estate Investors has integrated lending into our responsible property investing policy, tracks asset sustainability attributes, monitors exposure to natural hazards, and maintains a debt working group to foster improved ESG performance in lending activities.

      Principal Real Estate Investors recent achievements include (all as of the fourth quarter of 2019):

      16.8% energy savings in the PRPI portfolio since 2008, avoiding over $64.1 million in energy costs.

      44 ENERGY STAR certified buildings in the PRPI portfolio.

      45 LEED certified buildings in the PRPI portfolio.

      87% of the office portfolio managed by Principal Real Estate Investors is green certified (LEED/ENERGY STAR/BOMA 360/IREM).

      Named a 2019 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 2019.

      Received an A+ from the Principles for Responsible Investment Direct Property Module in 2019.

Advancing a culture of inclusion:    We define "diversity" as "everything that I am and everything that I am not". It is a broad range of distinctions that makes us dependent on one another and better together. We define "inclusion" as a deep sense of belonging or feeling at home. Diversity and Inclusion is valuing everyone's perspective and winning together. We welcome, value, and embolden people to be their best selves. Our global inclusion effort manifests itself in a variety of ways, including nearly a dozen active employee resource groups, inclusive environments, Board diversity, and recruitment of world class talent. Recent highlights include:

Women and minorities comprise 55% of the independent members of our Board.

Ranked No. 5 on Forbes 2019 list of America's Best Employers for Women.

Earned the 2019 Military Friendly Employer designation by Victory Media.

Named one of the 2019 National Association for Female Executives Top Companies for Executive Women, the 18th time that Principal has been so honored.

Named one of the 2019 Working Mother 100 Best Companies for Women, the 17th consecutive year in which Principal has received this award.

Named among America's top companies for lesbian, gay, bisexual and transgender (LGBT) equality, by earning a perfect 100 percent score on the Human Rights Campaign Foundation's Equality Index (CEI) in 2019 and 2020.

Named one of the World's Most Ethical Companies for the ninth time by Ethisphere Institute (2019).

Named among the best places to work by Pensions & Investments annual survey of "Best Places to Work in Money Management" (2019).

 

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Named one of America's Most Just Companies by Forbes and JUST Capital (2020).

Promoting diversity among suppliers:    We set high standards not only for our company, but also for our suppliers and partners. 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 2019, 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 39-40), which aligns with its Executive compensation philosophy. As a result of Compensation Advisor Partners November 2019 review and the Committee's discussion, Director compensation was changed effective November 25, 2019. These changes position Directors at the median of compensation within Principal's Peer Group.

  Effective
November 25, 2019
Annual Cash Retainers(1)  
  -    Board $ 110,000
  -    Audit Committee Chair $ 35,000
  -    Human Resources Committee Chair $ 25,000
  -    Finance Committee Chair $ 25,000
  -    Nominating & Governance Committee Chair $ 25,000
  -    Other Committee Chairs $ 10,000
  -    Lead Director $ 50,000
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 2019

 
 
 
 
Name
Fees Earned or
Paid in Cash

Stock
Awards(1)

Total
Jonathan S. Auerbach $ 74,048 $ 111,959 $ 186,007
Betsy J. Bernard $ 127,500 $ 164,964 $ 292,464
Jocelyn Carter-Miller $ 127,500 $ 164,964 $ 292,464
Michael T. Dan $ 105,000 $ 164,964 $ 269,964
C. Daniel Gelatt Jr. $ 105,000 $ 164,964 $ 269,964
Sandra L. Helton $ 132,500 $ 164,964 $ 297,464
Roger C. Hochschild $ 117,500 $ 164,964 $ 282,464
Scott M. Mills $ 134,857 $ 164,964 $ 299,821
Diane C. Nordin $ 105,000 $ 164,964 $ 269,964
Blair C. Pickerell $ 105,000 $ 164,964 $ 269,964
Elizabeth E. Tallett $ 122,643 $ 164,964 $ 287,607
(1)
These amounts reflect the grant date fair value of awards made in 2019 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, as does the 2020 Director Plan shareholder approval of which is being sought by this proxy statement (see pages 24-28).

 

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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, each option represents "phantom" units tied to the following:

The Company's Common Stock;

The Principal LargeCap S&P 500 Index Fund (R5 share class);

The Principal Real Estate Securities Fund (R5 share class); and

The Principal Core Plus Bond Fund (R5 share class).

The returns realized on these funds during 2019 were (parenthesized information indicates share class):

 
 
Investment Option
1 Year Rate Of Return
(12/31/2019)

Principal Financial Group, Inc. Employer Stock Fund

29.45%

Principal LargeCap S&P 500 Index Fund (R5)

30.98%

Principal Real Estate Securities Fund (R5)

30.92%

Principal Core Plus Bond Fund (R5)

9.67%

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 $330,000 ($500,000 for an Independent Chairman) on the size of the annual award that may be made. This same limit is employed by the 2020 Director Plan, shareholder approval of which is being sought by this proxy statement.

As of December 31, 2019, 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 2019
(Shares)

Jonathan S. Auerbach

1,955

Betsy J. Bernard

51,410

Jocelyn Carter-Miller

53,683

Michael T. Dan

27,298

C. Daniel Gelatt

56,903

Sandra L. Helton

51,410

Roger C. Hochschild

15,065

Scott M. Mills

10,916

Diane C. Nordin

7,200

Blair C. Pickerell

13,781

Elizabeth E. Tallett

56,341

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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.

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 2019 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, 2019 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, 2019, 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, 2020.

In determining whether to reappoint Ernst & Young LLP as the Company's independent auditor, the Audit Committee annually conducts a formal evaluation that takes into consideration a variety of factors, including the firm's tenure; the firm's independence, and its processes and controls for maintaining that independence; the firm's

 

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local, national, and global presence; the quality, consistency, effectiveness, and timeliness of the firm's communications with the Audit Committee and business areas; management's evaluation of the firm; data related to audit quality and performance, including recent PCAOB inspection reports; and the appropriateness of the firm's fees.

In accordance with SEC rules, the lead or concurring audit partner for the Company may not serve in that role for more than five consecutive fiscal years. The Audit Committee ensures the regular rotation of the audit engagement team partners as required by law.

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
Scott M. Mills
Diane C. Nordin


PROPOSAL TWO—APPROVAL OF THE AMENDED AND RESTATED PRINCIPAL FINANCIAL GROUP, INC. DIRECTORS STOCK PLAN

Introduction

The Board believes that encouraging stock ownership by non-employee directors through the use of stock-based incentive compensation both aligns such directors' economic interests with those of shareholders and assists the Board in attracting and retaining qualified directors.

The number of shares authorized for issuance under the Principal Financial Group, Inc. 2014 Directors Stock Plan (the "2014 Director Plan") was intended to provide the basis for making grants for a period of several years, with the expectation and understanding that the Company would seek the approval of shareholders to make additional awards at an appropriate time. Based on the success the Company has achieved in using stock based awards, the Board believes that it continues to be appropriate to have the ability to grant stock options, restricted stock and restricted stock units to non-employee directors, as is authorized under the 2014 Director Plan (although the Board believes there should be some modification to the manner in which such awards are made). Accordingly, the Nominating and Governance Committee has recommended, and the Board has adopted, subject to shareholder approval, the Amended and Restated Principal Financial Group, Inc. Directors Stock Plan (the "2020 Director Plan").

