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TABLE OF CONTENTS
EXECUTIVE COMPENSATION

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

Filed by a Party other than the Registrant o

Check the appropriate box:

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Preliminary Proxy Statement

o

 

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

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

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)

Payment of Filing Fee (Check the appropriate box):

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No fee required.

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
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Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        
 
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GRAPHIC

April 8, 2015

Dear Shareholder:

              You are cordially invited to attend the annual meeting of shareholders on Tuesday, May 19, 2015, at 9:00 a.m., Central Daylight Time, at 750 Park, Des Moines, Iowa.

              The notice of annual meeting and proxy statement provide an outline of the business to be conducted at the meeting. I will also report on the progress of the Company during the past year and answer shareholder questions.

              We encourage you to read this proxy statement and vote your shares. You do not need to attend the annual meeting to vote. You may complete, date and sign 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.

Distribution of annual meeting materials

              As we've done in the past, The Principal is taking advantage of the Securities and Exchange Commission's rule that allows companies to furnish proxy materials for the annual meeting via the Internet to registered shareholders. For each shareholder selecting to receive these materials electronically in the future, the Principal Financial Group and the Arbor Day Foundation will plant the same number of trees in a U.S. forest. In 2014, 1,042 trees were planted.

    Sincerely,

 

 


SIGNATURE
    LARRY D. ZIMPLEMAN
Chairman and Chief Executive Officer

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PRINCIPAL FINANCIAL GROUP, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 19, 2015



              The annual meeting of shareholders of Principal Financial Group, Inc. (the "Company") will be held at 750 Park, Des Moines, Iowa, on Tuesday, May 19, 2015, at 9:00 a.m., Central Daylight Time. Matters to be voted on are:

              These items are fully described in the proxy statement, which is part of this notice. The Company has not received notice of other matters that may be properly presented at the annual meeting.

              Shareholders of record at the close of business on March 23, 2015, are entitled to vote at the meeting. It is important that your shares be represented and voted at the meeting. Whether or not you plan to attend the meeting, please vote in one of the following ways:

              Shareholders will need to register at the meeting and present photo identification to attend the meeting. If your shares are not registered in your name (for example, you hold the shares through an account with your stockbroker), you will need to bring proof of your ownership of those shares to the meeting in order to register. You should ask the broker, bank or other institution that holds your shares to provide you with either a copy of an account statement or a letter that shows your ownership of Principal Financial Group, Inc. common stock on March 23, 2015. Please bring that documentation to the meeting to register.

    By Order of the Board of Directors

 

 


SIGNATURE
    KAREN E. SHAFF
Executive Vice President, General Counsel and Secretary
April 8, 2015    
    Important Notice Regarding Availability of Proxy Materials for the Shareholder Meeting to be held on May 19, 2015: The 2014 Annual Report, 2015 Proxy Statement and other proxy materials are available at www.investorvote.com. Your vote is important! Please take a moment to vote by Internet, telephone or proxy card as explained in the How Do I Vote sections of this document.

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TABLE OF CONTENTS

Questions and Answers About the Annual Meeting   4
Proposal One — Election of Directors   8
Corporate Governance   14

Board Leadership Structure

  14

Role of the Board of Directors in Risk Oversight

  14

Majority Voting

  15

Director Independence

  15

Certain Relationships and Related Transactions

  16

Board Meetings

  17

Corporate Code of Business Conduct and Ethics

  17

Board Committees

  17

Audit Committee Report

  19

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

  20
Directors Compensation   22

Fees Earned by Directors in 2014

  23

Deferral of Cash Compensation

  23

Restricted Stock Unit Grants

  23

Director Perquisite and Reimbursement of Expenses

  24

Directors' Stock Ownership Guidelines

  24
Executive Compensation   25

Compensation Discussion and Analysis

  25

Summary Compensation Table

  44

Grants of Plan Based Awards for Fiscal Year End December 31, 2014

  46

Outstanding Equity Awards at Fiscal Year End December 31, 2014

  47

Option Exercises and Stock Vesting

  48

Pension Plan Information

  49

Pension Benefits

  51

Non Qualified Deferred Compensation

  51
Payments Upon Termination   54

Employment Agreement

  54

Severance Plans

  54

Change of Control Employment Agreements

  54

Potential Payments Upon a Termination Related to a Change of Control

  57
Proposal Two — Advisory Vote to Approve Named Executive Officer Compensation   58
Proposal Three — Ratification of Appointment of Independent Registered Public Accountants   59

Audit Fees

  59

Audit Related Fees

  59

Tax Fees

  59

All Other Fees

  59
Security Ownership of Certain Beneficial Owners and Management   60

Section 16(a) Beneficial Ownership Reporting Compliance

  63
Appendix A Executive Compensation Benchmarking Study Participants   A-1

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PROXY STATEMENT

PRINCIPAL FINANCIAL GROUP, INC.
750 PARK
DES MOINES, IOWA 50392-0100

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Why didn't I receive a copy of the paper proxy materials?

              The Securities and Exchange Commission ("SEC") rules allow companies to deliver a notice of Internet availability of proxy materials to shareholders and provide Internet access to those proxy materials. Shareholders may obtain paper copies of the proxy materials free of charge by following the instructions provided in the notice of Internet availability of proxy materials.

Why did I receive notice of and access to this proxy statement?

              The Board of Directors ("Board") of Principal Financial Group, Inc. ("Company") is soliciting proxies to be voted at the annual meeting of shareholders to be held on May 19, 2015, at 9:00 a.m., Central Daylight Savings Time, at 750 Park, Des Moines, Iowa, and at any adjournment or postponement of the meeting ("Annual Meeting"). When the Board asks for your proxy, it must send or provide you access to proxy materials that contain information required by law. These materials were first made available, sent or given to shareholders on April 8, 2015.

What is a proxy?

              It is your legal designation of another person to vote the stock you own. The other person is called a proxy. When you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. The Company has designated three of the Company's officers to act as proxies for the 2015 Annual Meeting: Timothy M. Dunbar, Executive Vice President and Chief Investment Officer; Terrance J. Lillis, Executive Vice President and Chief Financial Officer; and Karen E. Shaff, Executive Vice President, General Counsel and Secretary.

What will the shareholders vote on at the Annual Meeting?

Will there be any other items of business on the agenda?

              The Company does not expect any other items of business because the deadline for shareholder proposals and nominations has passed. However, if any other matter should properly come before the meeting, the people authorized by proxy will vote according to their best judgment.

Who can vote at the Annual Meeting?

              Shareholders as of the close of business on March 23, 2015 ("Record Date") can vote at the Annual Meeting.

How many votes do I have?

              You will have one vote for every share of Company common stock ("Common Stock") you owned on the Record Date.

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What constitutes a quorum?

              One third of the outstanding shares of Common Stock as of the Record Date. On the Record Date, there were 294,681,997 shares of Common Stock outstanding. A quorum must be present, in person or by proxy, before any action can be taken at the Annual Meeting, except an action to adjourn the meeting.

How many votes are required for the approval of each item?

What are Broker Non votes?

              If your shares are held in a brokerage account, your broker will ask you how you want your shares to be voted. If you give your broker directions, your shares will be voted as you direct. If you do not give directions, the broker may vote your shares on routine items of business, but not on non routine items. Proxies that are returned by brokers because they did not receive directions on how to vote on non routine items are called "broker non votes."

How do I vote by proxy?

              Shareholders of record may vote by mail, by telephone or through the Internet. Shareholders may vote "for," "against" or "abstain" from voting for each of the Director nominees, the advisory vote to approve named executive officer compensation, and the proposal to ratify the appointment of the independent auditors.

How do I vote shares that are held by my broker?

              If you own shares held by a broker, you may direct your broker or other nominee to vote your shares by following the instructions that your broker provides to you. Most brokers offer voting by mail, telephone and through the Internet.

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How do I vote in person?

              If you are going to attend the Annual Meeting, you may vote your shares in person. However, we encourage you to vote in advance of the meeting by mail, telephone or through the Internet even if you plan to attend the meeting.

How do I vote my shares held in the Company's 401(k) plan?

              The trustees of the plan will vote your shares in accordance with the directions you provide by voting on the voting instruction card or the instructions in the email message that notified you of the availability of the proxy materials. Shares for which voting instructions are not received are voted in the discretion of the trustees.

How are shares held in the Demutualization separate account voted?

