SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: FEBRUARY 27, 2006
(Date of earliest event reported)
PRINCIPAL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-16725 42-1520346
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification Number)
711 HIGH STREET, DES MOINES, IOWA 50392
(Address of principal executive offices)
(515) 247-5111
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
HUMAN RESOURCES COMMITTEE ACTIONS
2006 SALARIES
On February 27, 2006, the Human Resources Committee (the "Committee") of the
Board of Directors of Principal Financial Group, Inc. (the "Company") approved
the annual base salaries (effective as of March 4, 2006) of the Company's
executive officers after a review of comparative compensation information,
individual performance, internal equity and other factors as the Committee
determined important. The following table sets forth the annual base salary
levels of the Company's Named Executive Officers (which officers were determined
by reference to the Company's proxy statement dated March 31, 2005) for 2006:
NAME AND POSITION BASE SALARY
J. Barry Griswell , Chairman, President and
Chief Executive Officer.................... $ 1,000,000
John E. Aschenbrenner, President,
Insurance and Financial Services........... 550,000
Michael H. Gersie, Executive Vice President and
Chief Financial Officer ................... 470,000
James P. McCaughan, President,
Global Asset Management.................... 525,000
Larry D. Zimpleman, President,
Retirement and Investor Services........... 585,000
ANNUAL INCENTIVE COMPENSATION
Also on February 27, 2006, the Committee authorized the payment of annual
incentive awards to each of the Company's Named Executive Officers in respect of
the year ended December 31, 2005. The annual incentive awards were made pursuant
to the Principal Financial Group, Inc. Annual Incentive Plan (the "Annual
Incentive Plan"). The Annual Incentive Plan contains a performance measure of
two percent of the Company's Operating Income that makes available an annual
incentive award pool. That pool establishes the maximum amount that may be paid
under the plan for that year. The Committee establishes corporate, business unit
and individual goals relating to financial, operational and other strategic
areas of performance under the Company's broad-based employee annual incentive
plan ("PrinPay"). The Committee uses these performance goals and other factors
determined by the Committee to guide its decision regarding whether (and, if so,
how) to use its negative discretion to reduce the actual awards earned by Named
Executive officers under the Annual Incentive Plan. In February 2005, the
Committee approved the following components upon which to base awards for senior
officers under the PrinPay Plan for 2005: (1) Company performance and individual
performance in the case of the Chief Executive Officer and senior officers with
service unit responsibilities, and (2) Company performance, business unit
performance and individual performance in the case of senior officers with
business unit responsibilities.
In February 2005, the Committee decided a single metric relating to achievement
of a stated level of operating earnings for the total organization would
determine Company performance for purposes of the PrinPay Plan for 2005. The
Committee established a level of operating earnings achievement as target
performance for the Company component under the plan. "Operating earnings" is a
non-GAAP financial measure used as the key financial measure in the Company's
industry. It is believed to best illustrate the performance of a Company's
normal, ongoing operations, which is important in understanding and evaluating
financial condition and results of operations on a basis comparable to that used
by securities analysts.
In approving the PrinPay awards for 2005, the Committee determined that the
result obtained for Company performance yielded a 152% payout. The extent to
which the Company performance result affected any particular participant
depended on the relative weight of the Company performance component to
individual and any business unit components applicable to the participant. After
the Committee assessed the Company's, applicable business unit and individual
performance for the year, a final award was approved for each senior officer.
For 2005, the Committee had approved for eligible senior officers, including the
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Named Executive Officers, target awards at ranges of 50% to 250% of base salary
for achieving performance at target and maximum awards of 100% to 500% of base
salary for achieving performance above target. Attainment of individual
performance targets varied among Named Executive Officers.
The following table sets forth cash payments to the Named Executive Officers in
respect of their annual incentive awards under the Annual Incentive Plan for
2005:
NAME ANNUAL INCENTIVE AWARD
Mr. Griswell...................... $ 2,100,000
Mr. Aschenbrenner................. 794,492
Mr. Gersie........................ 503,573
Mr. McCaughan..................... 2,108,519
Mr. Zimpleman..................... 796,831
LONG-TERM INCENTIVE COMPENSATION; OPTION AND PERFORMANCE SHARE GRANTS
Beginning in 2004, the Committee determined that the long-term incentive plan
for senior officers would consist of stock-based compensation awards under the
Company's Stock Incentive Plan. Prior to 2004, the Company also made awards
under a long-term plan that existed before the Company became publicly-held in
2001, the "Long-Term Performance Plan." The last three-year cycle under the
Long-Term Performance Plan ended on December 31, 2005. Payouts for the 2003 -
2005 performance period were reported in the Company's Current Report on Form
8-K dated February 3, 2006.