Upon approval of the 2020 Director Plan by shareholders, no new grants will be made under the 2014 Director Plan, although shares remaining available for grant under the 2014 Director Plan will become available for grant under the 2020 Director Plan. However, in the event that shareholders do not approve the 2020 Director Plan at the 2020 Annual Meeting, the Nominating and Governance Committee will continue to grant awards under the 2014 Director Plan.

The Board of Directors recommends that shareholders vote "for" approval of the 2020 Director Plan.


Summary of the 2020 Director Plan

The following summary of the 2020 Director Plan is qualified in its entirety by reference to the complete text of the 2020 Director Plan, which is attached to this proxy statement as Appendix A.

Shares Available for Issuance

Subject to adjustment upon the occurrence of certain events described below, a maximum of 160,000 shares, plus any shares of Common Stock remaining available for grant under the 2014 Director Plan at the date the

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shareholders approve the 2020 Director Plan, may be issued under the 2020 Director Plan in respect of annual and discretionary stock based awards. Authorized but unissued shares or treasury shares may be used to satisfy awards under the 2020 Director Plan.

Shares subject to awards under the 2020 Director Plan or the 2014 Director Plan that have lapsed, are forfeited or cancelled or are settled without the issuance of stock, in each case after the effective date of the 2020 Director Plan, will be available for awards under the 2020 Director Plan. This includes shares that are withheld from an award to satisfy the participant's tax obligations. Additionally, shares owned by participants that are delivered to the Company to pay all or a portion of the exercise price of any award will also be available for awards under the 2020 Director Plan.

If the Nominating and Governance Committee determines that any stock dividend, stock split, recapitalization, merger, consolidation, combination, spin off, distribution of assets to shareholders (other than ordinary cash dividends), exchange of shares, or other similar corporate event affects the shares, then the Nominating and Governance Committee shall make such equitable adjustments in the number and kind of shares which may thereafter be awarded or optioned under the 2020 Director Plan, the number and kind of shares subject to outstanding options and awards and the respective grant or exercise prices as it determines to be appropriate.

Annual Grants and Discretionary Grants

The 2020 Director Plan provides for a level of annual grants having a value not to exceed $165,000 to be made to each non-employee director in the form of restricted stock units. The 2020 Director Plan also authorizes the Nominating and Governance Committee to make additional grants in its discretion which may be in the form of restricted stock, restricted stock units, stock options and other stock-based awards. However, the 2020 Director Plan provides that in no event shall the value of awards granted to any eligible director in any year by reason of the exercise of any discretionary authority afforded the Nominating and Governance Committee under the 2014 Director Plan or the 2020 Director Plan (including the authority to increase the value of the standard annual grant) exceed $330,000 (or, in the case of any participant who is serving as the Chairman of the Board and who is not an employee of the Company, $500,000). This limit applies to grants that are made in addition to the stated annual grant value of $165,000 permitted under the 2020 Director Plan. Each of the 9 non-employee directors expected to continue serving on the Board after the Annual Meeting will be eligible to receive awards under the 2020 Director Plan.

Annual Grants.    Effective immediately following each annual meeting of shareholders occurring when the 2020 Director Plan is in effect (including the 2020 Annual Meeting), each non-employee director then in office will receive an annual grant comprised of restricted stock units having a value of approximately $165,000 (or such greater or lesser amount as the Nominating and Governance Committee shall determine from time to time). Under the 2020 Director Plan, there will be no annual stock option grants to any non-employee directors, consistent with the terms of the 2014 Director Plan.

If a person becomes a non-employee director after the effective date of the 2020 Director Plan and other than on the date of an annual meeting of shareholders, it is expected that such non-employee director shall receive a pro rata award, based on the dollar value used to determine the grant of restricted stock units under the 2020 Director Plan immediately following the last shareholder meeting, for the period of such person's expected service through the next annual shareholder meeting. For purposes of the 2020 Director Plan, the Nominating and Governance Committee will determine the aggregate value of each award using valuation methodologies that are commonly used in U.S. compensation practices to value awards of a similar type and nature and the value of a share of Common Stock will be determined based on closing stock price of such stock on the Nasdaq Global Select Market on the date of the grant.

Annual awards of restricted stock units made under the 2020 Director Plan will become vested, subject to the non-employee director's continued service on the Board, on the scheduled date of the next annual meeting of shareholders following such annual grant of restricted stock units. Unless the Nominating and Governance Committee otherwise determines prior to or at grant, or unless deferred by a director, a director's vested restricted stock units from annual awards shall be distributed in shares as soon as possible after the director's termination of Board service.

Discretionary Grants.    The 2020 Director Plan also authorizes the Nominating and Governance Committee to make grants of restricted stock, restricted stock units, stock options and/or stock-based awards to non-employee directors, which would be in addition to the annual grants described in the preceding paragraphs. These discretionary grants may be made in the form of any type of award authorized for grant under the 2020 Director

 

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Plan and may relate to such number of shares of Common Stock as the Nominating and Governance Committee shall determine. These grants are subject to the limits on the Committee's discretionary authority described in the preceding paragraphs, i.e., in no event shall the value of awards granted to any eligible director in any year by reason of the exercise of any discretionary authority afforded the Committee under the Plan exceed $330,000 or, in the case of any participant who is serving as the Chairman of the Board and who is not an employee of the Company, $500,000.

Administration

The 2020 Director Plan will be administered by the Nominating and Governance Committee. The Nominating and Governance Committee shall have the sole and complete authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the 2020 Director Plan as it shall deem advisable, and to interpret the terms and provisions of the 2020 Director Plan. However, no member of the Nominating and Governance Committee may participate in any decision that applies to his or her benefits or entitlements under the 2020 Director Plan, unless such decision applies generally to all non-employee directors.

Subject to the express terms of the 2020 Director Plan (including the limitations applicable with respect to the terms of annual grants), the Nominating and Governance Committee has broad discretion as to the specific terms and conditions of each award and any rules applicable thereto. Awards may not be assigned or transferred, except by will or the laws of descent and distribution, pursuant to a qualified domestic relations order, to the participant's immediate family and to other permitted transferees under rules established by the Nominating and Governance Committee.

Restricted Stock or Units

Under the 2020 Director Plan, the Nominating and Governance Committee may grant restricted stock and restricted stock units. Unless otherwise determined by the Nominating and Governance Committee, each annual grant (described above) made to non-employee directors will consist of restricted stock units. The Nominating and Governance Committee may determine the number of shares of restricted stock or the number of restricted stock units that would be granted as part of any discretionary award. The Nominating and Governance Committee has the power to determine the other terms and conditions of restricted stock and restricted stock unit awards, including, without limitation, determining the form (that is, shares of Common Stock, cash or a combination of cash and stock) and the timing of payment in respect of restricted stock units. Unless otherwise determined by the Nominating and Governance Committee at the time of grant, the annual grant of restricted stock units shall vest on the scheduled date of the first annual meeting of shareholders scheduled to occur after the date such restricted stock units are granted.