              The Company became a public company on October 26, 2001, when Principal Mutual Holding Company converted from a mutual insurance holding company to a stock company (the "Demutualization") and the initial public offering of shares of the Company's Common Stock was completed. The Company issued Common Stock to Principal Life Insurance Company ("Principal Life"), and Principal Life allocated this Common Stock to a separate account that was established to fund policy credits received as Demutualization compensation by certain employee benefit plans that owned group annuity contracts. Although Principal Life will vote these shares, the plans may give Principal Life voting directions. A plan may give voting directions by following the instructions on the voting instruction card or the instructions in the message that notified you of the availability of proxy materials. Principal Life will vote the shares as to which it received no direction in the same manner, proportionally, as the shares in the Demutualization separate account for which it has received directions.

Who counts the votes?

              Votes will be counted by Computershare Trust Company, N.A.

What happens if I do not vote on an issue when returning my proxy?

              If no specific instructions are given, proxies that are signed and returned will be voted as the Board of Directors recommends:

How do I revoke my proxy?

              If you hold your shares in street name, you must follow the instructions of your broker or bank to revoke your voting instructions. Otherwise, you can revoke your proxy or voting instructions by voting a new proxy or instruction card or by voting at the meeting.

What should I do if I want to attend the Annual Meeting?

              Please bring photo identification and, if your stock is held by a broker or bank, evidence of your ownership of Common Stock as of March 23, 2015. The notice of Internet availability of proxy materials you received in the mail, a letter from your broker or bank or a photocopy of a current account statement will be accepted as evidence of ownership.

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How do I contact the Board?

              The Company has a process for shareholders and all other interested parties to send communications to the Board through the Lead Director. You may contact the Lead Director of the Board through the Investor Relations section of the Company's website at www.principal.com, or by writing to:

              All emails and letters received will be categorized and processed by the Company's Secretary and then sent to the Company's Lead Director.

              The Company's next annual meeting is scheduled for May 17, 2016. Proposals should be sent to the Company's Secretary. Proposals to be considered for inclusion in next year's proxy statement must be received by December 10, 2015. In addition, the Company's By-Laws provide that any shareholder wishing to propose any other business at the annual meeting must give the Company written notice between January 19, 2016 and February 23, 2016. That notice must provide other information as described in the Company's By-Laws, which are on the Company's website, www.principal.com.

What is "householding?"

              We send shareholders of record at the same address one copy of the proxy materials unless we receive instructions from a shareholder requesting receipt of separate copies of these materials.

              If you share the same address as multiple shareholders and would like the Company to send only one copy of future proxy materials, please contact Computershare Trust Company, N.A. at 866-781-1368, or P.O. Box 43078, Providence, RI 02940-3078. You can also contact Computershare to receive individual copies of all documents.

Where can I receive more information about the Company?

              We file reports and other information with the SEC. This information is available on the Company's website at www.principal.com and at the Internet site maintained by the SEC at www.sec.gov. You may also contact the SEC at 1-800-SEC-0330. The Audit, Finance, Human Resources and Nominating and Governance Committee charters, the Company's Corporate Governance Guidelines, and the Corporate Code of Business Conduct and Ethics are also available on the Company's website, www.principal.com.

              The Board urges you to exercise your right to vote by using the Internet or telephone or by returning the proxy or voting instruction card.

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PROPOSAL ONE — ELECTION OF DIRECTORS

              The Board is divided into three classes with each class having a three year term. All of the nominees are currently Directors of the Company. Richard L. Keyser will retire from the Board effective as of the 2015 Annual Meeting. He is not eligible for reelection because the Board has a policy requiring that each Director's tenure shall not extend beyond the annual meeting following the Director's 72nd birthday. In addition, Luca Maestri has decided not to stand for re-election to the Board due to his other professional responsibilities.

Nominees for Class II Directors With Terms Expiring in 2018


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Roger C. Hochschild
Age: 49
Director Since: March 18, 2015
Committees: Audit and Human Resources (effective May 18, 2015)
Public Directorships/Past 5 Years: None

Mr. Hochschild has been the 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. He served as Chief Marketing Officer of Discover Financial Services from 1998 to 2001. He served as a Senior Executive Vice President of MBNA America Bank from 1994 to 1998. He has been a Director of Student Loan Corporation since December 31, 2010.

The Nominating and Governance Committee used a search firm to identify and recruit Mr. Hochschild.

SKILLS AND QUALIFICATIONS: Mr. Hochschild has executive level experience in asset and investment management, retail consumer services, executive compensation, financial services, marketing, mergers & acquisitions, product development, risk management and strategic planning. He holds a bachelor's degree in economics from Georgetown University and an M.B.A. from the Amos Tuck School at Dartmouth College.

 


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Daniel J. Houston
Age: 53
Director since: November 25, 2014
Public Directorships/Past 5 Years: Catalyst Health Solutions, Inc, 2005-2012

Mr. Houston has been President and Chief Operating Officer of the Company since November 25, 2014. He joined the Company in 1984 and has held a number of management positions in the Company. He was named Executive Vice President in 2006, and President of Retirement and Investor Services in 2008. He became President-Retirement, Insurance and Financial Services in 2009.

He is active on a number of boards, including the Partnership for a Healthier America, Employee Benefits Research Institute, America's Health Insurance Plans, United Way of Central Iowa and the Iowa State University Business School Dean's Advisory Council and formerly served on the board of Mercy Medical Center and the Iowa Natural Heritage Foundation.

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, corporate governance, marketing and sales, and mergers and acquisitions.

Mr. Houston received a bachelor's of science degree from Iowa State University in 1984.

 

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Elizabeth E. Tallett
Age: 66
Director since: 1992 (Principal Life), 2001 (the Company)
Committees: Human Resources, Nominating and Governance, Executive
Public Directorships/Past 5 Years: Meredith Corporation (current), Qiagen, N. V., (current), Anthem, Inc. (current), Coventry Health Care, Inc., Immunicon,  Inc., IntegraMed America, Inc., Varian, Inc. and Varian SemiConductor Equipment Associates, Inc.

Ms. Tallett has been Lead Director since 2007 and has also served as Alternate Lead Director. She was honored recently with a 2015 Outstanding Director award from the Financial Times.

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 Feb 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.

SKILLS AND QUALIFICATIONS: Ms. Tallett's senior management experience includes 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, technology, executive compensation and mergers and acquisitions.

She received a bachelor's degree with honors in mathematics and economics from the University of Nottingham in England.

 

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Continuing Class III Directors With Terms Expiring in 2016


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Michael T. Dan
Age: 64
Director since: 2006
Committees: Human Resources (Chair), Nominating and Governance (effective May 18, 2015)
Public Directorships/Past 5 Years: The Brink's Company

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, strategic planning, brand management, executive compensation, customer service, marketing and mergers and acquisitions.

He studied business and accounting at Morton College in Cicero, Illinois, and completed the advanced management program at Harvard Business School.

 


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C. Daniel Gelatt
Age: 67
Director since: 1988 (Principal Life), 2001 (the Company)
Committees: Audit, Human Resources, Strategic Issues (Chair)
Public Directorships/Past 5 Years: None

Dr. Gelatt has been President of NMT Corporation since 1987. NMT is an industry leader in mobile mapping and workforce automation software and has been providing analog and digital imaging services to clients worldwide for more than 40 years. He was an Assistant Professor in the Physics Department at Harvard University, where he earned his Ph.D., and was a research manager at the IBM T.J. Watson Research Center before joining the Gelatt companies in 1982.

SKILLS AND QUALIFICATIONS: In addition to leading and having financial responsibility for NMT and other Gelatt privately owned companies, he has an extensive background in software and nonlinear optimization and executive level experience in product development, marketing and strategic planning.

He earned his bachelor's and master's degrees at the University of Wisconsin and his MA and Ph.D. at Harvard University.

 

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Sandra L. Helton
Age: 65
Director since: 2001
Committees: Audit (Chair), Finance, Executive
Public Directorships/Past 5 Years: Lexmark International, Inc. (current), Covance, 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. As of December 31, 2006, TDS served 7 million customers/units in 36 states with annual revenues of $4.5 billion. In her role, Ms. Helton had responsibility for the Finance, Information Technology, Strategic Planning, Corporate Communications, and Corporate Secretary 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, accounting and control, treasury, investments, information technology and other corporate administrative functions, as well as extensive corporate governance experience.

Ms. Helton graduated from the University of Kentucky in 1971 with a B.S. degree in mathematics, summa cum laude, and earned an S.M. degree from Massachusetts Institute of Technology's Sloan School in 1977 with double majors in Finance and Planning & Control.

