Dear Shareholder:
Every public corporation has a set of practices and procedures by which decisions affecting shareholders and
customers are made. State law establishes a framework for corporate decision-making that protects shareholders and
requires management and the Board of Directors to operate in the best interests of the Company. This is very
important. Yet ensuring the Company is governed effectively, responsibly and with integrity goes way beyond simply
observing legal requirements.
Excellent Corporate Governance has been important to Principal® for a
very long time. Ensuring the organization is governed well through effective, independent oversight of management
and Company operations has been an important part of our heritage and our success. For more than 140 years, each
generation of management has been committed to focusing on what is good for those we serve and to operating with
integrity.
The Nominating and Governance Committee regularly reviews our governance policies and practices and makes
recommendations concerning them to the Board of Directors. The Board of Directors of Principal Financial Group, Inc.
takes action based on what is best for the effective oversight and governance of the Company and for making
important decisions that affect those Principal exists to serve.
We invite you to review the corporate governance practices of Principal set forth below:
Board of Directors
Role of Board of Directors
The business of the Company is managed under the direction of the Board. The Board selects, and provides advice and
counsel to, the Chief Executive Officer and generally oversees management. The Board reviews and discusses the
strategic direction of the Company, oversees management's execution and performance of its risk management
responsibilities, including risks related to cyber security threats, and monitors the Company’s performance against
goals the Board and management establish.
Qualifications and responsibilities
The Nominating and Governance Committee is responsible for assessing the appropriate mix of skills and
characteristics required of Board members in the context of the current composition of the Board and the needs of
the Company. The Committee periodically uses an outside consultant to help the Committee evaluate the expertise,
backgrounds and competencies of the Directors in view of the current strategic initiatives and risk factors of the
Company. The Board particularly values experience as a current or former CEO or other senior executive in financial
services, in international business and with financial management or accounting responsibilities. The Committee
looks for competencies like strategic-orientation, results-orientation and comprehensive decision-making. Diversity
of the Board as a whole is a valued objective. In evaluating candidates, the Committee assesses personal and
professional ethics, integrity, values and ability to contribute to the Board. Directors must be willing to devote
the required amount of time to prepare for, attend and actively participate in Board and Board Committee meetings
and to represent the interests of all shareholders. The Committee gathers input from other Board members and the
Chief Executive Officer, retains search firms and manages the process of identifying, developing and interviewing
candidates who have specific qualifications and competencies consistent with criteria approved by the Board. The
Chairman of the Board, the Chair of the Nominating and Governance Committee, the Lead Director and at least one
other Board member personally interview finalist candidates before the Nominating and Governance Committee
recommends them to the Board of Directors for action.
Majority voting
Directors are elected by the majority of votes cast in uncontested Director elections. If an incumbent Director is
not elected, and no successor is elected, the incumbent Director must submit a resignation notice and the Board of
Directors will decide whether to accept that resignation. The Board’s decision and reasons for its decision will be
publicly disclosed within 90 days of certification of the election results.
Independence
The Board has determined that each of the current Directors is independent except for the CEO/Chair, who is the only
member of management who is also a Director. The term “independent” means the Board has determined the Director has
no material relationship with the Company as defined in the Director Independence Standards (PDF).
Lead Director
The Board has appointed a Lead Director because it is important that the independent Directors have a leader in
addition to the Chairman of the Board, who leads the Board generally. The Board regularly reviews the effectiveness
of this shared leadership. The Nominating and Governance Committee recommends an independent Director for election
by the Board as Lead Director. The Lead Director and Chairman jointly make decisions on the Board agenda and
information for Board meetings. 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 leads the independent Directors
in their executive sessions and provides advice and input to the CEO based on those discussions. The Lead Director
leads the Board’s annual self-evaluation of its performance. The Lead Director is responsible to call a special
Board meeting in the event the Chairman and CEO is unable to act for any reason.
Number
The Nominating and Governance Committee has responsibility for periodically reviewing Board size, which over the last
several years has been generally maintained at 10 to 13 Directors.
Conflicts of interest
The Nominating and Governance Committee monitors potential Director and officer conflicts of interest under the
Company’s Global Code of Conduct
(PDF). Any waiver of a provision of the Global Code of Conduct for any executive officer or any Director
requires review by the Audit Committee and approval of the Board of Directors.