On February 27, 2006, the Committee approved grants of non-qualified stock
options and performance shares to each of the Named Executive Officers pursuant
to the Company's 2005 Stock Incentive Plan. For 2006, the Committee replaced
restricted stock units, which vest based solely on the passage of time, with
performance shares. Performance shares are similar to restricted stock units
except the number of shares that are earned depends on Company performance as
measured against three-year goals set at the beginning of the performance
period. The performance shares will be earned and paid in shares of Common Stock
if performance requirements are met or exceeded. A return on equity ("ROE")
objective (a simple average of the ROE for each of the calendar years ended
during the three-year performance period) and an earnings per share ("EPS")
objective (the cumulative EPS for the three-year performance period) must be
achieved for any of the performance shares to be earned. If the performance
requirements are not met, the performance shares will be forfeited.
The Committee determines the level of options and performance shares it could
grant Named Executive Officers under the plan by considering the percentage of
total compensation that competitors award in the form of options and other forms
of equity compensation for comparable positions, and other factors the Committee
deems important. Utilizing this information, the Committee sets target award
opportunities for long-term incentive compensation, expressed as a percentage of
base salary. Actual grants may vary from these targets based on a variety of
factors such as individual performance and the importance of retaining the
senior officer ("Adjusted Target Award Opportunity"). The Committee calculates
the actual number of options it will award to a senior officer by dividing the
present value of one option, utilizing the Black-Scholes model (but adjusting
for the possibility of forfeitures of options), into the portion of the Adjusted
Target Award Opportunity to be granted in options. The Committee calculates the
actual number of performance shares it will award a senior officer by dividing
the 20-day average stock price immediately preceding the grant date into the
portion of the Adjusted Target Award Opportunity to be granted in performance
shares. The following table sets forth information regarding grants of stock
options and performance shares to the Named Executive Officers made on February
27, 2006.
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NUMBER OF STOCK NUMBER OF PERFORMANCE
NAME OPTIONS (1),(2)(3) SHARES (4)
Mr. Griswell............ 242,890 62,854
Mr. Aschenbrenner....... 67,400 17,442
Mr. Gersie.............. 47,565 12,309
Mr. McCaughan........... 63,760 16,499
Mr. Zimpleman........... 82,885 21,449
(1) Options vest in three equal annual installments beginning February 27,
2007, subject to continuous employment.
(2) Options granted to the Named Executive Officers under the 2005 Stock
Incentive Plan are exercisable for ten years after the date of grant,
generally subject to the optionee's continued service with the Company and
its subsidiaries. Unvested options terminate upon termination of service,
except in the event of such participant's death, disability or approved
retirement. In the event of a participant's death or disability, options
granted to the participant become immediately exercisable by the
participant, or participant's beneficiary, if applicable, and may be
exercised at any time prior to the earlier of the expiration of the
remaining term of the option or three years from the date of death or
termination of employment due to disability, as applicable. In the event of
a participant's approved retirement, options granted to the participant
become immediately exercisable by the participant and may be exercised at
any time during the remaining term of the option. The vesting and
exercisability of the options may also accelerate upon the occurrence of a
change of control, unless the options are honored or assumed on terms
intended to preserve the value of the option for the optionee (including
acceleration of vesting upon an involuntary termination following a change
of control).
(3) The per-share option exercise price of $49.25 equals the closing price of
the Common Stock on the date of grant.
(4) Performance shares are similar to restricted stock units. The number of
shares that are earned depends on the participant's continued employment
through the performance period and Company performance as measured against
three-year goals set at the beginning of the performance period.
CHANGE IN CONTROL AGREEMENTS
In 2005 and early 2006, the Committee reviewed the provisions and costs of the
change of control employment agreements with executives. As a result of this
review, the Committee on February 28, 2006 directed the Company to enter into
new change of control agreements to give the Company the ability to amend change
of control agreements upon 12 months' notice rather than upon 24 months' notice,
as is currently provided in most of the agreements.
