UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Securities Exchange Act of 1934
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Prudential Financial, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Thomas J. Baltimore, Jr.
Gordon M. Bethune
Gaston Caperton
Gilbert F. Casellas
James G. Cullen
Prudential Financial, Inc.
751 Broad Street, Newark, NJ 07102
March 27, 201226, 2013
LETTER FROM THE BOARD OF DIRECTORS
TO OUR SHAREHOLDERS
As stewards of your Company, our primarywe focus ison achieving long-term performance and creating value for our shareholders through prudent execution of strong business strategies, excellent risk management, top quality talent and succession planning, and objective oversight.
Last year, we continued to review our policies and processes in these areas, seeking opportunities to refine and augment them for the benefit of our stakeholders. This review allowed us to retire outdated policies, as exemplified by our decision not to renew the “poison pill”, an action aligned with best governance practices.
Over the lastpast year, we have identified several important themes that will influence our practices going forward. This letter highlights three of these themes:
Engagement and Outreach – the way we communicate with our shareholders
Oversight of Executive Compensation – ourbeen gratified by your response to last year’sour efforts to improve shareholder engagement and outreach, which was one of our key priorities. As evidence of our progress, we received approximately 2,800 communications from you, a significant increase from 2011. Thank you for your continued interest and engagement with us.
Your support for our advisory “say on pay” vote
Sustainability – our commitment to articulating and measuring our environmental, social and governance activities
We are pleased to share with you our progress andproposal at the specific actions that we undertook in these areas.
ENGAGEMENT AND OUTREACH
Shareholders are key participants in the governancerate of our Company. For this reason, we continually seek to expand the channels through which we gain insight into your perspectives. Our efforts to solicit your feedback resulted in the receiptalmost 96% of over 4,500 shareholder communications over the course of the past year, and we look forward to further dialogue with you.
To this end, the governance area of Prudential.com was redesigned to improve user-friendliness and accessibility. We devoted a page to communication with the Board, including a specific form for your feedback regarding executive compensation.
We were one of the first companies to proactively adopt a shareholder advisory “say on pay” vote in February of 2010 in order to gain real time feedback on executive compensation. Last year, shareholders representing 86.5% of the votes cast expressed satisfaction with Prudential’s executive compensation program,program. We regularly review our compensation programs, and we are very gratified by this high levelmade further changes in 2012 to continue improving the alignment of support.
OVERSIGHT OF EXECUTIVE COMPENSATION
Because Prudential values your views concerning our executive compensation policieswith the strategic goals of the Company. We hope that we will continue to meet your expectations for oversight again this year.
GROW BY TAKING PRUDENT RISKS AND PROTECT BY LIVING OUR VALUES
Grow. In the past year, the Company grew its business through transactions that led the industry. We entered into innovative pension risk transfer agreements with two iconic American companies, capitalizing on our well established capabilities in insurance and practices, your Boardour track record of keeping our promises to our customers. We also acquired The Hartford’s Individual Life Insurance business, creating an organization with greater scale, enhanced product offerings and an expanded distribution network to meet the life insurance needs of Americans and their families. As a result of that acquisition, our Individual Life Insurance business will rank among the five largest individual life insurance companies in the US (in terms of new recurring premium sales). We will also have leadership positions in universal, term and variable life insurance. Together, these transactions build on the success of the recent Star Life and Edison Life acquisitions that strengthened our businesses in Japan.
Taking Prudent Risks.Risk taking is an inherent part of our business, and we take our responsibility for oversight of Prudential’s risk profile very seriously. Through our oversight, we set standards for managing risks and monitoring the management engagedof those risks within the Company.
We also reviewed the Company’s Enterprise Risk Management Governance structure and the systems for identifying and managing risk on an ongoing basis. The complex environment in extensive outreach efforts to better understand the views and concerns of investors regarding executive compensation. These efforts included active dialogue with investors and proxy advisory firms,which we operate, as well as considerationour regulatory responsibilities and growing businesses require vigilance for early identification and assessment of feedback received through a varietyrisk, followed by responses that are thoughtful and appropriate. To support this effort, we approved the restructuring of channels from shareholders and other stakeholders. The Compensation Committee also worked closely with its independent compensation consultant in evaluating the Company’s executive compensation program.risk management function by separating the roles of our Chief Risk Officer and the Chief Actuary.