Related person transactions
The Nominating and Governance Committee has adopted a related person transactions
policy (PDF) to help assure that officers, Directors or members of their immediate families will not
improperly benefit from a transaction with The Principal. This policy applies to any transaction with a financial
aspect in which the Company or a subsidiary is a participant and in which a related person has a direct or indirect
interest. Related persons include the Company’s Directors and executive officers (and their immediate family
members) and any holder of more than five percent of the Company’s common stock (and their immediate family
members). The policy lists transactions that are prohibited, and sets forth procedures and requirements for approval
by the Nominating and Governance Committee of appropriate business transactions.
Review of Director performance
The Nominating and Governance Committee reviews the performance of each Director whose term is expiring when
considering whether his/her nomination for re-election should be recommended to the Board. In addition, the
Committee periodically reviews the performance of each other Director. The Committee receives input from the other
Directors and an outside consultant, when one is retained by the Committee, as a part of the reviews. Director
performance and capabilities are evaluated against competencies and performance factors the Nominating and
Governance Committee has identified as necessary and desirable for the Company’s Board. The Nominating and
Governance Committee considers the same qualification standards as it would for a new Director candidate, including
current employment responsibilities. Following the Committee’s discussion, the outside consultant, when one is
retained by the Committee, or the Committee Chair provides performance feedback to the Directors who were evaluated.
Tenure and Retirement from the Board
The Board believes it is in the best interest of the Company that (a) the term of each Director shall not extend
beyond the annual meeting following the Director’s 72nd birthday; (b) no more than one retired Principal CEO shall
serve on the Board at any one time; and (c) a Director who experiences a significant change in his or her personal
circumstances, including a change in employment or major responsibilities from those held when most recently
elected or re-elected to the Board or other circumstances that reasonably may have an adverse effect on the
Director’s service on the Board or the Company’s business or reputation, shall submit their resignation to the
Chairman of the Board. The Chairman of the Board will consult with the Chair of the Nominating and Governance
Committee and they will decide whether such resignation will be presented to the Board of Directors for action.
Term limits
The Board believes that a thorough Director performance review process and healthy Board refreshment practices better
serve Principal and its stakeholders than would mandatory term limits. Strict term limits would mean losing the
ongoing contribution of Directors who have gained increasing insight into the Company’s industry, strategies and
operations through their years of service.
Director orientation and ongoing education
New Directors participate in an orientation program, which includes review of materials regarding the Company’s
strategies, operations and financial reporting, and meetings with our Chief Executive Officer, Chief Financial
Officer, Chief Risk Officer, General Counsel and the heads of our operations. Directors must complete a formal
continuing education program once every three years. Additional education related to the businesses of the Company
or specific issues is provided to the Directors by management on a regular basis and at the request of the Board or
a Board Committee. The Board also benefits from the insights of outside experts who periodically make presentations
on strategic topics of interest at the Board’s annual retreat.
Chief Executive Officer evaluation, compensation, and succession planning
Annual and ongoing evaluation
The Human Resources Committee annually evaluates the performance of the CEO in leading the organization, taking into
account the CEO’s performance against corporate and individual goals agreed upon by the Committee and the CEO during
the prior year’s evaluation process. The Human Resources Committee determines and approves the CEO’s total
compensation, which includes base salary and annual and long-term incentive opportunities and awards, benefits and
perquisites. The other independent members of the Board discuss and provide input to the Human Resources Committee
on the evaluation and compensation of the CEO.
Independent compensation consultant
The Human Resources Committee has retained a compensation consultant to advise the Committee on CEO and senior
management compensation. The Committee determined that the consultant was independent after taking into
consideration all relevant factors. The independent compensation consultant does not and would not be allowed to
perform services for management. The independent compensation consultant receives no compensation from the Company
other than for its work in advising the Board and has no other relationships with the Company.
Succession planning
The CEO and the Human Resources Committee regularly discuss management development and succession, including
succession for the position of CEO. The CEO makes a formal presentation on this subject at least once each year to
the full Board of Directors. Succession planning is a responsibility of the entire Board and all members
participate. In addition, the Company has an emergency succession plan for the CEO that is reviewed by the Board
annually.