If the Nominating and Governance Committee does not permit an earlier distribution date, subject to any deferral election made in accordance with such conditions as the Nominating and Governance Committee shall determine, payment shall be made in respect of all restricted stock units granted to a non-employee director in connection with annual grants as soon as practicable after the cessation of the director's service on the Board. Discretionary grants of restricted stock units will be distributed in accordance with the terms determined by the Nominating and Governance Committee at the time of grant. Unless determined otherwise by the Nominating and Governance Committee, a non-employee director shall forfeit any restricted stock or restricted stock units that are not vested as of the time of any such termination of service.

Shares of restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered until the restrictions have lapsed. Subject to the forfeiture and transfer restrictions applicable to the award, a participant will have all of the rights of a shareholder in respect of any award of restricted stock, including the right to vote such shares. Generally, a non-employee director will not currently receive dividends and other distributions paid with respect to restricted stock. Instead, all dividends and distributions will be invested in additional shares of Common Stock that will become vested and nonforfeitable and payable upon the same terms and conditions applicable to the shares of restricted stock in respect of which they were paid. In the event that dividends and distributions are paid on shares of Common Stock, dividend equivalents will be credited in respect of shares underlying restricted stock units awarded to non-employee directors and such amounts will become vested, payable and forfeitable on the same terms as the restricted stock units in respect of which they were paid.

Stock Options

The Nominating and Governance Committee may grant non-employee directors discretionary awards of stock options. The options granted under the 2020 Director Plan may only be non-statutory options (as opposed to the

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2014 Stock Incentive Plan, pursuant to which the options may also be incentive stock options). The exercise price of any stock option granted may not be less than 100% of the fair market value of the underlying shares at the time of grant, and the Nominating and Governance Committee is not permitted to subsequently reduce the exercise price or otherwise reprice granted options without shareholder approval, except for adjustments in connection with changes in capitalization described above in the section "Shares Available for Issuance."

The Nominating and Governance Committee has discretion to set the other terms and conditions of any options, but under no circumstances may an option have a term exceeding ten years from the date of grant. An option holder may satisfy the exercise price in cash or, at the discretion of the Nominating and Governance Committee, by exchanging shares owned by the optionee, by a combination of cash and shares, or in accordance with any other procedure or arrangement approved by the Nominating and Governance Committee. However, no method of exercise is permitted that would require the Company to loan a participant funds or otherwise extend credit to the participant. The Nominating and Governance Committee may permit non-employee directors to defer amounts payable to such directors, upon exercise of options upon the terms and conditions it may establish from time to time.

In the event that a non-employee director's service terminates, any option that has not become exercisable prior to such termination will be canceled. Any option that is exercisable at the time of such termination will remain exercisable until the earlier of five years from the date that such director's service terminated and the stated term of the option (which cannot extend beyond the tenth anniversary of the grant date of the option).

Other Stock Based Awards

The Nominating and Governance Committee may also grant to non-employee directors other stock-based awards including, but not limited to, grants of stock and offers to purchase common stock. Such awards shall be granted on such terms and conditions as the Nominating and Governance Committee shall determine.

Term of the 2020 Director Plan and Amendments

No award may be granted under the 2020 Director Plan after the tenth anniversary of the date that the plan is approved by shareholders. The 2020 Director Plan may be amended or terminated at any time by the Board, except that no amendment may adversely affect existing awards. Likewise, none of the following amendments may be made without shareholder approval: (i) an increase in the number of shares available for issuance under the plan; (ii) a decrease in the minimum exercise price at which an option is granted or any other repricing of outstanding options, including cancelation of an option when the exercise price exceeds the fair market value of a share of common stock in exchange for cash or another award, except as otherwise provided; (iii) an extension of the maximum term for options granted under the plan or (iv) any other amendment for which shareholder approval is otherwise necessary to comply with any tax or regulatory requirement, including any approval requirement which is imposed by the rules of the Nasdaq, that the Nominating and Governance Committee determines to be applicable.

Description of Federal Income Tax Consequences under the 2020 Director Plan

The following discussion summarizes the federal income tax consequences of grants of stock options, restricted stock, or restricted stock units under the 2020 Director Plan based on current provisions of the Internal Revenue Code, which are subject to change. The summary does not cover any foreign, state or local tax consequences of participation in the 2020 Director Plan.

Non-qualified Stock Options

No income is recognized upon the grant of a non-qualified stock option. When an optionee exercises a non-qualified option, the excess of the fair market value of the shares on the date of exercise over the exercise price will be ordinary income to the optionee and will be allowed as a deduction for federal income tax purposes to the Company.

When an optionee disposes of shares acquired by the exercise of the non-qualified option, he or she will recognize long or short-term capital gain (loss), depending upon the holding period of the shares. If pursuant to the authority of the Human Resources Committee an optionee transfers an option by gift, the optionee will still have ordinary income upon the exercise of the option by the transferee equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. The transfer of an option by gift may also result in a gift tax liability to the optionee depending on the fair market value of the option at the time of such transfer. If the option is exercisable at the time of the transfer, the gift will occur at the time of transfer. The Internal Revenue Service has

 

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ruled that if the option is not exercisable at the time of transfer, the gift will be deemed to occur on the date the option becomes exercisable.

Restricted Stock

Unless a participant makes the election described below, a grant of restricted stock will not result in taxable income to the participant or a deduction for the Company in the year of grant. The value of such restricted stock will be taxable to a participant as ordinary income in the year in which the restrictions lapse. Alternatively, a participant may elect to treat as income in the year of grant the fair market value of the restricted stock on the date of grant, provided the participant makes the election within 30 days after the date of such grant. If such an election were made, the participant would not be allowed to deduct at a later date the amount included as taxable income if the participant should forfeit the shares of restricted stock. The amount of ordinary income recognized by a participant is deductible by the Company in the year such income is recognized by the participant. If the election described above is not made, then prior to the lapse of restrictions, dividends paid on the shares subject to such restrictions will be taxable to the participant as additional compensation in the year received, and the Company will be allowed a corresponding deduction.

Restricted Stock Units

Generally, when a participant receives payment with respect to restricted stock units granted under the 2020 Director Plan, the amount of cash and the fair market value of the shares received will be ordinary income to such participant, and the Company will be allowed a corresponding deduction for federal income tax purposes.

New Plan Benefits Table

The following table sets forth the awards that will be made in 2020 pursuant to the annual grant provisions of the 2020 Director Plan, if shareholders approve the 2020 Director Plan. While the ultimate awards will be denominated in terms of restricted stock units that represent a contractual right to receive an equivalent number of shares, the table below shows the authorized dollar equivalent values for each such award. That is because the program is designed to convey a grant date award value that is measured by a specified dollar equivalent. The actual number of shares and restricted stock units with respect to these awards will be determined by dividing the dollar equivalent value by closing price of a share of Common Stock immediately preceding the date of grant, which would be the date of the Annual Meeting if the shareholders approve the 2020 Director Plan.