Notice of Annual Meeting of Shareholders and | 1 |
LETTER FROM THE BOARD OF DIRECTORS(CONTINUED)
William H. Gray III
Mark B. Grier
Constance J. Horner
Martina Hund-Mejean
Karl J. Krapek
Taking into considerationProtect.Prudential has a strong commitment in promoting a culture of ethics and integrity that defines how we do business.
As a Board, we work with management to cultivate a strong company culture and system of core values that give high priority to ethical standards, principles of fair dealing, professionalism, integrity and compliance with legal requirements. This is a foundational expectation of all our employees, and we believe that the results“right tone at the top” should be apparent in all of our actions.
To preserve that tone and continue our business success, succession planning for our most senior managers is an important area of focus. Every year, we review and discuss plans for the development of our high potential leaders.
In addition, we are making strides to highlight the sustainable value we provide to shareholders and customers. We published our first Sustainability Report last year, and the Company has joined a growing network of investors, corporations and public interest groups committed to accelerating and expanding the adoption of sustainable business practices and solutions to build a healthy global economy.
Engagement and paying close attention to shareholder perspectives of the 2011 “sayCompany foster long-term relationships that are important components of sustainability. Therefore, in partnership with management, we work to connect with shareholders, address your concerns and sustain your trust throughout the year.
Living our Values. In the Company’s commitment to social responsibility, Prudential thinks globally and acts locally. The Company has a long-standing and deep investment in our hometown of Newark, N.J., with a sharp focus on pay” vote as well as the valued feedback received through engagement efforts, the Boarda few critical areas within education and economic development, especially public school reform and small business growth. We are beginning construction on a new office tower in downtown Newark, which will hold future “say on pay” votes on an annual basis, consistent with our recommendation and the strong agreementcreate another physical example of our shareholders atongoing commitment to the local community for many years to come.
We want to underscore the Board’s commitment to the values that distinguish Prudential as a company. These values served the Company and our employees well last year’s meeting. We have also made changesyear, as we faced the shock and aftermath of Superstorm Sandy right here in our executive compensation programs. These changes, more fully described in the Proxy Statement, include:communities and neighborhoods.
Compensation rebalancing. In October 2011, we adjusted the executive compensation arrangements to better align the mix of compensation with market and competitive practices and to tie more of the compensation of the named executive officers to longer term performance and risk outcomes. These changes consisted of:
an increase in salaries accompanied by a reduction in annual incentive award opportunities; and
an increase in the mandatory deferral rate into the Mid-Term Incentive Program.
The net effect of these changes was a modest reduction in the direct compensation opportunity of the named executive officers for 2011, before consideration of 2011 performance.
Changes to the design and disclosure of our executive compensation program for 2012.
establishing a more structured annual incentive program that features target and maximum annual incentive awards and performance factors aligned to our annual EPS targets;
revising the financial measures for our Annual Incentive Program and Long-Term Incentive Program to eliminate overlap;
revising the performance period for the performance share and performance unit awards under our Long-Term Incentive Program to a single three-year performance period;
providing additional information on the objectives and factors impacting the value of our Mid-Term Incentive Program and, to reflect its purpose and to reposition it as a component of our Long-Term Incentive Program, renaming the program as our Book Value Performance Program; and
developing a revised compensation peer group that better reflects our size in terms of total assets and market capitalization.
We believe the changes we have made to our executive compensation program reflect the feedback we receive and should encourage your endorsement of this year’s “say-on-pay” vote.
SUSTAINABILITY
We have implemented steps that recognize the importance of environmental, social and governance (ESG) issues and policies in our oversight of Prudential’s long-term sustainability.
We expanded the Charter of the Corporate Governance and Business Ethics Committee to include oversight of policy issues related to ESG. Also, as seen in the chart of “Summary of Director Qualifications and Experience” contained in the Proxy Statement, we incorporated ESG among the skills and experiences to be represented on the Board. These changes are aligned with our longstanding practice of having three of our Board members sit on the Community Resources Oversight Committee, which oversees all of Prudential’s corporate social responsibility efforts and serves as the Board of Trustees of The Prudential Foundation. These directors guideFoundation committed $3 million after the disaster to support 15 organizations, and overseewe established programs to help our own employees who were impacted by the strategystorm. In addition, more than 500 Prudential employees applied for and projectsreceived immediate assistance from the Company’s Associate Relief Fund. We could not be more proud of the Prudential employees who made donations of nearly $80,000 which were matched by the Prudential Foundation. In addition, employee food drives collected more than 3,000 pounds of food for the Community Resources Division inFood Bank of New Jersey, which provided meals for individuals and families affected by the areas of strategic philanthropy, employee engagement, corporate community involvement and investing for social return.storm.