 


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Larry D. Zimpleman
Age: 63
Director since: 2006
Committees: Executive (Chair)
Public Directorships/Past 5 Years: None

Mr. Zimpleman has been Chairman and Chief Executive Officer of the Company and Principal Life since November of 2014 and was Chairman, President and Chief Executive Officer from May 2009-November 2014; and President and Chief Executive Officer of the Company and Principal Life from May 2008-May 2009. He was President and Chief Operating Officer of the Company and Principal Life from June 2006 to May 2008 and President, Retirement and Investor Services of the Company and Principal Life from December 2003 to June 2006. He joined Principal Life in 1971 as an actuarial intern.

SKILLS AND QUALIFICATIONS: In addition to leading the Company and Principal Life as Chief Executive Officer since 2008, Mr. Zimpleman is a member of the board of directors of the American Council of Life Insurers, is the Chairman of the Financial Services Roundtable, and chairs the board of trustees of Drake University. He is Chair of the Iowa Business Council and formerly chaired the Principal Funds Board of Directors.

He earned a bachelor's degree and master's degree in business administration from Drake University in Des Moines, Iowa.

 

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Continuing Directors in Class I With Terms Expiring in 2017


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Betsy J. Bernard
Age: 60
Director since: 1999 (Principal Life), 2001 (the Company)
Committees: Nominating and Governance (Chair), Human Resources (until May 18, 2015), Finance (effective May 18, 2015), Executive
Public Directorships/Past 5 Years: Zimmer Holdings, Inc. (current), SITO Mobile, Inc (current)

Ms. Bernard has been Alternate Lead Director since May 21, 2007.

Ms. Bernard was President of AT&T from October 2002 until December 2003 where she led more than 50,000 employees with AT&T Business, then a nearly $27 billion organization serving four million business customers. She was Chief Executive Officer of AT&T Consumer 2001-2002, which served about 40 million consumers and contributed $11.5 billion to AT&T's normalized revenue in 2002. She was head of the consumer and small business division as Executive Vice President — National Mass Markets at Qwest Communications from 2000-2001, and responsible for all retail markets at U S West as Executive Vice President — Retail from 1998-2000.

SKILLS AND QUALIFICATIONS: In addition to leading and being responsible for financial management of AT&T, Ms. Bernard has executive level experience in brand management, marketing to individuals and small businesses, sales, customer care, operations, product management, electronic commerce, executive compensation, strategic planning, technology and mergers and acquisitions.

She earned her bachelor's degree from St. Lawrence University, a master's degree in business administration from Fairleigh Dickinson University, and an MA from Stanford University in the Sloan Fellow Program.

 


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Jocelyn Carter-Miller
Age: 57
Director since: 1999 (Principal Life), 2001 (the Company)
Committees: Finance (Chair), Nominating and Governance
Public Directorships/Past 5 Years: Interpublic Group of Companies, Inc. (current), Netgear, Inc. (current)

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.

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, mergers and acquisitions, product development, project management, strategic planning, technology and leadership development and training. She is also a certified public accountant.

She earned her B.S. in Accounting at the University of Illinois and an MBA in Finance and Marketing at the University of Chicago.

 

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Gary E. Costley
Age: 71
Director since: 2002
Committees: Audit, Finance (until May 18, 2015), Human Resources (effective May 18, 2015), Strategic Issues
Public Directorships/Past 5 Years: Prestige Brand Holdings, Inc. (Lead Director) (current), Tiffany & Co. (current), Accelrys,  Inc., Pharmacopeia Drug Discovery, Inc., Covance, Inc.

Dr. Costley was Chairman and Chief Executive Officer of International Multifoods Corporation, a manufacturer and marketer of branded consumer food and food service products, from November 1997 until June 2004. Following his retirement from International Multifoods, which had just under $1 billion in sales in 2003, he was a cofounder and managing director of C & G Capital Management which provided capital and management to health, medical and nutritional products and services companies until May 2009. He was Dean of the Babcock Graduate School of Management at Wake Forest University in Winston-Salem, North Carolina, from 1995-1997 and taught business ethics during his tenure as a professor of management. Dr. Costley also had 24 years with Kellogg Company from 1970-1994 where he most recently was President of Kellogg North America.

SKILLS AND QUALIFICATIONS: In addition to leading and being responsible for financial management of International Multifoods and Kellogg North America, Dr. Costley has executive level experience in brand management, marketing, sales, distribution, international operations, public affairs, corporate development, strategic planning, technology, quality management, executive compensation and mergers and acquisitions, and has taught business ethics.

He attended Oregon State University where he earned his bachelor's and master's degrees and a Ph.D.

 


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Dennis H. Ferro
Age: 69
Director since: 2010
Committees: Audit, Finance, Strategic Issues
Public Directorships/Past 5 Years: NYMAGIC, Inc.

Mr. Ferro served as President and Chief Executive Officer of Evergreen Investment Management Company, an asset management firm, from 2003 to 2008. Evergreen had assets under management of $175 billion on December 31, 2008, served more than four million individual and institutional investors through management of a broad range of investment products including institutional portfolios, mutual funds, variable annuities and other investments, and was led by 300 investment professionals. Mr. Ferro was the Chief Investment Officer of Evergreen from 1999 to 2003. From 1994-1999, he was Executive Vice President of Zurich Investment Management Ltd. and Head of International Equity Investments, and from 1991-1994 was Senior Managing Director of CIGNA International Investments. Prior to 1991, he held positions with Bankers Trust Company in Japan, as President and Managing Director, and in Florida and New York. Mr. Ferro is a member of the Investment Committee of the American Bankers Association. During 2009-2012, Mr. Ferro served as a corporate Director and Chairman of the Investment Committee of the New York Marine and General Insurance Company, a subsidiary of NYMAGIC, Inc.

SKILLS AND QUALIFICATIONS: In addition to leading and being responsible for financial management of Evergreen Investment Management Company, Mr. Ferro has executive level experience in asset management, investment portfolio management, financial services, international operations, product development, marketing and distribution, strategic planning, executive compensation, risk management and mergers and acquisitions.

He earned a bachelor's degree from Villanova University and an MBA in finance from St. John's University. Mr. Ferro is a Chartered Financial Analyst ("CFA").

 

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

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CORPORATE GOVERNANCE

              The Company is a global investment management leader offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement services, insurance solutions and asset management. 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 ("CEO") and generally oversees management. The Board reviews and discusses the strategic direction of the Company, oversees risk and monitors the Company's performance against goals the Board and management establish.

Board Leadership Structure

              The Board currently has a combined position of Chairman of the Board and CEO, held by Larry D. Zimpleman, and a Lead Director, Elizabeth E. Tallett. Betsy J. Bernard is the Alternate Lead Director. The Lead Director is selected by the other independent Directors and the position does not automatically rotate. The Nominating and Governance Committee reviews the assignments as Lead Director and Alternate Lead Director annually. The Board regularly reviews its leadership model and is flexible about whether the positions of CEO and Chairman are separated or combined. The decision is based on the tenure and experience of the CEO and the broader economic and operating environment of the Company. The Company has followed a pattern of separating the roles of Chairman of the Board and CEO during periods of management transition, with the prior Chairman retaining that position for a period of time as the newly appointed CEO assumes new responsibilities as the Company's chief executive. In the Company's experience, a flexible approach is preferable to an approach that either requires or disallows a combined Chairman/CEO.

              The Lead Director and the Chairman jointly make the decisions on the Board's agenda for each regular quarterly meeting, and the Lead Director seeks input from the other independent Directors. The Lead Director and Chairman share the duties of presiding at each Board meeting. The Chairman presides when the Board is meeting as a full Board. The Lead Director:

Role of the Board in Risk Oversight

              The Board believes that risk oversight is a responsibility of the full Board. The Board weighs risk versus return in the context of the organization's key risks and risk philosophy when approving corporate strategy and major business decisions, setting executive compensation and monitoring the Company's progress. Like all financial services companies, we are exposed to financial, product and pricing, operational and other business risks. The Board uses its committees for some of its risk oversight responsibilities and the committees report to the Board on these issues:

              The Audit Committee:

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              The Finance Committee:

              The Human Resources Committee:

              When selecting candidates for the Board, the Nominating and Governance Committee takes into account the need for the Board to have the collective skills and experience necessary to monitor the risks facing the Company.

              Risk management has long been an essential component of the Company's culture and operations. Since 2005, the Company has had a Chief Risk Officer who oversees and coordinates the ERM Program, serves on key management committees and operates independently of the businesses. The Chief Risk Officer regularly attends open sessions of the Board, Audit and Finance Committee meetings and meets in Executive Session with the Audit Committee.

              The Chief Risk Officer and other members of senior management make periodic reports to and have discussions with the Board and its committees on the ERM Program, including how strategy, operational initiatives and investment portfolios integrate with the Company's risk objectives. These reports and discussions provide the Board with a greater understanding of the material risks the organization faces, whether management is responding appropriately, how certain risks relate to other risks, and the level of risk in actions presented for Board approval.