  Name Dollar Equivalent of 2020
Restricted Stock Unit Awards
 
  Jonathan Auerbach $165,000  
  Jocelyn Carter-Miller $165,000  
  Michael T. Dan $165,000  
  Sandra L. Helton $165,000  
  Roger C. Hochschild $165,000  
  Scott M. Mills $165,000  
  Diane C. Nordin $165,000  
  Blair C. Pickerell $165,000  
  Elizabeth E. Tallett $165,000  

No awards will be made to Company Executives or employees under the 2020 Director Plan.

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PROPOSAL THREE—APPROVAL OF THE AMENDED
AND RESTATED PRINCIPAL FINANCIAL GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN

The Principal Financial Group, Inc. Employee Stock Purchase Plan (as Amended and Restated Effective May 19, 2009) (the "Current Plan") previously approved by the shareholders allows employees to purchase shares of Common Stock through payroll deductions and/or cash contributions. The Company's shareholders are being asked to approve an amended and restated Employee Stock Purchase Plan (the "ESPP"), increasing the number of shares of Common Stock available for issuance by 5,000,000 shares (1.8% of the outstanding shares of Common Stock as of December 31, 2019).

The Board of Directors adopted the ESPP on November 25, 2019, subject to shareholder approval. The following summary description of the ESPP does not purport to be complete and is qualified in its entirety by the full text of the ESPP. A copy of the ESPP is attached hereto as Appendix B and together with this Proxy Statement has been filed with the SEC.

Summary of the ESPP

The purpose of the ESPP is to provide employees of the Company and its participating subsidiaries with an opportunity to purchase Common Stock on a tax advantaged basis at a discount from its prevailing fair market value, thereby further aligning their interests with those of other shareholders. It is intended that the ESPP satisfy the requirements of Section 423 of the Internal Revenue Code ("Tax Code").

Number of Shares of Common Stock Under the ESPP

The ESPP provides for the issuance of up to 6,413,239 shares of Common Stock, which includes 1,413,239 shares available for issuance under the Current Plan as of December 31, 2019, plus an additional authorization of 5,000,000 shares of Common Stock reserved for issuance subject to approval of the shareholders in this Proposal.

Administration

The Human Resources Committee of the Board of Directors (the "Committee") has appointed the Plan Administrator, a committee composed solely of directors, officers, or employees of Principal Life Insurance Company or any of its subsidiaries, to administer the ESPP. The Plan Administrator has full power to interpret the ESPP and its decisions are final and binding upon all participants.

Term

The Board of Directors or its delegate may terminate, suspend, or amend the ESPP at any time.

Eligibility

Generally, all employees of the Company and its participating subsidiaries are eligible to participate in the ESPP. However, the Plan Administrator has the discretion to exclude all employees of specific subsidiaries as well as temporary and seasonal employees (i.e., generally employees with customary employment of no more than either 20 hours per week or five months per calendar year). No employee who owns 5% or more of either the voting power or the value of all classes of stock of the Company may participate in the ESPP. In addition, no employee may purchase pursuant to the ESPP shares of Common Stock that exceed $25,000 in fair market value in any calendar year; taking into account the discount, this limits employee contributions to $21,250 each year. As of December 31, 2019, there were 10,415 employees eligible to participate in the Current Plan.

Participation

An employee may contribute to the ESPP by authorizing after-tax payroll deductions, determined as a percentage of gross wages. The deduction may not exceed 100% of the employee's salary. An employee may also make non-payroll contributions (e.g., by check). An employee's right to participate in the ESPP ends when the participant's employment ends.

 

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The Plan Administrator determines when offering periods will occur. Currently, the ESPP has quarterly offering periods. Each participant may purchase shares of Common Stock on each offering date (i.e., the first business day of the quarter). The ability to participate generally will expire at the end of the offering period or upon termination of employment, whichever is earlier. The last business day of each offering period is the purchase date.

Purchases

Under the ESPP, Common Stock will be purchased at a price equal to 85% (or such greater percentage as determined by the Committee or Plan Administrator) of the lesser of (i) the fair market value of a share of Common Stock on the offering date, and (ii) the fair market value of a share of Common Stock on the purchase date.

On December 31, 2019, the closing price for Common Stock on the Nasdaq Global Select Market was $55.00 per share. The number of shares of Common Stock a participant purchases in each offering period is determined by dividing the total amount of the employee's payroll deductions and any additional contributions made during that offering period by the fair market value of Common Stock on the first day of the offering period.

Termination of Employment

If a participant dies or their employment terminates due to disability during the offering period, the participant or participant's beneficiary has the right to purchase the Common Stock or to have the participant's contributions refunded. If a participant retires or terminates employment other than due to disability prior to the last day of the offering period, the participant's accumulated payroll deductions and cash contributions as of the date of termination will be refunded.

Adjustments Upon Changes in Capitalization, Merger or Sale of Assets

In the event of any stock dividend or stock split, recapitalization (including, but not limited to, the payment of an extraordinary dividend to the shareholders of the Company), merger, consolidation, combination, spin off, distribution of assets to shareholders (other than ordinary cash dividends), exchange of shares, or other similar corporate change, (i) shares credited to each Employee's Individual Account shall be adjusted in the same manner as all other outstanding shares of Common Stock in connection with such event, (ii) the Committee shall determine the kind of shares which may be acquired under the ESPP after such event, and (iii) the aggregate number of shares of Common Stock available for grant under the ESPP or subject to outstanding Options and the respective exercise prices applicable to outstanding Options may be appropriately adjusted by the Committee, in its discretion, and the determination of the Committee shall be conclusive. Except as otherwise determined by the Committee, a merger or a similar reorganization which the Company does not survive, a liquidation or distribution of the assets of the Company, or a sale of all or substantially all of the assets of the Company, shall cause the ESPP to terminate and all Common Stock and cash, if any, in the Individual Accounts of Participating Employees shall be distributed to the participant pursuant to the ESPP as soon as practical unless any surviving entity agrees to assume the obligations under the ESPP.

Participant Elections

A participant may increase, decrease or eliminate future payroll deductions to his or her ESPP account by filing a new election. The change shall become effective on the first day of the first pay period following the filing of the election. A participant may also suspend or withdraw contributions at any time prior to the submission by the Plan Administrator of the associated order to purchase. If an employee suspends or withdraws contributions, he or she may not contribute again until the next offering period.

New Plan Benefits

Since benefits and amounts to be received under the ESPP depend on a participant's elections to participate and the fair market value of Common Stock at various future dates, it is not possible to determine future benefits or amounts that will be received by executive officers and other employees, either individually or collectively, if the ESPP is approved by the shareholders. Non-employee directors are not eligible to participate in the ESPP. We estimate that zero shares of the newly authorized Common Stock will be issued during the current offering period.

U.S. Federal Income Tax Consequences

If shareholders approve the ESPP as described above, the ESPP and the rights of participants to make purchases thereunder should qualify for treatment under the provisions of Sections 421 and 423 of the Tax Code. Under these

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provisions, no income will be taxable to a participant for United States federal income tax purposes until Common Stock purchased under the ESPP is sold or otherwise disposed of.