We supported management’s creation of a new position focused on environmental sustainability to drive progress in this area.
We supported management’s decision to become a member of the Integrated Reporting Pilot Program (IRPP). IRPP is a two-year program offering a select group of companies across various industries the opportunity to demonstrate global leadership in this emerging field of corporate reporting. The aim of Integrated Reporting is to demonstrate the linkages between the Company’s strategy, governance and financial performance and the social, environmental and economic context within which it operates.
2 | Notice of Annual Meeting of Shareholders and |
LETTER FROM THE BOARD OF DIRECTORS(CONTINUED)
Christine A. Poon
John R. Strangfeld
James A. Unruh
By embedding sustainability into the Company’s strategic decision-making and articulating our activities in this area in an integrated way, we can provide you with greater insight into how we take sustainability into account as we work to create value in the short, medium and longer term.
OUR VALUES
We also want to underscore the Board’s commitment to the values that distinguish Prudential as a company. These values, which are integrated into the everyday work of the enterprise, were clearly on display to the world in March 2011 as Prudential and its employees responded to the Tōhoku earthquake and tsunami in Japan.
Prudential’s employees exceeded the call of duty in their commitment to their customers, to their communities, and to each other, and Prudential demonstrated its support through a $6.1 million contribution toward relief efforts in local communities. Together with senior management, we thank our Japanese colleagues for their extraordinary achievements in the wake of unforgettable natural devastation, and will continue to offer our ongoing support:Nihonjin no yuuki ni keii wo hyou shimasu.1
YOUR VIEWPOINTS
We value your support. By continuing to have constructive dialogue with you — our shareholders — we are better positioned to fulfill our obligations to you and to Prudential. We encourage you to share your opinions, interests and concerns, and invite you to write to us with your reactionscomments and suggestions at the address below. You can also email the Independent Directors at independentdirectors@ prudential.comindependentdirectors@prudential.com or provide feedback on executive compensation at www.prudential.com/executivecomp.
If you would like to write us, you may do so at Prudential Financial, Inc. Board of Directors c/o Margaret M. Foran, Chief Governance Officer, Vice President and Corporate Secretary, 751 Broad Street, 21st Floor, Newark, NJ 07102.
The Board of Directors of Prudential Financial, Inc.
Notice of Annual Meeting of Shareholders and | 3 |
Prudential Financial, Inc.
751 Broad Street, Newark, NJ 07102
March 27, 201226, 2013
DEAR FELLOW SHAREHOLDERS:
We are pleased to invite you to the Annual Meeting of Shareholders on May 8, 2012,14, 2013, at 751 Broad Street, Newark, New Jersey 07102NJ at 2:00 p.m. We hope that you will attend the meeting, but whether or not you are planning to attend, we encourage you to designate the proxies on the proxy card to vote your shares.
Because every shareholder’s vote is important, we continue our outreach to give you more information about the Company. We are offering again an incentive to registered shareholders, to encourage them to vote. We are excited that voting has increased each year and we planted over 229,000342,000 trees as a result of the incentive program. I thank you for your commitment to the Company and urge you to vote your shares.
Sincerely,
John R. Strangfeld
Chairman and Chief Executive Officer
4 | Notice of Annual Meeting of Shareholders and |
Prudential Financial, Inc.
751 Broad Street, Newark, NJ 07102
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF PRUDENTIAL FINANCIAL, INC.
Date: | May | |
Time: | 2:00 p.m. | |
Place: | Prudential’s Corporate Headquarters | |
751 Broad Street, Newark, NJ 07102 |
AGENDA:
Election of 13 directors named in the proxy statement;
Ratification of appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2012;2013;
Advisory vote to approve named executive officer compensation;
Amendments to the Company’s Certificate of Incorporation to eliminate supermajority voting provisions;
Shareholder proposal regarding independent Board Chair;written consent; and
Transaction of other business that may properly come before the meeting.