              Capital adequacy and structure are an important focus of the ERM Program. For each regular Board meeting, management reports on sources and uses of capital, satisfaction of regulatory and rating agency capital requirements, capital position, capital management and liquidity.

              Embedding these regular inputs (Board composition, committee responsibilities, and management focus, reporting and accountability) into its oversight responsibilities reflects the full Board's commitment to the importance of risk management.

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 Board of Directors will decide whether to accept the resignation that is required to be tendered by that incumbent Director. 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 New York Stock Exchange requirements 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 (as a partner,

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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 2015 (1), based on:

              The Board affirmatively determined that the following Directors have no material relationship with the Company and are independent: Ms. Bernard, Ms. Carter-Miller, Dr. Costley, Mr. Dan, Mr. Ferro, Dr. Gelatt, Ms. Helton, Mr. Hochschild, Mr. Keyser, Mr. Maestri and Ms. Tallett. The Board also determined that all current members of the Audit, Finance, Human Resources and Nominating and Governance Committees are independent.

              In applying the Board's independence standards, the Nominating and Governance Committee and the Board considered the following relationships and transactions to be categorically immaterial to the determination of a Director's independence due to the nature of the transaction and the amount:

Certain Relationships and Related Transactions

              Nippon Life Insurance Company ("Nippon Life"), which held approximately 6.2% of the Company's Common Stock at the end of 2014, is the parent company of Nippon Life Insurance Company of America ("NLICA"). Nippon Life, NLICA and Principal Life have had an ongoing business relationship for more than 20 years. Principal Life assisted Nippon Life in the start up activities of NLICA, which began business in 1991. Nippon Life and NLICA purchase retirement and financial services offered by Principal Life and its subsidiaries. NLICA paid Principal Life approximately $13,407.35 for third party administration services related to its group welfare benefit plans in 2014. Principal Life performs certain pension services for defined contribution plans maintained by NLICA and an affiliate, and for these services Principal Life was paid approximately $91,927.46 (most of this amount was paid by plan participants). NLICA also paid Principal Trust Company $1,250 for deferred compensation plan services during 2014. Nippon Life also paid Principal Global Investors, LLC ("PGI") and its subsidiaries approximately $862,688.74 for investment services in 2014, and paid Principal Life approximately $173,528 for service related to its retirement plans in 2014. Principal Global Investors (Japan) Ltd. paid Nippon Life $6,194 for 401(k) plan administration. 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 2014 of $62,555,050 during Nippon Life's $2 billion public issuance in October of 2012. NLI US Investments, Inc. ("NLI"), an affiliate of Nippon Life, has since May 1, 2013, owned 20% of Post Advisory Group, LLC ("Post"), an affiliate of the Company. During 2014, Post paid NLI an aggregate of $2,844,592.90 in dividends.

              During 2014, Principal Management Corporation, an affiliate of the Company ("PMC"), paid Wellington Management Company $2,347,743.57 for sub-advisory services furnished to a registered investment company managed by PMC. As of the end of 2014, Wellington owned approximately 5.7% of the Company's Common Stock.

   


(1)
March 18, 2015 for Mr. Hochschild.

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              As of December 31, 2014, BlackRock, Inc. ("BlackRock") held approximately 5.2% of the Company's Common Stock. During 2014, BlackRock paid the Company $422.82 in connection with administrative services rendered to a 401(k) plan that terminated in February 2015. During the January 1, 2014 to February 12, 2015 period, PMC paid BlackRock $1,284,672.43 in sub-advisory fees for sub-advisory services furnished to registered investment companies managed by PMC. During the same period various asset management affiliates of the Company managed portfolios holding varying amounts of public debt and equity securities issued by BlackRock. During the same period, Union Bond & Trust Company, an affiliate of the Company, paid BlackRock $333,352.58 in sub-advisory fees. On December 31, 2014, Principal Life held public bonds issued by BlackRock with a market value of $54,835,000.

              The Nominating and Governance Committee or Chair of that Committee must approve or ratify all transactions with Related Parties that are not preapproved under the Company's Related Party Transaction Policy. At each quarterly meeting, the Committee reviews a report of any nonmaterial transactions with Directors or the firms of which they are an executive officer or director, and any other Related Party transactions, including those involving executive officers and shareholders who own more than five percent of the Company's Common Stock. The Committee ratifies these transactions if it determines they are appropriate. 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 nine meetings in 2014, one of which was over the course of three days, and three of which were two day, in person meetings. Each of the Directors then in office attended more than 75 percent in the aggregate of the meetings of the Board and the committees of which the Director was a member. All of the Directors attended the 2014 Annual Meeting. The Company sets the date and place of Annual Meetings to coincide with a regular Board meeting so that Directors can attend.

Corporate Code of Business Conduct and Ethics

              Each Director and officer of the Company has certified compliance with the Corporate Code of Business Conduct and Ethics.

Board Committees

              Only independent Directors may serve on the Audit, Human Resources and Nominating and Governance Committees. Committee members and Committee chairs are recommended to the Board by the Nominating and Governance Committee. The Committees review their charters and evaluate their 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.

              The following table shows the current membership and responsibilities of each of the Board Committees.

    Committee

  Members
(*Committee Chair)


  Meetings
Held in
2014



  Responsibilities


 

 

Audit

 

 

 

Gary E. Costley
Dennis H. Ferro
C. Daniel Gelatt
Sandra L. Helton*
Roger C. Hochschild (1)
Luca Maestri (2)

 

 

 

10

 

 

 

Appointing, terminating, compensating and overseeing the Company's independent auditor; 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; and reviewing the Company's policies on risk assessment and management.

The Board has determined that all members of the Audit Committee are financially literate and are independent, as independence for audit committee members is defined in the New York Stock Exchange listing standards, and that Ms. Helton is a financial expert, as defined by the Sarbanes-Oxley Act.

 

 

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    Committee

  Members
(*Committee Chair)


  Meetings
Held in
2014



  Responsibilities

    Human Resources       Betsy J. Bernard (2)
Gary E. Costley (1)
Michael T. Dan*
C. Daniel Gelatt
Roger C. Hochschild (1)
Richard L. Keyser (2)
Elizabeth E. Tallett
      5       Evaluating the performance of the CEO and determining compensation in light of the goals and objectives approved by the Committee; reviewing and approving compensation for all other officers of the Company and Principal Life at the level of Senior Vice President or equivalent and Sr. Executive Director and above ("Executives"); reviewing and approving any employment, severance or change of control agreements and perquisites for Executives; overseeing Executive development and succession planning; acting on management's recommendations for salary and employee compensation policies for all other employees; administering the Company's Annual Incentive Plan, Incentive Pay Plan ("PrinPay Plan"), Stock Incentive Plan, and any other compensation plans that provide compensation to Executives; acting on management's recommendations that require Director action for broad based employee pension and welfare benefit plans; and reviewing the Company's compensation programs to confirm that these programs encourage management to take appropriate risks, and to discourage inappropriate risk and behaviors that are inconsistent with the Company's business plan, policies and risk tolerance.    
    Nominating and Governance       Betsy J. Bernard*
Jocelyn Carter-Miller
Michael T. Dan (1)
Richard L. Keyser (2)
Elizabeth E. Tallett
      4       Recommends to the Board candidates for Director, Board Committee assignments and service as Lead Director and Alternate 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 Committees, content of the Company's Corporate Code of Business Conduct and Ethics, Director compensation, and the Corporate Governance Guidelines; reviews environmental and corporate social responsibility matters of significance to the Company.    
    Finance       Betsy J. Bernard (1)
Jocelyn Carter-Miller*
Gary E. Costley (2)
Dennis H. Ferro
Sandra L. Helton
Luca Maestri (2)
      9       Assists the Board with the organization's financial, investment and capital management policies; reviews the organization's capital structure and capital plan, significant financial transactions, financial policies, credit ratings, matters of corporate finance including issuance of debt and equity, shareholder dividends, and proposed mergers, acquisitions and divestitures; reviews and provides guidance to the Human Resources Committee and the Board on financial goals for the upcoming year; oversees the organization's investment policies, strategies and programs, and reviews the policies and procedures governing the use of financial instruments including derivatives; and assists the Board in overseeing and reviewing information regarding the organization's enterprise financial risk management, including the significant policies, procedures and practices used to manage liquidity risk, credit risk, market risk, tax planning and product and pricing risk.    
    Strategic Issues       Gary E. Costley
Dennis H. Ferro
C. Daniel Gelatt*
      4       Primarily responsible for planning the Board of Directors annual strategic retreat.    
    Executive       Betsy J. Bernard
Sandra L. Helton
Elizabeth E. Tallett
Larry D. Zimpleman*
      None       Generally acts only on matters delegated to it by the Board, and any actions must be approved by its independent members. Has all of the authority of the Board between Board meetings, unless the Board has directed otherwise, except it has no authority for certain matters set forth by law and in the Company's By Laws.    