The Company has offered "change of control" employment agreements to each of the
Named Executive Officers, effective as of February 28, 2006, to simplify and
clarify the terms and operation of such agreements and otherwise conform to
changes in best practices for such arrangements. The revised agreements
generally have a term of two years and will automatically renew for successive
one-year periods unless and until the Company provides a notice to a covered
executive electing not to so extend the term. However, if at any time during the
term of these arrangements, there shall occur a "pre-change of control event" or
a "change of control" (in either case as defined in such agreements and
described below), the term of the agreements will generally extend until the
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second anniversary of a change of control (and regardless of whether a notice of
non-renewal shall have been delivered prior to the occurrence of either such
event).
While these agreements will not have any effect unless and until a change of
control occurs (and, at that time, the covered executive has been continuously
employed by the Company or one of its affiliates from the date as of which the
agreement was entered into), the severance and other termination benefits
provided under such agreements will be available to a covered executive if his
or her employment is terminated following or in connection with a pre-change of
control event, if any third party requests or otherwise causes the termination
of executive's employment or an adverse change in the terms and conditions of
the executive's employment with the Company or its affiliate. This result is
effected under the agreements by deeming such termination or change in
employment conditions or terms to have occurred immediately following the date
on which a change in control occurs (rather than at the time it actually
occurs). For this purpose, a pre-change of control event will mean any one or
more of the following events:
o the commencement of a tender offer that would, if completed, result in
a third party owning 40% of our voting securities;
o the commencement by a person other than the Company of a proxy
solicitation or contest for the election of one or more members of the
Company's Board;
o an agreement is entered into that, if consummated, would result in
change of control; or
o any other event, transaction or occurrence that our Board declares to
be a pre-change of control event
The purpose of these agreements is to assure each covered executive that,
following a change of control, he or she will be permitted to continue in our
employment on substantially comparable terms and conditions of employment and
with substantially comparable compensation and benefits as were applicable to
the executive prior to the occurrence of such event. To that end, in the event
of a change of control, these agreements:
o mandate that the executive receive specified levels of salary, annual
incentive compensation and benefits for a period of not less than two
years following the occurrence of a change of control; and
o provided that, subject in such circumstances where the Company does
not survive as a public company to the successor to our business or
its parent (the "Successor") agreeing to issue its equity in
substitution of awards of our equity, (i) all of the covered
executive's outstanding stock options or stock appreciation rights and
any time-vesting outstanding equity or equity-based awards shall
continue in effect in accordance with their terms (but, where
appropriate , converted into equity or equity-based awards of a
similar type and nature related to the common stock of the Successor)
and (ii) any other outstanding performance-based equity awards (other
than stock options or stock appreciation rights) will be converted
into time vesting restricted stock or restricted stock units for our
stock (or the stock of the Successor), based on actual performance
through the change of control date projected out to the end of the
corresponding performance period. If and to the extent that a
conversion into the Successor's equity is necessary or appropriate,
and the Successor does not agree to such substitution, then any such
awards that are not so converted will become fully vested, exercisable
and /or distributable upon the date of the change of control, and the
covered executive will receive the value of such awards in cash,
unless the Committee determines, in accordance with the terms of the
plan pursuant to which the award was granted, that no equity or equity
based awards will be settled in cash; and
o will vest the covered executive in all benefits previously accrued
under any deferred compensation plan that is not qualified under
Section 401(a) of the Internal Revenue Code; and
o assure each executive of receiving a specified level of severance and
other termination benefits in the event that his employment is
terminated without "cause" or by the executive voluntarily for "good
reason." A termination by his or her employer without cause or by the
executive for good reason is hereafter called a "qualifying
termination."
For this purpose, "good reason" means adverse changes in the terms and
conditions of the executive's employment, including:
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o any failure to pay the executive's base salary or any required
increase in salary;
o any failure to pay the executive's annual bonus or any reduction in
the executive's annual bonus opportunity;
o any material adverse change in the executive's position (including
offices, titles or reporting requirements, but not reporting
responsibilities), authority or duties under the agreement; or
o any material reduction in the executive's aggregate compensation and
benefits; or
o relocation of the executive to any office or location other than the
location at which the executive worked prior to the change of control.