Record date: You can vote if you were a shareholder of record on March 9, 2012.15, 2013.
If you are attending the meeting, you will be asked to present your admission ticket and photo identification, such as a driver’s license as described in the proxy statement.Proxy Statement.
By Order of the Board of Directors,
Margaret M. Foran
Chief Governance Officer, Vice President and Corporate Secretary
March 27, 201226, 2013
Important Notice Regarding the Availability of Proxy Materials for the 20122013 Annual Meeting of Shareholders to be held on May 8, 2012:14, 2013: Our 20122013 Proxy Statement and Annual Report for the year ended December 31, 2011,2012, are available free of charge on our website at www.prudential.com/governance.
Notice of Annual Meeting of Shareholders and | 5 |
Summary Information |
To assist you in reviewing the proposals to be acted upon, including the election of directors and the non-binding advisory vote to approve named executive officer compensation, we call your attention to the following information about the Company’s 20112012 financial performance and key executive compensation actions and decisions. The following description is only a summary. For more complete information about these topics, please review the Company’s Annual Report on Form 10-K and the complete proxy statement.Proxy Statement.
BUSINESS HIGHLIGHTS |
Financial Performance. 20112012 was a year of major progress and accomplishment for our Company on many fronts:
• | Our Financial Services Businesses reported |
On an after-tax adjusted operating income basis, we recorded$3.1 billion for our Financial Services Businesses and posted earnings per share of Common Stock of$6.41 compared to $2.9 billion, or $6.17 per share of Common Stock, in 2010;
• | We reported book value for |
Our Financial Services Businesses reported operating return on average equity based on after-tax adjusted operating income of 10.8% for 2012 compared to 10.6% for 2011.
• | Assets under management |
Dividend. Given our ongoing strong financial performance, our Board increased ourWe declared an annual dividend of $1.60 per share of Common Stock for 2012, an increase of 10% from the 2011 Common Stock dividend, in 2011and announced that we will move to $1.45 per share, an increase of 26% from the prior year and the highest ever paid by our Company.
Corporate Transactions. We completed the acquisition of AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Co. for $4.7 billion in February 2011. We completed the divestiture of our global commodities business for proceeds of approximately $400 million in July 2011. Also, we completed the sale of our Prudential Real Estate and Relocation Services business for proceeds of approximately $100 million in December 2011.
Share Repurchase Program. In June 2011, we instituted a share repurchase program and authorized the repurchase of up to $1.5 billion of ourquarterly Common Stock through June 30, 2012. Through December 31, 2011, we repurchased approximately $1 billiondividend schedule beginning in the first quarter of our Common Stock under this program.2013.
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Summary Information(continued)
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Corporate Transactions. We solidified our position as the preferred provider of pension risk transfer strategies by entering into and completing landmark agreements to take on retiree pension obligations from General Motors Co. and Verizon Communications, Inc., which together brought us over $33 billion in group annuity account values. In September 2012, we announced an agreement to acquire The Hartford’s Individual Life Insurance business, including approximately 700,000 life insurance policies
with face amount in force of approximately $135 billion, through a reinsurance transaction for cash consideration of $615 million. The transfer was completed in January 2013.
Share Repurchase Program. We repurchased $650 million of our outstanding shares of Common Stock, including $150 million under a program announced in June 2012 to repurchase up to $1 billion of our outstanding shares of Common Stock through June 2013.
COMPENSATION HIGHLIGHTS |
We rebalancedThe Compensation Committee has increased the compensation mixrigor of the performance goals and payout scales under our senior executives for purposes of their individual compensation packages for 2011. This rebalancing involved the following changes:incentive programs with respect to 2012 performance:
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• | The size of the annual incentive pool was reduced by approximately 10% from the 2011 level; |
• | The Annual Incentive Award earned by our CEO decreased by approximately 11% on a year-over-year basis while his long-term incentive awards are unchanged, resulting in a decrease of approximately 4% in total direct compensation; |
• | The mandatory deferral of each NEO’s annual incentive award was increased from 20% to 30%; |
• | The rigor of the annual incentive award program was strengthened by setting target and maximum awards for senior executives, including the NEOs, and requiring achievement of at least the midpoint of guidance to maintain the same level of funding as in 2011; |
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These changes were made to achieve a better balance between fixed and variable compensation elements in the senior executives’ compensation packages, to more closely reflect market and competitive practices, and to link a greater portion of their compensation to long-term performance and risk outcomes. For additional discussion of these changes,information, see the CD&A in this Proxy Statement.