(1)
As of May 18, 2015.
(2)
Until May 18, 2015.

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Audit Committee Report

              The Audit Committee oversees the Company's financial reporting process. 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, 2014, 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 Statement on Auditing Standards ("SAS") 114, The Auditor's Communication with those Charged with Governance, as adopted by the Public Company Accounting Oversight Board (United States) ("PCAOB") in Rule 3200T. SAS 114 requires 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, 2014, for filing with the 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, 2015.

              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
Gary E. Costley
Dennis H. Ferro
C. Daniel Gelatt
Luca Maestri

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

              The Nominating and Governance Committee regularly assesses the appropriate mix of expertise, skills, backgrounds, competencies and other characteristics of Directors in light of the current makeup of the Board and the Company's current strategic initiatives, risk factors and other needs. In addition, the Committee considers additional relevant circumstances, including a candidate's current employment responsibilities. The Committee periodically uses an outside consultant to assist it in fulfilling this responsibility. The results of these assessments provide direction in searches for Board candidates, and in the evaluation of current Directors for re-nomination as noted below.

              The Nominating and Governance Committee reviews the performance of Directors whose terms are expiring as part of the Committee's determination of whether their re-nomination should be recommended to the Board. The Committee receives input from the other Directors and may involve an outside consultant before conducting the reviews. Director performance and capabilities are evaluated against the characteristics noted above which the Committee has identified as necessary and desirable for the Company's Board under current circumstances. 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. 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.

              In Director and candidate evaluations, the Committee assesses personal and professional ethics, integrity, values, expertise and ability to contribute to the Board. The Board 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 following competencies are also sought: strategic orientation, results orientation and comprehensive decision making, risk management and technology.

              All Board members have:

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

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GRAPHIC

              Though the Board does not have a formal diversity policy, diversity of the Board is a valued objective. The Nominating and Governance Committee reviews the Board's needs and diversity in terms of race, gender, national origin, backgrounds, experiences and areas of expertise when looking for new Directors. The Board recognizes that diversity is an important factor in Board effectiveness, which is apparent in the Board's selection of Directors. Thirty six percent of the Company's independent Directors are women. The Company has been recognized as one of the National Association of Female Executives' Top 50 Companies for Executive Women for 12 consecutive years; 2020 Women on Boards Winning Company for three straight years and by organizations such as the Human Rights Campaign Corporate Equality Index, and LATINA Style magazine. 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.

              The Board, reflecting a position held by the vast majority of S&P 500 companies, believes that a good Director performance review process coupled with healthy Board refreshment better serves the Company and its stakeholders than would mandated term limits. Strict term limits would require that the Company lose the continuing contribution of Directors who have gained invaluable insight into the Company's industry, strategies and operations as a result of their years of service. Directors' terms must end prior to the annual meeting following their 72nd birthday. The tenure of each of the independent Directors is listed below. The average tenure of the Company's independent Directors is 13 years. This average will decrease as retiring Directors are replaced. The following chart shows the allocation across an experience spectrum of our current independent Directors' tenures (including tenures for the four Directors whose service on the Principal Life board pre-dates the existance of Company):

   

0-2
years


 

3-5
years


 

5-10
years


 

10-15
years


 

15-20
years


 

20+
years


      1         2         1         2         2         2    

              Communicating with stakeholders, whether clients, customers, employees, or investors, has always been an important part of how the Company conducts its business. Some time ago, however, the Company began a more formal engagement process with its shareholders around matters of corporate governance. This past year, the Company reached out to a broad array of stockholders, informing them of the Company's core corporate governance policies and inviting them to engage in a robust discussion of any questions and comments. These shareholder engagement discussions provide the Company with helpful insight into shareholders' views on current governance topics, which views are reported to the Nominating and Governance Committee. This process is in addition to communications engendered through the Company's website and those engaged in by the Company's Investor Relations staff.

              The Committee will consider shareholder recommendations for Director candidates sent to the Nominating and Governance Committee, c/o the Company's Secretary. Director candidates nominated by shareholders are evaluated in the same manner as Director candidates identified by the Committee and search firms it retains.

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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 Directors. A substantial proportion of Director compensation is provided in the form of equity to help align Directors' interests with the interests of shareholders.

              The Director compensation program is reviewed annually. The Nominating and Governance Committee uses the Board's independent compensation consultant, Frederic W. Cook & Co., Inc. ("Cook") to conduct a comprehensive review and assessment of Director compensation. Cook last reviewed Director compensation in November of 2014. As a result of that review and the Committee's discussion, the Committee recommended to the Board to increase the annual cash retainer and annual Restricted Stock Unit ("RSU") grant amount as noted in the chart below. The Company targets Director compensation at approximately the median of the peer group used for Executive compensation comparisons ("Peer Group") (see page 32), which aligns with its Executive compensation philosophy.

      January 1, 2012-
December 31, 2014


Effective
January 1, 2015


    Annual Cash Retainers (1)            
    -      Board   $90,000   $95,000  
    -      Audit Committee Chair   $20,000   $20,000    
    -      Human Resources Committee Chair   $17,500   $17,500  
    -      Finance Committee Chair   $15,000   $15,000    
    -      Nominating & Governance Committee Chair   $15,000   $15,000  
    -      Other Committee Chairs   $5,000   $5,000    
    -      Lead Director   $25,000   $25,000  
    Annual Restricted Stock Unit Retainer (2)            
    -      Board   $115,000   $130,000  
    Meeting Attendance Fees            
    -      Regularly Scheduled Board Meeting   No meeting fees   No meeting fees  
    -      Non-regularly Scheduled Board Meetings (in person)   $2,500 per day   $2,500 per day    
    -      Non-regularly Scheduled Board Meetings (Telephonic)   $1,000   $1,000  
    -      Committee Meeting   $1,500   $1,500    
    -      Telephonic Committee Meeting   $1,000   $1,000  

(1)
Annual cash retainers are paid in two semiannual payments, in May and November, on a forward looking basis.
(2)
Annual RSU retainers are granted at the time of the annual meeting.

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Fees Earned by Directors in 2014

    Director Name

  Fees Earned or
Paid in Cash


  Stock Awards
(1)


  Total

    Betsy J. Bernard       $123,000       $114,998       $237,998    
    Jocelyn Carter-Miller     $126,000     $114,998     $240,998  
    Gary E. Costley       $119,000       $114,998       $233,998    
    Michael T. Dan     $119,500     $114,998     $234,498  
    Dennis H. Ferro       $119,000       $114,998       $233,998    
    C. Daniel Gelatt     $123,000     $114,998     $237,998  
    Sandra L. Helton       $134,000       $114,998       $248,998    
    Roger C. Hochschild (2)     $0     $0     $0  
    Richard L. Keyser       $108,000       $114,998       $222,998    
    Luca Maestri     $111,000     $114,998     $225,998  
    Elizabeth E. Tallett       $133,000       $114,998       $247,998    

(1)
The amounts shown in this column reflect the grant date fair value of awards made in 2014, 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.
(2)
Mr. Hochschild was not elected to the Board until March 18, 2015.

Deferral of Cash Compensation

              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:

              All of these funds are available to participants in Principal Life's Excess Plan. The returns realized on these funds during 2014 are listed in the table, "Qualified 401(k) Plan and Excess Plan," on pages 52-53.

Restricted Stock Unit Grants

              Directors receive an annual grant of RSUs. The grant made in 2014 was made 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 until at least 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 other than at the annual meeting.

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              As of December 31, 2014, each Director had the following aggregate number of outstanding stock options and restricted stock units as a result of Director compensation in 2014 and prior years, including additional RSUs as the result of dividend equivalents:

    Director Name

  Total Stock Options Outstanding
Fiscal year End 2014
(shares) (1)



  Total RSUs outstanding
Fiscal Year End 2014
(shares)



    Betsy J. Bernard       0       30,881    
    Jocelyn Carter-Miller     0     32,794  
    Gary E. Costley       0       30,881    
    Michael T. Dan     0     28,495  
    Dennis H. Ferro       0       16,356    
    C. Daniel Gelatt     0     35,504  
    Sandra L. Helton       0       30,881    
    Roger C. Hochschild (2)     0     0  
    Richard L. Keyser       0       35,031    
    Luca Maestri     0     11,922  
    Elizabeth E. Tallett       0       35,031    

(1)
Prior to May 2005, Directors received grants of stock options rather than RSUs.
(2)
Mr. Hochschild was not elected to the Board until March 18, 2015.