The benefits to be paid or provided under the agreements upon a qualifying
termination include:
o a lump sum severance benefit equal to three times the sum of the
executive's annual base salary and target annual bonus;
o the immediate vesting of all stock options, stock appreciation rights
and all shares of restricted stock, performance shares, restricted
stock units, deferred stock units and similar awards then held by the
covered executive, and regardless of whether such awards would
otherwise vest based upon the passage of time and the continued
performance of services, or upon the achievement of specified
performance criteria;
o a pro-rated annual bonus for the year of termination and a pro-rated
long-term incentive plan payment for each cycle then in progress,
minus, in each case, the amount, if any, paid in respect of such
annual or long-term incentive plan at the time of the change of
control;
o an increase in the retirement benefits the executive would have
accrued had he or she become fully vested in all such
previously-unvested benefits, accrued three additional years of
service and received the lump-sum severance benefits described above,
excluding the long-term incentive plan bonuses, as covered
compensation during such assumed additional years of service;
o an additional payment to offset any excise tax imposed under section
4999 of the Internal Revenue Code, but only if the after-tax amount of
the additional payment would exceed 10% of the after-tax benefits the
executive would receive if the executive's benefits were limited to an
amount such that the payments would not be subject to the excise tax;
and
o the reimbursement for legal fees and other related expenses required
to secure, preserve or obtain benefits under the agreements.
In addition, until the third anniversary of the date of the executive's
termination or such later date as any plan may specify (or such shorter period
necessary for such benefits not to be treated as deferred compensation under
Section 409A of the Internal Revenue Code), each covered executive and his or
her family will receive welfare benefits (including accidental death and
dismemberment, dental, medical, vision and group-term life insurance) which are
at least as favorable as the most favorable programs at the same costs
applicable to peer executives and their families who are actively employed after
such termination date.
Pursuant to the terms of these change of control agreements, Mr. Griswell
agreement specifies that for three years, and the other Named Executive Officers
agreements specify that for one year, following a termination of employment that
results in the executive receiving the severance benefits described above, the
executive will not engage or participate in, or become employed by or serve as a
director of or consultant to, a competing business; nor will the executive
solicit employees or customers, or interfere with the Company's relationship
with its employees or customers.
For purposes of these agreements, a change of control will mean any one or
more of the following events:
o any person becoming the beneficial owner of 40% or more of the Common
Stock;
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o the individuals then serving as members of the Board who were members
of the Board as of the date of the agreements cease for any reason to
constitute at least a majority of the Board, provided that, for this
purpose, any subsequently-appointed or elected member of the Board
whose election or nomination for election (unless such election,
nomination or appointment was in connection with an actual or
threatened proxy contest) was approved by a vote or written consent of
at least a majority of the incumbent directors then in office and the
directors elected or nominated in a manner consistent with the
conditions of this provision shall be treated as an incumbent
director; or
o the consummation of a merger, reorganization, consolidation or similar
transaction other than a transaction immediately following which the
shareholders of the Company continue to own more than 60% of the
voting securities of the surviving corporation or its ultimate parent
corporation; or
o approval by the shareholders of the Company of a plan or agreement for
the sale or other disposition of all or substantially all of its
consolidated assets or a plan of liquidation.
ADDITIONAL EXECUTIVE COMPENSATION DISCLOSURE
The Company intends to provide additional information regarding the
compensation awarded to the Named Executive Officers with respect to and
during the year ended December 31, 2005, in the proxy statement for the
Company's 2006 annual meeting of shareholders, which is expected to be
filed with the Securities and Exchange Commission not later than 120 days
after the year ended December 31, 2005.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
At a meeting of the Board of Directors of the Company held on February 27, 2006,
Federico F. Pena, a director of the Company and its wholly-owned subsidiary,
Principal Life Insurance Company, whose terms of office will expire at the time
of the Company's 2007 annual meeting of shareholders, indicated his decision to
resign from these positions effective May 16, 2006. Mr. Pena's decision is based
in part upon demands on his time from other professional commitments, and is not
due to a disagreement with the Company on any matter relating to the Company's
operations, policies or practices. Mr. Pena was not asked to resign or removed
for cause from the Board of Directors.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINCIPAL FINANCIAL GROUP, INC.
By: /S/ JOYCE N. HOFFMAN
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Name: Joyce N. Hoffman
Title: Senior Vice President and Corporate
Secretary
Date: March 3, 2006
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