Upon the sale or other disposition of Common Stock purchased under the ESPP, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If Common Stock is sold or otherwise disposed of more than one year after the purchase date and more than two years from the applicable offering date, or if the participant dies prior to such sale or other disposition, then the participant generally will recognize ordinary income measured as the lesser of: (i) the excess of the fair market value of the Common Stock at the time of such sale or disposition over the purchase price paid by the participant, and (ii) the excess of the fair market value of the Common Stock on the date the Common Stock was purchased over the purchase price paid by the participant.

Any additional gain should be treated as long-term capital gain. If the fair market value of the Common Stock at the time of the sale or disposition is less than the purchase price paid by the participant, then the participant shall not recognize any ordinary income and such excess shall be treated as a long-term capital loss.

If Common Stock is sold or otherwise disposed of before expiration of the one-year or two-year holding periods described above, the participant will recognize ordinary income, generally measured as the excess of the fair market value of the Common Stock on the date the Common Stock was purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period.

The Company is entitled to a deduction only to the extent ordinary income is recognized by participants upon a sale or disposition of Common Stock prior to the expiration of the holding periods described above. In all other cases, the Company is not permitted a deduction.

The foregoing discussion is not intended to cover all tax consequences of participation in the ESPP. The tax consequences outlined above apply only with respect to a participant employed by a subsidiary corporation whose income is subject to United States federal income tax during the period beginning with the grant of an option and ending with the disposition of the Common Stock acquired through the exercise of the option. Different or additional rules may apply to individuals who are not employees of a subsidiary corporation, are subject to income tax in a foreign jurisdiction and/or are subject to state/local income tax in the United States.

Equity Compensation Plan Information

In general, we currently have three compensation plans under which our equity securities are authorized for issuance to employees or directors (not including our tax-qualified pension plans): the Principal Financial Group, Inc. 2014 Stock Incentive Plan; the Principal Financial Group, Inc. Employee Stock Purchase Plan (as Amended and Restated Effective May 19, 2009 (a new version of this Employee Stock Purchase Plan is being voted on in connection with this proxy statement); and the Principal Financial Group, Inc. 2014 Directors Stock Plan (a new version of this Directors Stock Plan is being voted on in connection with this proxy statement). The following table shows the number of shares of Common Stock issuable upon exercise of options outstanding at December 31, 2019, the weighted average exercise price of those options, and the number of shares of Common Stock remaining available for future issuance at December 31, 2019, excluding shares of Common Stock issuable upon exercise of outstanding options.

 
(a) (b) (c)
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding
options, warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

Equity compensation plans approved by our shareholders(1)

$ 9,088,272 (2) $ 48.42 (3) 8,033,357 (4)

Equity compensation plans not approved by our shareholders

-0- n/a -0-

(1)
The Principal Financial Group, Inc. Employee Stock Purchase Plan, the Principal Financial Group, Inc. Stock Incentive Plan, the Principal Financial Group Long-Term Performance Plan, and the Principal Financial Group, Inc. Directors Stock Plan each were approved by our sole shareholder, Principal Mutual Holding Company, prior to our initial public offering of Common Stock on October 22, 2001. The Principal Financial Group, Inc. Employee Stock Purchase Plan (as Amended and Restated Effective May 19, 2009) was approved by our shareholders on May 19, 2009. The Principal Financial Group, Inc. 2014 Stock Incentive Plan and the Principal Financial Group, Inc. 2014 Directors Stock Plan each were approved by our shareholders on May 20, 2014.

 

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(2)
Includes 5,299,713 options outstanding under the employee stock incentive plans, 586,709 performance shares of Common Stock under the employee stock incentive plans, 2,768,207 restricted stock units under the employee stock incentive plans, 367,241 restricted stock units under the directors stock plans, and 66,402 other stock-based awards under the Directors 2014 Stock Plan, including obligations associated with the Deferred Compensation Plan for Non-Employee Directors of Principal Financial Group, Inc.

(3)
The weighted-average exercise price relates only to outstanding stock options, not to outstanding performance shares of Common Stock, restricted stock units, units deferred in shares of Common Stock under the Long-Term Performance Plan, or other stock-based awards.

(4)
This number includes 1,369,481 shares of Common Stock remaining for issuance under the Principal Financial Group, Inc. Employee Stock Purchase Plan (as Amended and Restated Effective May 19, 2009); 6,550,281 shares of Common Stock available for issuance in respect of future awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares of Common Stock, performance units and other stock-based awards under the 2014 Stock Incentive Plan; and 113,595 shares of Common Stock available for issuance in respect of future awards of stock options, restricted stock, restricted stock units and other stock-based awards under the 2014 Directors Stock Plan.

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The Board of Directors recommends a vote FOR approval of the Amended and Restated Principal Financial Group,  Inc. Employee Stock Purchase Plan, as described above.


Executive Compensation

Contents:
Page
Compensation Discussion & Analysis ("CD&A") 33

2019 Company Performance Highlights

34

2019 Compensation Highlights

35

Compensation Program Philosophy and Policies

35

Summary of Compensation Elements

37

How we make Compensation Decisions

38

2019 Executive Compensation Decisions

40

Base Salary

41

Annual Incentive Compensation

41

Long-term Incentive Compensation

43

Timing of Stock Option Awards and Other Equity Incentives

45

Benefits

45

Change of Control and Separation Pay

46

Stock Ownership Guidelines

46

Hedging Policy

47

Repricing Policy

47

Claw Back Policy

47

Trading Policy

47

Gross-Up Policy

47

Human Resources Committee Report

47

Risk Assessment of Employee Incentive Plans

48

Compensation Tables


 

Summary Compensation Table

49

Grants of Plan Based Awards for Fiscal Year End December 31, 2019

51

Outstanding Equity Awards at Fiscal Year End December 31, 2019

52

Option Exercises and Stock Vesting

53

2019 CEO Pay Ratio

53

Pension Plan Information

54

Pension Distributions

56

Pension Benefits

56

Non-Qualified Deferred Compensation

57

Qualified 401(k) Plan and Excess Plan

57

Severance Plans

58

Change of Control Employment Agreements

59

Potential Payments Upon Termination Related to a Change of Control

61

Compensation Discussion and Analysis (CD&A)

The CD&A describes Principal Financial Group, Inc.'s Executive compensation objectives and philosophy. It also describes our 2019 compensation program and reviews the outcomes, including the Company's financial performance in 2019. Our "Named Executive Officers" in 2019 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

 

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    current position in 2017. She previously served as Executive Vice President and President of U.S. Insurance Solutions with overall accountability for individual life, non-qualified deferred compensation, individual disability and group benefits.

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.

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 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.

2019 Company Performance Highlights:

In 2019, Principal generated $1.4 billion of net income attributable to Principal Financial Group and $1.6 billion of non-GAAP operating earnings(1).

We deployed $2.1 billion of capital in 2019, or nearly 150% of net income. We take a balanced and disciplined approach to capital deployment—we deployed $1.2 billion of capital through strategic acquisitions, primarily the Institutional Retirement & Trust acquisition, and over $860 million of capital to shareholders through common stock dividends and share repurchases in 2019.

Over the course of 2019, assets under management increased $109 billion, or 17 percent, to a record $735 billion at year-end, reflecting favorable market performance and $17 billion of net cash flow. Additionally, we ended 2019 with $146 billion of AUM in our China joint venture and $898 billion of assets under administration in the Institutional Retirement and Trust business.