Director Perquisites and Reimbursement of Expenses

              Directors are reimbursed for travel and other business expenses they incur while performing services for the Company.

              Principal Life matches charitable gifts up to an annual amount of $16,000 per nonemployee Director. 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' spouses/partners may accompany them to the annual Board strategic retreat. The Company 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 2014, the total amount of perquisites provided to nonemployee Directors was less than $10,000 in all cases.

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 through a Director's service 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 will not need to make additional share purchases if the guideline is no longer met due to a reduction in stock price, as long as the Director's ownership level is not reduced as a result of share sales.

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EXECUTIVE COMPENSATION

              

EXECUTIVE COMPENSATION

Contents:       Page    
    Compensation Discussion & Analysis ("CD&A")       25    
   

Our Performance in 2014

      26    
   

2014 Compensation Highlights

      27    
   

Compensation Program Philosophy and Policies

      27    
   

Summary of Compensation Elements

      29    
   

How we make Compensation Decisions

      30    
   

2014 Executive Compensation Decisions

      32    
   

Base Salary

      33    
   

Annual Incentive Pay

      34    
   

Long term Incentive Compensation

      36    
   

Timing of Stock Option Awards and Other Equity Incentives

      38    
   

Benefits

      38    
   

Change of Control & Separation Pay

      41    
   

Perquisites

      41    
   

Stock Ownership Guidelines

      41    
   

Claw Back Policy

      42    
   

Trading Policy

      42    
   

Succession Planning

      42    
   

Human Resources Committee Report

      43    
   

Risk Assessment

      43    
    Compensation Tables            
   

Summary Compensation Table

      44    
   

Grants of Plan Based Awards Table

      46    
   

Outstanding Equity Awards Table

      47    
   

Option Exercises and Stock Vesting Table

      48    
   

Pension Benefits

      51    
   

Potential Payments Upon Termination Related to Change of Control

      57    

Compensation Discussion and Analysis (CD&A)

              The CD&A describes Principal Financial Group, Inc.'s Executive compensation objectives, and philosophy. It also describes our 2014 compensation program and reviews the outcomes, including the Company's financial performance in 2014. Management prepared the CD&A on behalf of the Human Resources Committee ("Committee"). The Committee then reviewed it and recommended to the Board that it be included in this Proxy Statement. Our "Named Executive Officers" in 2014 were:

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2014 Company Highlights:

              2014 was a record setting year. The Company's ability to achieve strong results while still facing continued macroeconomic volatility reflects the scale of each business segment, the strength of our diversified business model and the ongoing momentum of our business.

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              In 2014, the Company's total shareholder return was slightly below the average of our Peer Group used for compensation purposes (7.9% vs. 8.6%). However, our 3-year total shareholder return continues to be higher, with a 3-year total shareholder return of 123%, compared to an average total shareholder return of 119% for companies in the Peer Group.

GRAPHIC

2014 Compensation Highlights

Compensation Program Philosophy and Policies

Compensation Philosophy – our compensation programs are designed to:

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

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Summary of Compensation Elements:

    Compensation
Component


  Objective

  Description and 2014 Highlights


 

 

Base Salary

 

 

 

Provides fixed income based on the size, scope and complexity of the Executive's role, Executive's historical performance and relative position compared to market pay information

 

 

 

Base salaries are generally targeted at market median, but may vary from median based on the Executive's performance, work experience, role and the difficulty of replacing the Executive.

In 2014, the Committee increased the Executives' base salaries, as detailed on page 33.

 

 

 

 

Annual Incentive Compensation

 

 

 

Motivates and rewards annual corporate performance as well as the Executive's contribution to achieving our annual objectives.

 

 

 

A range of earnings opportunity, expressed as percentages of base salary and corresponding to three levels of performance (threshold, target and maximum), is established for each Executive. Actual bonuses depend on achievement relative to the several key financial measures, corporate and divisional goals, as outlined on pages 34-36.

Based on the Committee's assessment of performance, actual bonuses for 2014 averaged 113% of target as detailed on page 36.

 

 


 


 


Long Term Incentive Compensation


 


 


 


Motivates and rewards long term corporate performance as well as the Executive's contribution to achieving our long term objectives. Reinforces the link between the interests of the Executives and shareholders. Encourages retention.


 


 


 


Each year, the Committee establishes the long term award opportunity for each Named Executive Officer. One half of the award is granted in stock options and one half in PSUs. Having half of the award in PSUs and half in options creates a balance between achieving operating performance objectives and increases in shareholder value.

The PSUs vest based on both continued service and meeting financial objectives over a three year period (with each three year period treated as a "Performance Cycle").

The PSUs granted in 2014 for the 2014-2016 Performance Cycle will vest based on performance scales for three-year average Return on Equity ("ROE") and three-year average Book Value per Share ("BV/Share") over the performance period, as outlined on pages 36-37.


The PSUs granted in 2012 and 2013 for the 2012-2014 and 2013-2015 Performance Cycles followed the same design as described above for 2014-2016. For the 2012-2014 Performance Cycle, the awards vested and paid out at 102% of the target number of PSUs based on our ROE performance of 14.2% and BV/Share of $30.64.


 


 

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    Compensation
Component


  Objective

  Description and 2014 Highlights

    Benefits       Protect against catastrophic expenses and provide retirement savings opportunities.       Named Executive Officers participate in most of the same benefit plans as the Company's other U.S. based employees. These include: health, life, disability income, vision and dental insurance, an employee stock purchase plan, 401(k) plan and pension plan. Executives also participate in non qualified retirement plans (defined benefit and defined contribution). Investment professionals do not participate in the pension or non qualified retirement plans.    
    Perquisites       Modest amount of additional benefits to help attract and retain Executive talent and enable Executives to focus on Company business with minimal disruption.       Executives are eligible for one physical examination per year.    
    Termination Benefits       Provide temporary income following an Executive's involuntary termination of employment, and, in the case of a change of control, to help ensure the continuity of management through the transition.       Refer to pages 54-57 for a discussion of our change of control and separation benefits. These benefits do not provide for excise tax gross ups.    

How We Make Compensation Decisions

              We use a formal decision making and review process that incorporates proper oversight, benchmarking against peers, independent advice, an annual decision making cycle and the use of board discretion when appropriate.

Human Resources Committee Involvement

              The Human Resources Committee oversees the development and administration of the Company's compensation and benefits policies and programs, approves of all aspects of the compensation program and compensation for Executives, and makes the compensation decisions for the CEO. In addition, the Human Resources Committee:

              The Committee engaged the consulting firm of Frederic W. Cook & Co., Inc. ("Cook") to advise it on the Company's Executive compensation program. Cook also advises the Nominating and Governance Committee on compensation for nonemployee Directors. Cook receives compensation from the Company only for its work in advising these Committees. Cook does not and would not be allowed to perform services for management. The Committee assessed the independence factors in applicable SEC rules and NYSE Listing Standards and other facts and circumstances and concluded that the services performed by Cook did not raise any conflict of interest.

              Each year the CEO, with input from the Human Resources Department and Cook, recommends the amount of base salary increase (if any), annual incentive award and the long term incentive award for Executives (other than himself). These recommendations are based on the Executive's performance, the performance of the

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business areas for which the Executive is responsible (if applicable) and considerations such as retention. The Human Resources Committee reviews these recommendations and approves compensation decisions.

              The CEO takes no part in determining his own compensation. The Human Resources Committee consults with the other 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.

The role of the Independent Compensation Consultant & Interaction with Management

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

              Cook conducts a comprehensive review of the Company's Executive compensation program every other year. In the years in which Cook 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 Cook.