Consistent with the rebalancing, the base salary for John Strangfeld, your CEO, was increased to $1.4 million. In addition, he was awarded incentive compensation for 2011 commensurate with business results, including an annual incentive award of$5.04 million (net of $1.26 million that was mandatorily deferred into the Book Value Performance Program) and a long-term incentive award with a value of$9.76 million (including the mandatory deferral). Consistent with our executive compensation philosophy, the significant majority of his total direct compensation of $16.2 million for 2011 was incentive-based and at risk, as illustrated by the following chart:
The compensation of our other NEOs similarly reflects both our strong 20112012 performance and the adjustments toincreased rigor of our executive compensation program:annual incentive program.
Named Executive Officer | 2011 Base Salary | 2011 Annual (as adjusted for | 2011 Long-Term Award Value | 2011 Total Direct Compensation | 2012 Base Salary | 2012 Annual (as adjusted for | 2012 Long-Term Award Value(2) | 2012 Total Direct Compensation | ||||||||
John R. Strangfeld | $1,400,000 | $3,941,000 | $10,189,000 | $15,530,000 | ||||||||||||
Richard J. Carbone | $700,000 | $2,200,000 | $2,550,000 | $5,450,000 | $700,000 | $1,732,500 | $2,742,500 | $5,175,000 | ||||||||
Mark B. Grier | $1,190,000 | $4,280,000 | $7,670,000 | $13,140,000 | $1,190,000 | $3,377,500 | $8,447,500 | $13,015,000 | ||||||||
Edward P. Baird | $770,000 | $3,360,000 | $4,140,000 | $8,270,000 | $770,000 | $2,310,000 | $4,490,000 | $7,570,000 | ||||||||
Charles F. Lowrey | $770,000 | $3,600,000 | $4,900,000 | $9,270,000 | $770,000 | $2,835,000 | $5,715,000 | $9,320,000 |
(1) | The following amounts are not included in the |
(2) | Represents long-term awards granted in 2013 for 2012 performance. |
Changes in responseResponse to advisory vote and shareholder feedback
We were gratified that 86.5%almost 96% of the votes cast last yearin 2012 on the non-binding advisory vote on our named executive officer compensation program voted in support of the compensation paid to the NEOs.senior executives. Nevertheless, consistent with its strong interest in shareholder engagement, communication, and transparency, the Compensation Committee continued to refineexamine our executive compensation program to better alignassure alignment between the interests of our senior executives and shareholders and respond to shareholder feedback, making the following changes to be effective in 2012:shareholders.
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Notice of Annual Meeting of Shareholders and | 7 |
Summary Information(continued) |
RECENT CORPORATE GOVERNANCE CHANGES
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Providing additional information on the objectives and factors impacting the value of our Mid-Term Incentive Program and, to reflect its purpose and to reposition it as a component of our Long-Term Incentive Program, renaming the program as our Book Value Performance Program;
Increasing the mandatory deferral rate on annual incentive awards to NEOs into the Book Value Performance Program to 20% for 2011 awards payable in 2012 and to 30% for 2012 awards payable in 2013; and
Developing a revised compensation peer group that better reflects our size in terms of assets and market capitalization.
SHAREHOLDER ACTIONS |
ELECTION OF DIRECTORS (Item 1)
You will find important information about the qualifications and experience of each of the director nominees who you are being asked to elect. The Corporate Governance and Business Ethics Committee performs an annual assessment to see that your directors have the skills and experience to effectively oversee the Company. All of your directors have proven leadership, sound judgment, integrity and a commitment to the success of our Company.
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Item 2)
The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the Company’s independent registered public accountaccounting firm (independent auditor) for 2012.2013. We are not required to have shareholders ratify the selection of PricewaterhouseCoopers as our independent auditor. We nonetheless are doing so because we believe it is a matter of good corporate practice. If shareholders do not ratify the selection, the Audit Committee will reconsider whether or not tothe appointment, but may nevertheless retain PricewaterhouseCoopers but may retain suchas the Company’s independent auditor.