2019 was a good year and we remain confident in our diversified business model as well as our ability to execute on our strategy and consistently deliver above market growth to deliver long-term value for our shareholders.

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.

   


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

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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

2019 Compensation Highlights

In 2019, the Company's shareholders voted to approve the Company's Executive compensation program. Of the votes cast, 97% supported the Executive compensation program. The Company considered the shareholders' approval of the compensation program to be approval of the Company's compensation philosophy, which has not changed since that vote.

In 2019, Mr. Houston's base salary remained at $900,000. His annual incentive target increased from 350% to 375% and his long-term incentive target increased from 750% to 775%. His Principal Financial Group Incentive Pay Plan (PrinPay Plan) payout for 2019 was $3,375,000.

Based on our 2019 annual performance achievements, many of which are outlined above, 2019 Annual incentive payouts for Named Executive Officers averaged 99% 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 2017-2019 Performance Based RSUs ("PSUs") vested on December 31, 2019 and 87% of the target number of shares were paid out in February 2020, 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;

   


(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 shareholders.

(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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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.

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

    ü
    Independent Consultant

    ü
    Risk Review

    ü
    Emphasis on Variable Compensation

    ü
    Executive Ownership

    ü
    Prohibition on Hedging

    ü
    Clawback Policy

    ü
    Market Severance Protection

    ü
    Limited Perquisites

    ü
    No Repricing

    ü
    Tax and Accounting Efficiency

    ü
    No Gross Ups

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Summary of Compensation Elements:

 
Compensation
Component

 
Objective
 
Description and 2019 Highlights
 
  Base Salary   Provides fixed income based on the size, scope and complexity of the Named Executive Officers' role, historical performance and relative position compared to market pay information   In 2019, the Committee did not increase the base salaries payable to our Named Executive Officers, as detailed on page 41.  
  Annual Incentive
Compensation
  Motivates and rewards annual corporate performance as well as the Named Executive Officers' contribution to achieving our annual objectives.   A range of earnings opportunity, expressed as a percentage of base salary, is established for each Named Executive Officer. Actual bonuses depend on individual employee results and overall company performance and profitability, as outlined on pages 41-43.

Based on the Committee's assessment of performance, actual bonuses for 2019 averaged 99% of target as detailed on page 43.
 
  Long-Term
Incentive
Compensation
  Motivates and rewards long-term corporate performance as well as the Named Executive Officers' contribution to achieving our long-term objectives. Reinforces the link between the interests of the Named Executive Officers 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 2018 for the 2018-2020 Performance Cycle and in 2019 for the 2019-2021 Performance Cycle will vest based on performance scales for three-year average 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. The PSUs granted in 2020 for the 2020-2022 Performance Cycle will vest based on performance scales for two-year average ROE and Pre-Tax Return on Net Revenue, each weighted 50% over the performance period. Payout on the ROE metric will be modified based on two-year Book Value per Share versus certain threshold goals. The change in the performance period to two years is due to accounting changes effective January 1, 2022 for publicly traded companies which may result in significant variability of reported earnings each year for companies with significant life insurance and annuity businesses. For the 2020-2022 Performance Cycle, PSUs will continue to vest at the end of the three-year Performance Cycle. Details of the program are outlined on pages 43-45.
 

 

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Compensation
Component



 



Objective


 



Description and 2019 Highlights


 

          The PSUs granted in 2017 for the 2017-2019 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 2017-2019 Performance Cycle, the awards vested and paid out at 87% of the target number of PSUs based on our ROE performance of 13.5%, Pre-Tax Return on Net Revenue of 31.5%, and Book Value per Share of $46.44.  
  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. Named Executive Officers also participate in non-qualified retirement plans (defined benefit and defined contribution). Mr. Halter does 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 Named Executive Officers to focus on Company business with minimal disruption.   Named Executive Officers 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 a Named Executive Officer'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 page 46 for a discussion of our change of control and separation benefits. These benefits do not include excise tax gross  

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

Compensation Advisory Partners is selected and retained by the Committee to advise on the Executive compensation program. Compensation Advisory Partners also advises the Nominating and Governance Committee

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on compensation for non-employee Directors (see pages 21-24). 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.

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 Named Executive Officers 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 2019, 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 decisions4. Our Executives participate in the same broad-based employee benefit programs as other employees. Every two to three years, the Company's non-cash employee benefit programs are compared to a custom peer group representing both proxy peer group members and select employers we believe we compete for talent with, including several local employers.

Each year, the Committee reviews the total compensation paid to the Named Executive Officers 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. The information also is used in making compensation and compensation plan design decisions.

2019 Executive Compensation Decisions

In general, Principal's pay philosophy is to target the market median of the Peer Group for an 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 C for a complete list of these companies);

Corporate and individual performance on key initiatives;

Economic conditions;

Retirement benefits;

The CEO's compensation recommendations for Named Executive Officers;

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, CFO and other executive officers and former executive officers who were among the three most highly compensated executive officers 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

   


(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 C.

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change in the applicable federal income tax laws as it makes and implements decisions regarding compensation that will be 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 charts below show the 2019 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, linked to meeting our short-term and long-term financial and strategic goals and to the performance of the Company's stock over time.

CEO
At-Risk Pay Mix: CEO
At-Risk Pay Mix: Other NEOs

GRAPHIC


GRAPHIC


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. There were no changes to base salary for the Named Executive Officers in 2019.

Annual Incentive Compensation

Effective January 1, 2019, Named Executive Officers 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 corporate score up or down.

 

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The Committee set and approved the following target awards for Named Executive Officers in each of the past two years:


Annual Incentive Targets (as a percentage of base salary)

 
Named Executive Officer
 
2018
 
2019
 
Houston 350 % 375%
  Strable-Soethout   150 %   175%  
Dunbar(1) 174 % 400%
  Halter(2)   332 %   350%  
Valdés 100 % 110%
(1)
Mr. Dunbar's pro-rated target for 2018 was 174% (80% for January 1, 2018 through September 14, 2018 and 400% for September 15, 2018 through December 31, 2018).

(2)
Mr. Halter's pro-rated target for 2018 was 332% (325% for January 1, 2018 through September 14, 2018 and 350% for September 15, 2018 through December 31, 2018).

In establishing the target award opportunity for Messrs. Houston, 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.

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 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.

Final Annual Incentive Pay Award Determination

In determining final awards for PrinPay participants, the Committee uses the following approach:

Step 1: Review Operating Earnings goal versus Plan to determine initial award funding.

Step 2: Determine final PrinPay company score based on a review of performance against goals across multiple dimensions included in the Company's annual Balanced Scorecard (e.g., Financial Measures, Customer Measures, Internal Measures and Learning and Growth Measures, etc.)