              A comprehensive study was undertaken by Cook in 2013 which influenced the Committee's decisions for the 2014 executive compensation program. The study reviewed the design and structure of the Company's total Executive compensation program, including:

              The most recent review process included:

              The goals of the review are to assist the Committee in:

              Cook also:

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Use of Compensation Data

              The Committee reviews the Peer Group of companies it uses to compare Executive compensation every other year as part of Cook's study. Cook recommends an appropriate Peer Group of public, similarly sized, diversified financial services, insurance and asset management companies. Cook's recommendations take into account 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. Some of these companies have higher or lower market capitalization and revenue than the Company. The Company targets compensation for the Named Executive Officers at the median of the compensation of the named executive officers at the Peer Group companies. No changes to the Peer Group were made in 2013. The companies in the Peer Group used in Cook's 2013 analyses to assist in decisions on 2014 compensation were:

Affiliated Managers Group

 

Invesco

 

MetLife

Ameriprise Financial

 

Janus Capital Group

 

Prudential Financial

Eaton Vance

 

Legg Mason

 

StanCorp Financial

Franklin Resources

 

Lincoln National

 

Sun Life Financial

Hartford Financial Services

 

ManuLife

 

T. Rowe Price

              The Committee uses annual data from third party industry surveys for additional context for its compensation decisions. (2) Further, every two to three years, the Company's non cash benefit programs are compared with those of more than 100 diversified financial services companies. This is a larger group than the Peer Group because the information is used in designing and evaluating our broad based employee benefit programs. Benefit programs are also compared against those of local employers in Des Moines, Iowa, due to the Company's significant employee population there.

              Each year, the Committee reviews the total compensation paid to the Executives by reviewing tally sheets, which include:

              The Committee uses this information to analyze the value of compensation actually delivered versus the compensation opportunities established by the Committee, and it is also used in making compensation and compensation plan design decisions. The Committee did not make any changes to the executive compensation program in 2014 because it continues to meet the Company's objectives.

2014 Executive Compensation Decisions

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

   


(2)
The surveys used were the Investment Management survey, Towers Watson U.S. Financial Services Studies Executive Database, the Towers Watson Diversified Insurance Study of Executive Compensation. The names of the companies participating in these surveys are included in Appendix A.

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              The Committee also considers the tax and accounting consequences of each element of compensation, and tries to maximize the tax deductibility to the Company of compensation under Section 162(m) of the Internal Revenue Code ("Tax Code"). This Tax Code section limits the Company from deducting annual compensation exceeding $1,000,000 for our CEO and the three other most highly paid Named Executive Officers (other than our CFO) who are in office on the last day of the fiscal year ("Covered Employees"). There is an exception to this rule for performance based compensation. The Committee may provide compensation to Covered Employees that is not deductible if it determines, in its discretion, that it is appropriate to do so. For 2014, Messrs. Zimpleman, Houston, McCaughan and Valdés were Covered Employees.

              The chart below shows the 2014 target total compensation for our Named Executive Officers as well as the proportion of their compensation tied to the Common Share price. The majority of compensation paid to our Named Executive Officer's is variable and at risk as reflected in the chart below.

GRAPHIC

Base Salary

              When determining base salary for each Executive, the Committee considers the Peer Group median for comparable executive positions as well as the survey data referenced above, the Executive's performance, work experience, the importance of the position to the Company and how difficult it would be to replace the Executive. The table below provides the historical base salaries1 of the Named Executive Officers.

    Named Executive Officer

  2012

  2013

  2014

  Percent Increase
2013 to 2014


    Zimpleman       $900,000       $925,000       $1,000,000       8.1%    
    Houston     $550,000     $572,000     $675,000     18.0% (2)  
    Lillis       $475,000       $500,000       $530,000       6.0%    
    McCaughan     $600,000     $615,000     $634,000     3.0%  
    Valdés       $525,000       $546,000       $563,000       3.1%    

(1)
Salaries displayed in the table are as of December 31 of the year noted. This information differs from salary information in the Summary Compensation Table as the table includes salary earned and paid in the year noted. Changes in base salary are effective in March of each year.
(2)
The 18% base salary increase for Mr. Houston Includes a March 2014 merit increase as well as a 13.4% promotional increase in November 2014 due to increased responsibilities as President and COO.

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Annual Incentive Pay

              The Named Executive Officers may earn annual cash bonuses under the Principal Financial Group, Inc. Annual Incentive Plan. This plan was approved by shareholders in 2004, and complies with Section162(m) of the Tax Code so that these incentives to Named Executive Officers are considered performance based and are therefore fully tax deductible to the Company.

              The maximum aggregate bonus amount for the Named Executive Officers is 2% of annual operating income ("Bonus Pool"). For 2014, the maximum bonuses were:

    Named Executive Officer

  Maximum Award as
Percentage of the
Annual Incentive Pool



  Maximum
Potential Award
Payment



    CEO (Zimpleman)       35%       $10.4 million    
    Second highest Paid Covered Employee (McCaughan)     30%     $8.9 million  
    Third highest Paid Covered Employee (Houston)       15%       $4.4 million    
    Fourth highest Paid Covered Employee (Valdés)     10%     $3.0 million  
    CFO (Lillis)       10%       $3.0 million    

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


Annual Incentive Targets (as a percentage of base salary)

    Named Executive Officer

  2012

  2013

  2014

    Zimpleman       150%       175%       200%    
    McCaughan     300%     300%     300%  
    Houston       125%       125%       125%    
    Valdés     75%     75%     75%  
    Lillis       100%       100%       100%    

              Mr. Zimpleman's target award opportunity is greater than that of the other Named Executive Officers (except Mr. McCaughan) because Mr. Zimpleman has overall responsibility for the Company and greater responsibilities than the other Named Executive Officers. Mr. Zimpleman's target award opportunity has increased from 2012 to 2014 to better align his compensation with CEOs in the Peer Group. The target award opportunity for Mr. McCaughan was established by the Committee to be competitive with award opportunities of senior executives within asset management firms, which tend to be higher than target annual incentive opportunities in other industry segments. In establishing the target award opportunity for Messrs. Houston, Valdés and Lillis, 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

              The Board meets each September to review the Company's long term strategy. In 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. The Human Resources Committee reviews and approves the final goals for the Company, the CEO and the other Executives with input from the Finance Committee and Board based on prior year end financial results. All employees develop individual performance goals with their leaders that support the Company's goals.

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              Following the completion of fiscal 2014, the Committee reviewed 2014 performance on several key financial measures and on corporate and divisional goals to determine the 2014 annual bonus for Named Executive Officers. The Committee does not use any particular weighting for these goals; these measures are used as guideposts when the Committee exercises its discretion in its subjective evaluation of these factors.

              In determining corporate performance for 2014, the Committee reviewed Company achievements on these key financial goals:

    Goal

  2014 Assessment

   
    1.   Achieve appropriate operating earnings and earnings per share ("EPS").       One of management's responsibilities is to lead the Company in achieving its goals for operating earnings and earnings per diluted share. For 2014, the target for operating earnings was $1,235M and the target for earnings per diluted share was $4.12. Actual 2014 operating earnings were $1,317.9M and EPS was $4.41. In addition, Messrs. Houston, McCaughan and Valdés had operating earnings goals specific to the business units they oversee:    
                                                     
 
                      Named Executive Officer
  Operating
Earnings Goal

 
  Operating
Earnings Result

 
       
 
                        Houston                            
                       

Retirement & Investor Services

      $760 million       $828 million            
                       

US Insurance Solutions

      $220 million       $231 million            
 
                        McCaughan – Principal Global Investors       $120 million       $116 million            
 
                        Valdés – Principal International       $265 million       $268 million            
 
                                                     
    2.   Capital — maintain a targeted National Association of Insurance Commissioners ("NAIC") risk based capital ratio in the range of 415%-425%       At year end, the NAIC risk based capital ratio was at the upper end of the targeted range.    
    3.   Minimize credit loss.       A metric was established to measure whether the Company's invested assets (Principal Life's General Account) was appropriately managed. Ranges were established for after-tax bond credit losses and losses on commercial mortgage loans.    
                                                     
 
                      Measure
  Goal
  Actual Result
       
 
                        Bond credit losses       12-18 basis points       11.7 basis points            
 
                        Commercial mortgage loan losses       5-9 basis points       (1) basis points            
 
                                                     
    4.   Achieve identified sales targets which require appropriate growth.       The Company had 2014 sales growth goals as outlined below, by business area:    
                                                     
 
                      Business Unit
  Target
  Result
       
 
                        Houston                            
                       

Retirement & Investor Services Sales

      $11,500M       $8,696.9M            
                       

Life Sales

      $216M       $188.6M            
                       

Specialty Benefits premium and fees

      $284M       $296.2M            
 
                        McCaughan                            
                       

Principal Global Investors % growth in non-affiliated management fees

      12%       9%            
 
                        Valdés                            
                       

Principal International net cash flow

      $11.2 billion       $13.1 billion            
 
                                                     

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Final Annual Incentive Pay Award Determination

              The following table shows the annual incentive award for each of the Named Executive Officers. The column "Reduction from Maximum Award" shows the amount by which the Committee reduced the maximum bonuses to the awards paid.