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION (Item 3)
For the third year, our shareholdersShareholders are being asked to cast a non-binding, advisory vote on our named executive officer compensation program. We were gratified that, last year,
86.5% almost 96% of theour shareholders’ votes cast by our shareholders supported our executive compensation program. Please see “Consideration of Last year’sYear’s ‘Say on Pay’ Vote” in theour CD&A for a discussion of how our Board and the Compensation Committee responded to the results of last year’sthe 2012 advisory vote.
Consistent with the recommendation of our Board and the preference of our shareholders, as reflected in the non-binding advisory vote on the frequency of future “say on pay” votes that we conducted last year, we willhave decided to hold an annual “say“Say on pay”Pay” vote. In evaluating this year’s “say“Say on pay”Pay” proposal, we recommend that you review our CD&A, which explains how and why the Compensation Committee of our Board arrived at its executive compensation actions and decisions for 2011.2012. We suggest you also refer to the letter from our Board and our corporate governance policies which are contained in this proxy statement.
AMENDMENTS TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY VOTING PROVISIONS (Item 4)
We are also asking shareholders to approve amendments to eliminate supermajority voting provisions in our Certificate of Incorporation. Last year, we supported a shareholder proposal to eliminate the supermajority voting provisions and pledged we would submit the matter to shareholders.Proxy Statement.
SHAREHOLDER PROPOSAL (Item 5)4)
Finally, you are also being asked to consider one shareholder proposal regarding written consent contained in this proxy statement.
Proxy Statement.
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PROXY STATEMENT
The Board of Directors of Prudential Financial, Inc. (Prudential Financial or the Company) is providing this proxy statementProxy Statement in connection with the Annual Meeting of Shareholders to be held on May 8, 2012,14, 2013, at 2:00 p.m., at Prudential Financial’s Corporate Headquarters, 751 Broad Street, Newark, New JerseyNJ 07102, and at any adjournment or postponement thereof. Proxy materials or a Notice of Internet Availability were first sent to shareholders on or about March 27, 2012.26, 2013.
Notice of Annual Meeting of Shareholders and | 9 |
Our Board of Directors has nominated 13 directors for election at this Annual Meeting to hold office until the next annual meeting and the election of their successors. All of the nominees are currently are directors. Each agreed to be named in this proxy statementProxy Statement and to serve if elected. All of the nominees are expected to attend the 20122013 Annual Meeting. All directors with the exception of one, attended the 20112012 Annual Meeting.
We have no reason to believe that any of the nominees will be unable or unwilling for good cause to serve if elected. However, if any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.
QUALIFICATIONS AND EXPERIENCE
Prudential Financial is a financial services company that offers a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, and investment management. The Corporate Governance and Business Ethics Committee performs an assessment of the skills and the experience needed to properly oversee the interests of the Company. Generally, the Committee reviews both the short- and long-term strategies of the Company to determine what current and future skills and experience are required of the Board in exercising its oversight function. The Committee then compares those skills to the skills of the current directors and potential director candidates. The Committee conducts targeted efforts to identify and recruit individuals who have the qualifications identified through this process, keeping in mind its commitment to diversity.
While the Company does not have a formal policy on Board diversity, diversity is an integral part of our Corporate Governance Principles, and the Committee actively considers diversity in recruitment and nominations of directors. The current composition of our Board reflects those efforts and the importance of diversity to the Board:
• | Two director nominees have worked outside the United States; |
Two director nominees are African-American;
• | Two director nominees are African-American; |
One director nominee is Asian-American;
• | One director nominee is Asian-American; |
One director nominee is Hispanic; and
• | One director nominee is Hispanic; and |
• | Three director nominees are women. |
Three director nominees are women.
Prudential Financial is a financial services company that offers a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, and investment management. The Committee looks for its current and potential directors collectively to have a mix of skills and qualifications, some of which are described below:
Directors’ Skills and Qualifications
DIRECTORS’ SKILLS AND QUALIFICATIONS | ||||
academia/education business ethics business head/ administration business operations corporate governance environmental/ sustainability/corporate responsibility finance/capital allocation financial expertise/literacy
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government/public policy | insurance industry international investments marketing/sales real estate risk management talent management technology/systems |
TheIt is of critical importance to the Company that the Committee seeksrecruit directors who have qualities to achieve the ultimate goal of a well-rounded, diverse Board that functions collegially as a unit, which is of critical importanceunit. With respect to the Company.Board’s slate of director nominees, the Board has also considered whether the slate, taken as a whole, has representatives with the above listed skills and qualifications.