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Step 3: Determine the individual performance modifier as shown below:

Individual Performance Modifier

The Individual Performance Modifier in the PrinPay Plan is used as a multiplier and is based on performance compared to 2019 goals. The Committee addressed each Named Executive Officer's performance against the individual performance objectives identified and approved individual performance modifier payouts as shown below:

 
Named Executive Officer
 
Individual Performance Modifier
 
Individual Performance Objectives
 
Houston 100 %

Non-GAAP Operating Earnings(1) and earnings per share

Capital Measure

Investments

Minimize Credit Loss

Total Company Revenue/Net Revenue

  Strable-Soethout   95 %  

Non-GAAP Operating Earnings(1) and earnings per share

Capital Measure

Investments

Total Company Revenue/Net Revenue

 
Dunbar 103 %

Non-GAAP Operating Earnings(1) and earnings per share

Capital Measure

Investments

Total Company Revenue/Net Revenue

  Halter   103 %  

Non-GAAP Operating Earnings(1) and earnings per share

Capital Measure

Investments

Total Company Revenue/Net Revenue

 
Valdés 95 %

Non-GAAP Operating Earnings(1) and earnings per share

Capital Measure

Investments

Principal International Net Revenue

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

Step 4: Calculate final award amounts

Name
2019
Salary

2019
Target

PrinPay
Score

Individual
Modifier

Final Award

Houston

$ 900,000 375% 100% 100% $ 3,375,000

Strable-Soethout

$ 595,500 175% 100% 95% $ 990,019

Dunbar

$ 600,000 400% 100% 103% $ 2,472,000

Halter

$ 575,000 350% 100% 103% $ 2,072,875

Valdés

$ 615,500 110% 100% 95% $ 643,198

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 49-50.

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.

 

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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.

2019 Long-Term Incentive Target & Grant (as % of base salary)
Named Executive Officer
Target %
Award Granted

Houston

775% 775%

Strable-Soethout

275% 275%

Dunbar

400% 400%

Halter

300% 295%

Valdés

225% 250%

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.

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.

After a threshold goal is achieved or exceeded(5), PSUs vest based on continued service and achieving an average ROE and Pre-Tax Return on Net Revenue(6), each weighted 50%, over a three-year period (with each three-year period treated as a "Performance Cycle").

In addition to achieving the ROE measure, there is also a Book Value per Share(7) threshold tied to the ROE performance measure, which is used to prevent the Company from achieving ROE by inappropriately reducing equity.

   


(5)
For the 2019 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")

    Operating ROE is defined as Non-GAAP Operating Earnings divided by common equity excluding accumulated other comprehensive income, other than foreign currency translation adjustment.

    Pre-tax operating income is defined as income from continuing operations before income taxes per the audited Consolidated Statements of Operations less net realized/unrealized capital gains (losses), less preferred stock dividends declared, less net income attributable to noncontrolling interest.

    Average operating ROE was selected because it reflects the efficient use of Company capital in generating profits. Average Pre-tax Return on Net Revenue was selected as a measure because it is common among asset management peers and reflects the efficient use of Company expenditures in generating profits.

(6)
Pre-tax return on net revenue is defined as pre-tax Non-GAAP Operating Earnings is divided by net revenue. Net revenue is defined as total operating revenue less benefits, claims, and settlement expenses less dividends to policyholders.

(7)
Book value per Share is defined as total ending common equity excluding other comprehensive income divided by the number of common shares outstanding end of year.

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Executives may defer the receipt of PSUs.

2019-2021 PSU Performance Scale
Performance Level
Threshold
Award

Target
Award

Maximum Award
(150% of
Target)

 
Payout (% of Target)(1) 50% 100% 150%  
Average ROE 7.5% 13.8% 17.9%  
Average Pre-tax RONR 27.9% 32.8% 37.7%  

If neither the ROE nor the OI threshold performance
objective is met, 
no PSUs will
be earned or paid out.


(1)
Straight line interpolation is used to determine awards for performance between threshold and target and between target and maximum.

The Book Value per Share threshold tied to ROE performance measure:

    If the average Book Value per Share is between $42.80 and $47.65, the ROE performance score will be reduced by 50%.

    If the average Book Value per Share is below $42.80, the ROE performance score will be reduced to 0%.

The PSUs granted in 2020 for the 2020-2022 Performance Cycle will vest based on performance scales for two-year average ROE and Pre-Tax Return on Net Revenue, each weighted 50% over the performance period. Payout on the ROE metric will be modified based on a two-year Book Value per Share versus threshold goals. The change in the performance period to two years is due to accounting changes effective January 1, 2022 for publicly traded companies which may result in significant variability of reported earnings each year for companies with significant life insurance and annuity businesses. For the 2020-2022 Performance Cycle, PSUs will continue to vest at the end of the three-year Performance Cycle.

Timing of Stock Option Awards and Other Equity Incentives

Annual grants of stock options and PSUs for Principal Executives are determined by the Committee at its February meeting which occurs following the release of the prior year's results. The Committee formalized its long-standing practices by adopting a policy in 2006 regarding granting stock options and other equity awards. Under this policy, the grant date for all stock options and other stock-based awards shall never be earlier than the date of approval, and shall be:

For all annual awards to Executives, the date of approval by the Committee;
For new employees and promotions, the later of the date of approval or the employee's hire/promotion date;
In the event of an award connected with an established stock program for non-Executives, the later of the date of approval or the grant date established by the stock program; and
For any other awards, the date of approval.

Benefits

The Named Executive Officers participate in Principal Life's broad-based employee benefits program, including:

A qualified pension plan (except Messrs. Dunbar and Halter(9));
A 401(k) plan;
Group health, dental, vision and disability coverage and life insurance;
A discounted employee stock purchase plan;
Flexible time off; and
Flexible spending account plans.

Principal Life also offers all Named Executive Officers (except Messrs. Dunbar and Halter) a non-qualified defined contribution plan ("Excess Plan") and a defined benefit non-qualified retirement plan ("NQDB"). These benefits are offered to attract and retain talent and provide long-term financial security to employees. The NQDB helps the Company attract midcareer Executives and retain Executives by providing competitive retirement benefits. The NQDB is coordinated with the qualified pension plan and is designed to restore benefits that otherwise would accrue to Executives in the absence of Tax Code limitations on the qualified pension plan. The narrative to the Pension Benefits Table on pages 54-56 provides additional information about the NQDB and the qualified pension plan. Principal Life maintains the Excess Plan to help attract and retain Executives by allowing Executives to save for retirement and to provide matching contributions on those savings, without regard to the limitations imposed by

   


(9)
On January 1, 2010, Executives in the Company's asset management operations stopped participating in the qualified pension plan, NQDB Plan or Excess Plan as these are not common benefits for executives in that industry. This change also applied to other investment professionals.

 

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the Tax Code on 401(k) plans. The narrative to the Non-Qualified Deferred Compensation Table on page 55 provides additional information about the Excess Plan.

The value of the retirement and savings plans for Non-Grandfathered Participants (see page 55) is targeted to be, in the aggregate, slightly above the median of diversified financial services companies because a large portion of the Company's business centers on the sale of retirement products. The defined benefit pension plan for Grandfathered Choice Participants (see page 54) has a market value above the median and the 401(k) plan match for Grandfathered Choice Participants is below market median. These benefits were also originally designed to be slightly above market median to attract and retain employees.

All other benefits are targeted at market median in the aggregate, which supports the Company's benefit strategy and aids in attracting and retaining talent.