 

 

Named Executive
Officer



2014 Salary

2014
Target


Final
Award


% of
Target


Reduction from
Maximum Award


 

 

Zimpleman

  $1,000,000   200%   $2,280,000   114%   $8,120,000    

 

 

Houston

  $675,000   125%   $962,000   114%   $3,438,000  

 

 

Lillis

  $530,000   100%   $604,000   114%   $2,396,000    

 

 

McCaughan

  $634,000   300%   $2,060,000   108%   $6,840,000  

 

 

Valdés

  $563,000   75%   $481,000   114%   $2,519,000    

              Executives may defer annual awards into a nonqualified supplemental savings plan ("Excess Plan"), as illustrated in the footnote to the Non Equity Incentive Compensation column of the Summary Compensation Table, on pages 44-45.

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

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

              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.

2014 Long Term Incentive Target & Grant (as % of base salary)

 

 

Named Executive Officer


Target %

Award Granted

 

 

Zimpleman

  600%   600%    

 

 

Houston

  350%   375%  

 

 

Lillis

  275%   300%    

 

 

McCaughan

  350%   325%  

 

 

Valdés

  225%   250%    

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              The long term incentive targets were established by the Committee to be market competitive with award opportunities for comparable positions in Peer Group companies. Mr. Zimpleman's award opportunity increased in 2014 to better align his compensation with comparable positions in Peer Group companies. His award opportunity is greater than those of the other Named Executive Officers because he has overall responsibility for the Company.

              Executives' long term compensation is awarded in the form of non-qualified stock options and PSUs, which each represent 50% of the total grant date fair value of the long term incentive award. PSUs entitle the Executive to earn shares of Principal Financial Group 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, but rather 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.

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

              For the 2014 PSUs, the performance threshold is met if either of the following goals is met:

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

              In combination, the two measures selected provide a healthy tension in creating incentives to maintain a sufficient level of equity over the long term while also making sure that capital is being used effectively.

2014-2016 PSU Performance Scale
    Performance Level

Threshold
Award


Target
Award


Maximum Award
(150% of Target)


    Payout (% of Target) (1)   50%   100%   150%    
    Average ROE   7.8%   15.5%   20.2%  
    Average BV/Share   $29.96   $35.25   $45.83    



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.

              In addition to the annual grants referred to above, in November 2014, Mr. McCaughan and Mr. Valdés received grants of Restricted Stock Units (RSUs) in the amount of $2,000,000 and $1,000,000, respectively, for retention and recognition of their significant contributions to the success of their respective businesses, including their critical role in our growth strategy outside the United States. The RSUs vest on the third anniversary of the grant date. These awards create a strong retention incentive for Messrs. McCaughan and Valdés as the grant agreements do not provide for vesting upon retirement, and thus the awards will be forfeited if they leave the Company for any reason other than death or disability.

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Timing of Stock Option Awards and Other Equity Incentives

              Annual grants of stock options and PSUs for the Company's 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:

Authority of the CEO to Grant Equity Awards:

              Under the 2014 Stock Incentive Plan, the Committee has delegated authority to the CEO to make certain equity awards to sales agents and non-Executive employees for new hires, promotions, retention and recognizing superior performance. The Committee receives a report on these grants at the next regular Committee meeting. The total awards granted by the CEO may not exceed 250,000 shares per year.

Benefits

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

              Principal Life also offers all Named Executive Officers (except Mr. McCaughan) defined benefit and defined contribution non-qualified retirement plans (the "NQDB" and the "Excess Plan"). 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 49-51 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 the Tax Code on 401(k) plans. The narrative to the Non-Qualified Deferred Compensation Table on pages 51-53 provides additional information about the Excess Plan.

              The value of the retirement and savings plans for Non-Grandfathered Participants (see page 50) 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 49) 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. As retirement plans evolved in the

   


(3)
Effective January 1, 2010, Mr. McCaughan no longer participates in the qualified pension plan, NQDB Plan or Excess Plan. This change was the result of a compensation and benefit review of asset management companies that showed that these are not common benefits for executives in the asset management industry. This change also applied to other investment professionals.

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marketplace, the Company has balanced realigning benefits to the marketplace with current market practice while not adversely impacting more tenured 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.

              The Summary Compensation Table shows changes to the present value of the Named Executive Officers' pension benefits, which were inflated due to a confluence of changes in actuarial assumptions that occurred in 2014. These changes in actuarial assumptions do not result in an increase to the actual accrued monthly pension benefit provided to the Named Executive Officers.

              These changes in actuarial assumptions, which primarily affected participants still accruing benefits under the traditional pension formula, include:

              The change in actuarial assumptions has a significant impact on the present value of the entire earned benefit and the one-year incremental increase in pension value from 2013 to 2014, as disclosed in the Summary Compensation Table. This is due to the fact that the 2013 present value of the entire monthly accrued benefit is determined using the prior mortality table and prior year discount rate, and the 2014 present value of the entire monthly accrued benefit is determined using the current discount rate and new mortality table, which not only increases the present value of the additional benefit earned during the year, but also increases the present value of all previously accrued benefits.

              The following illustrates the implications of the discount rate decline, new mortality tables, and increase in the accrued benefit/compensation changes to the one-year incremental pension present value increase:

    Name

  2014 Total One
Year Pension
Increase



  Increase in PV
due to change in
Discount
Rate (1)




  Increase in PV
Due To Change In
Mortality
Assumption (1)




  Increase in PV
Due to Change In
Accrued
Benefit (2)




    Zimpleman (3)       $7,549,888       $2,062,779       $1,096,477       $4,390,633    
    Houston     $1,579,560     $1,057,583     $271,564     $250,413  
    Lillis       $2,921,717       $1,610,135       $700,840       $1,871,973    
    McCaughan     $123,802     $47,426     $0     $76,376  
    Valdés       $143,137       $23,708       $2,759       $116,671    
    TOTAL     $12,318,104     $4,801,631     $2,071,640     $6,706,066  

(1)
Results in no increase to the Named Executive Officers' monthly accrued pension benefit.
(2)
Generally, benefit increases under the traditional pension formula result from an additional year of service and the current year compensation updating the five-year average earnings. In determining the benefits for 2014, the 2009 compensation year dropped out of the five-year earnings. This is significant because the 2008 bonus (paid in March 2009) was a record low bonus year ($0 in the case of Mr. Zimpleman and an average of 36% of target for the other Named Executive Officers) and was replaced with a 2014 compensation year where the average bonus payout was 124% of target for the Named Executive Officers.
(3)
Mr. Zimpleman has elected to receive his benefit under the Nonqualified Defined Benefit Plan in the form of a monthly annuity.

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Table of Contents

              The chart below summarizes the factors that drove the change in present value of Mr. Zimpleman's pension benefits:

GRAPHIC

              Although it is not required by SEC regulation, we are providing the supplemental table below to provide a clear picture of the Named Executive Officers' total direct compensation (base salary, annual incentive award, and long-term incentive awards) for 2012, 2013, and 2014. This table differs from the Summary Compensation Table in that it omits the dollar amounts included in the Summary Compensation Table in the columns captioned "Change in Pension Value and Non-Qualified Deferred Compensation Earnings" and "All Other Compensation". Those dollar amounts are unrelated to a Named Executive Officer's performance and are therefore not include in total direct compensation.

              We believe this supplemental table more accurately represents our market-based pay and pay-for-performance compensation philosophies and how the Committee viewed its compensation actions for the Named Executive Officers based on our performance over the respective periods than does the Summary Compensation Table.

 

 

Name


Year

Salary

Stock
Awards


Option
Awards


Non Equity
Incentive
Compensation



Total

 

 

Zimpleman

  2014   $982,692   $3,000,004   $3,000,015   $2,280,000   $9,262,711    

 

      2013   $919,231   $2,428,124   $2,428,121   $2,137,000   $7,912,476    

 

      2012   $900,000   $2,249,990   $2,491,679   $1,282,500   $6,924,169    

 

 

Houston

  2014   $592,769   $1,115,627   $1,115,643   $962,000   $3,786,040  

 

 

  2013   $566,923   $1,072,505   $1,072,513   $858,000   $3,569,940  

 

 

  2012   $544,231   $1,031,260   $1,142,017   $612,000   $3,329,508  

 

 

Lillis

  2014   $523,077   $795,004   $794,986   $604,000   $2,717,067    

 

      2013   $494,231   $750,001   $749,982   $630,000   $2,624,214    

 

      2012   $466,000   $653,136   $723,308   $443,000   $2,285,443    

 

 

McCaughan

  2014   $629,616   $3,030,265*   $1,030,261   $2,060,000   $6,750,141  

 

 

  2013   $611,539   $999,377   $999,379   $2,325,000   $4,935,294  

 

 

  2012   $593,192   $974,995   $1,079,730   $1,602,000