Committees of the Board of Directors
Audit, Finance, Human Resources, and Nominating and Governance Committees
The Board has Audit (PDF) and Human Resources Committees
(PDF), both of which are required to be, and are, composed entirely of independent Directors. The Board has
a Nominating and Governance Committee (PDF), not required by the rules of stock exchange on
which the Company’s common stock currently is listed (the “Exchange”), which, pursuant to its charter, must be, and
is, composed entirely of independent Directors. In addition, the Board has a Finance Committee (PDF), not
required by the Exchange rules, which, pursuant to its charter, must be composed of a majority, and is currently
composed entirely, of independent Directors. Each Committee has a written charter that complies with the Exchange’s
listing standards, if applicable, and is regularly reviewed and updated in conjunction with the Committee’s annual
performance review performed by its members. The Chair of each Committee, in consultation with management,
determines the Committee’s agenda and the frequency and length of Committee meetings. Each Committee has authority
to retain and negotiate the terms of retention of such independent consultants and advisers as it deems advisable,
has access to any members of management and meets in executive session as often as it deems advisable.
Committee assignments and rotation
The Nominating and Governance Committee makes recommendations to the Board of Directors on Committee member and Chair
assignments and reviews Committee assignments at least annually. The Board does not believe that rotation should be
mandated at strict intervals, in view of the experience and expertise needed on the Board’s Committees.
Board deliberations, performance, and compensation
Board and committee meetings
The Board of Directors has at least four in-person meetings per year, with sufficient time at each meeting to devote
to important matters. In addition to the regular quarterly meetings, the Board holds an annual strategic retreat
devoted to an in-depth review and dialogue on topics selected by the Board. The Audit, Finance, Human Resources and
Nominating and Governance Committees generally meet at the time of regular Board meetings and at other times as
needed, with the Audit Committee in particular meeting several additional times per year. These meetings are held
in-person absent exigent circumstances.
Meeting materials
The Board is fully informed in advance of all major proposals. Information and materials important to the Board’s
understanding of the business and issues affecting the Company are distributed to all Directors in preparation for
meetings and promptly between meetings as needed.
Access to management and independent advisers
Members of senior management attend portions of the Company’s Board and Board Committee meetings, and the Directors
and the senior management interact at Board meetings. The Board and its Committees have direct access to management,
employees and independent advisers as they deem necessary and appropriate.
Executive sessions
The independent Directors generally meet in executive session both at the start and end of each regular Board meeting
and at other times as they deem necessary. These sessions are led by the Lead Director. The Board believes that
executive sessions are most productive if they are followed up by a discussion with the CEO, and so regularly
engages with the CEO in such discussions.
Performance evaluation
The Board annually conducts a self-evaluation regarding its effectiveness. In addition, the Audit, Finance, Human
Resources and Nominating and Governance Committees each undertake an annual self-evaluation of their performance and
report the results to the Board.
Board compensation
The Nominating and Governance Committee is responsible to review and recommend action by the Board with respect to
Director compensation for service on the Board and Board Committees. The Nominating and Governance Committee seeks
input and advice from an independent compensation consultant before making recommendations to the Board, including
information on competitive practice and the appropriate mix of cash and stock-based compensation. Restricted Stock
Units granted to the Directors are subject to mandatory deferral until the termination of the Director’s service
with the Board. Our philosophy is to pay Board compensation at about the median of other financial services
companies with which we compare ourselves.
Confidentiality
In order to facilitate open discussions, the Board believes maintaining confidentiality of information and
deliberations is imperative. Each Director has an obligation to maintain the confidentiality of information received
in connection with his or her service as a Director or Committee member.
Stock ownership guidelines
Board and management
The Board believes it is important for Directors as well as executives to have a meaningful ownership interest in the
Company’s stock. The Board has adopted a guideline that Directors own an amount of Company stock equal to five times
the annual Board cash retainer within five years of joining the Board. Once the ownership level is met, the Director
will not need to make additional share purchases because of a change in stock price, as long as any reduction in the
level of ownership is not the result of a sale. The Board has also adopted minimum stock ownership guidelines for
the Company’s executives in the following amounts: seven times base salary for the CEO, four times base salary for
Division Presidents and Executive Vice Presidents and two times base salary for Senior Vice Presidents. Executives
are required to retain a significant percentage of equity-based long-term incentive awards until this ownership
requirement is satisfied.
Communication with shareholders and others
How to Contact the Board
The Board’s policy is that management speaks for the Company. Anyone who wishes to communicate with Directors should
send an e-mail message to the Lead Director at the Investor Relations section of the Company’s website at principal.com or address a written communication to the
secretary of the Board of Directors who will forward the communication to the Lead Director. The address is: Natalie
Lamarque, Executive Vice President, General Counsel and Secretary, Principal Financial Group, Des Moines, IA
50392-0300.