Change of Control and Separation Pay

The Committee believes it is in the best interests of Principal and its shareholders to:

Assure that Principal will have the continued service of its Executives;
Reduce the distraction of these Executives that would result from the personal uncertainties caused by a pending or threatened Change of Control;
Encourage the Executives' full attention and dedication to Principal; and
Provide the Executives with compensation and benefits upon a termination related to a Change of Control that are competitive with those of similar businesses.

For these reasons, Principal has entered into Change of Control Employment Agreements with each of the Executives. These agreements would help align the financial interests of management with the Company, particularly when the acquisition would result in termination of the Executive's employment. These Change of Control Employment Agreements are based on market practice and do not affect other components of the Executives' compensation. When entering into these agreements, the Committee reviewed survey data and practices of other public insurance and financial services companies. The Committee continues to review market practices in this area for potential changes in these agreements.

All benefits provided to the Executives upon a Change of Control are paid after both a Change of Control and qualifying termination of employment have occurred (sometimes referred to as a double trigger), except that the then current value of the Executive's Excess Plan and NQDB will be paid upon a Change of Control to ensure that the value of those plans is not reduced if the Company is sold. These agreements do not provide excise tax gross ups. See pages 59-61 for details.

The Company has a severance plan to provide benefits to employees whose employment is terminated by the Company due to a reorganization or reduction in the workforce. Additional payments may be permitted in some circumstances as a result of negotiations with Executives, particularly when Principal requests additional covenants from the Executives.

Stock Ownership Guidelines

Executives are required to own a meaningful amount of stock in the Company to ensure their interests are aligned with the shareholders' interests and with the Company's long-term performance. Once the Executive achieves the required stock ownership level based on market value, the ownership requirement remains at the number of shares owned at the time, regardless of subsequent changes in stock price or salary. Upon promotion, the Executive is required to meet the next level of stock ownership.

Until the ownership guideline is met, Executives are required to retain a portion of the "net profit shares" resulting from equity based long-term incentive plan grants. Net profit shares are the shares remaining after payment of the option exercise price and taxes owed at time of exercise, vesting of RSUs or earn out of performance shares. Effective January 1, 2019, ownership requirements increased from 5 times to 7 times base salary for the Chairman and 3 times to 4 times base salary for Division Presidents and Executive Vice Presidents. Executives must meet the

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new requirements within five years of the date of the change. The percentage of net profit shares that must be retained until ownership requirements are met are shown below:

Executive Level
Retention
Ratio

Multiple of
Base Salary

Chairman (Houston)

75% 7 times

Division Presidents & Executive Vice Presidents (Dunbar, Halter, Strable-Soethout & Valdés)

50% 4 times

All Named Executive Officers comply with these guidelines.

Hedging Policy

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.

Repricing Policy

Principal has not repriced underwater stock options and we will not do so without shareholder approval.

Claw Back Policy

The Committee has adopted a compensation recovery policy that applies to Executives. Principal can recover any 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.

Trading Policy

Principal prohibits Directors and employees, including Executives, from:

Purchasing Principal securities "on margin" (i.e., with the proceeds of a loan from a brokerage firm when the loan is secured by Principal securities), except for the exercise of employee stock options.
Short sales;
Trading in put or call options; and
Purchasing, directly or through a designee, 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.

Gross-Up Policy

Executives do not receive any income tax gross-ups, except that all employees, including Executives, receive an income tax gross-up in connection with benefits provided with relocation.

Human Resources Committee Report

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and, based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Betsy J. Bernard, Chair
Michael T. Dan

 

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C. Daniel Gelatt
Scott M. Mills
Diane C. Nordin
Elizabeth E. Tallett

Risk Assessment of Employee Incentive Plans

The Human Resources Compensation Department and the chief risk officers in the business units conducted a review and analysis of the Company's employee incentive compensation plans to determine whether the plans are reasonably likely to have a material adverse effect on the Company and reviewed their processes and conclusions with the Chief Risk Officer. The following factors, among others, were assessed:

Plan design;

Performance metrics and quality of goal setting;

Administrative procedures, including governance practices;

Plan compliance, communications and disclosures;

Potential risks created by the plans;

Risk control factors and their effectiveness; and

Inherent and residual risk ratings.

Some key factors that mitigate risks of the Company's incentive plans are the Company's stock ownership guidelines for Executives, the compensation recovery policy and the Human Resources Committee's ability to exercise its judgment in evaluating the quality of performance achievements when determining earned compensation. Employees are prohibited from purchasing the Company's securities on margin (except for the exercise of stock options), engaging in short sales or trading in any put or call options; and purchasing, directly or through a designee, any financial instrument (including prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of Company securities.

A summary of the assessment process and conclusions was reviewed with the Committee. Based on this analysis, the Company has determined that its employee incentive compensation plans are designed to encourage behaviors that create and maintain shareholder value, do not encourage excessive risk, and are not reasonably likely to have a material adverse effect on Principal.

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Summary Compensation Table

The following table sets forth the compensation paid to the Named Executive Officers for services provided to the Company and its subsidiaries during 2017, 2018 and 2019.

Name
  Year
  Salary(1)
  Bonus
  Stock
Awards(2)(3)

  Option
Awards(2)

  Non Equity
Incentive
Compensation(4)

  Change in
Pension
Value
and Non-
Qualified
Deferred
Compensation
Earnings(5)

  All Other
Compensation(6)

  Total(7)
 

Houston

  2019   $ 900,000   $ 0   $ 3,487,482   $ 3,487,500   $ 3,375,000   $ 3,277,616   $ 220,453   $ 14,748,051  

    2018   $ 900,000   $ 0   $ 3,375,009   $ 3,375,034   $ 2,544,000   $ 1,762,655   $ 270,319   $ 12,227,017  

  2017   $ 880,769   $ 0   $ 2,474,976   $ 2,475,016   $ 3,339,000   $ 2,552,608   $ 236,367   $ 11,958,736  

Strable-Soethout

    2019   $ 595,500   $ 0   $ 818,807   $ 818,800   $ 990,019   $ 1,389,310   $ 79,569   $ 4,692,005  

  2018   $ 589,058   $ 0   $ 818,816   $ 818,829   $ 721,000   $ 411,396   $ 94,732   $ 3,453,831  

    2017   $ 556,808   $ 0   $ 772,759   $ 772,772   $ 938,000   $ 689,264   $ 62,971   $ 3,792,574  

Dunbar

  2019   $ 600,000   $ 0   $ 1,199,993   $ 1,200,000   $ 2,472,000   $ 639,025   $ 65,534   $ 6,176,552  

    2018   $ 545,769   $ 0   $ 599,045   $ 599,049   $ 766,833   $ 0   $ 53,727   $ 2,564,423  

  2017   $ 507,000   $ 0   $ 633,764   $ 633,757   $ 427,490   $ 615,214   $ 50,148   $ 2,867,373  

Halter

    2019   $ 575,000   $ 0   $ 848,113   $ 848,150   $ 2,072,875   $ 669,048   $ 14,250   $ 5,027,436  

  2018   $ 544,115   $ 0   $ 974,607   $ 524,799   $ 1,623,000   $ 0   $ 13,875   $ 3,680,396  

Valdés

    2019   $ 615,500   $ 0   $ 769,380   $ 769,400   $ 643,198   $ 176,219