Additionally, the Committee expects each of the Company’s directors to have proven leadership, sound judgment, integrity and a commitment to the success of the Company.
In evaluating director candidates and considering incumbent directors for nomination to the Board, the Committee considers a variety of factors. These include each nominee’s independence, financial literacy, personal and professional accomplishments, and experience in light of the needs of the Company. For incumbent directors, the factors also include past performance on the Board and contributions to their respective committees. With respect to the Board’s slate of director nominees, the Board has also considered whether the slate, taken as a whole, has representatives with the above listed skills and qualifications.
Below each nominee’s biography, we have included an assessment of the skills and experience of such nominee. Immediately after the biographies, weWe have also included a chart that covers the assessment for the full Board.
10 | Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors(continued) |
|
DIRECTOR NOMINEESDirector Nominees
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” ALL OF THE NOMINEES.The Board of Directors recommends that shareholders vote “FOR” all of the nominees.
THOMAS J. BALTIMORE, JR. | ||||||||
Age: Director Since:October 2008 | Prudential Committees:
• • Finance • Investment (Chair) Former Directorships Held During the Past Five Years: • Integra Life Sciences Corporation (August 2012)
| Public Directorships:
• RLJ Lodging Trust • Duke Realty Corporation | ||||||
Mr. Baltimore has been the President and Chief Executive Officer of RLJ Lodging Trust (a NYSE-listed real estate investment company), with nearly $3 billion in assets under management, since May 2011. Previously, he served as Co-Founder and President of RLJ Development, LLC (RLJ Lodging’s predecessor company) from 2000 to May 2011. He served as VP, Gaming Acquisitions, of Hilton Hotels Corporation from 1997 to 1998 and later as VP, Development and Finance, from 1999 to 2000. He also served in various management positions with Host Marriott Services, including VP, Business Development, from 1994 to 1996.
Skills and Qualifications
Business Operations— Head/Administrator: Over a decade of service as President of RLJ Development.
Business Operations:As President and CEO of RLJ Lodging Trust, Mr. Baltimore is responsible for the day-to-day oversight of its $3 billion portfolio, which includes 141146 hotels in major markets in North America, andAmerica. He spent over a decade as Co-Founder and President of RLJ Development, where he was responsible for developing, implementing and assessing the company’s operating plan.
Corporate Governance—Governance: Experience serving as a director of twoseveral public companies in addition to Prudential.
Investments—Investments: Through RLJ Lodging Trust, Mr. Baltimore has been responsible for overseeing the management of nearly $2 billion in equity; formerly served as VP, Development and Finance of Hilton Hotels.
Real Estate—Estate: President and CEO of RLJ Lodging Trust and a director of Duke Realty, one of the largest commercial real estate companies in the U.S., and as former Co-Founder and President of RLJ Development.
GORDON M. BETHUNE
| ||||||||
Age: Director Since:February 2005 | Prudential Committees:
• Compensation • Corporate Governance | Public Directorships: • Honeywell International Inc. • Sprint Nextel Corporation | ||||||
|
Mr. Bethune has been Managing Director of g-b1 Partners (a travel advisory firm) since January 2005. He was Chairman and CEO of Continental Airlines, Inc. (an international commercial airline company) from 1996 until his retirement in December 2004. Mr. Bethune was the President and CEO of Continental Airlines from November 1994 to 1996 and served as President and Chief Operating Officer from February 1994 to November 1994. Prior to joining Continental, Mr. Bethune held senior management positions with The Boeing Company, Piedmont Airlines, Western Air Lines, Inc. and Braniff Airlines (various airline companies).
Skills and Qualifications
Business Head/Administration—Administration: A decade of service as CEO of Continental Airlines.
Business Operations—Operations: Served as CEO and Chief Operating Officer of Continental Airlines.
Corporate Governance—Governance: Experience serving as a director of several large public companies in addition to Prudential.
International—International: Experience in the travel industry, including with g-b1 Partners and several major airlines and as a director of two large public companies with international operations.
Marketing/Sales—Sales: As Chairman and CEO of Continental Airlines, transformed the company into an industry leader through innovative marketing initiatives.
Talent Management—Management: Extensive experience in developing and implementing strategies and policies for the acquisition and development of employee talent.
Notice of Annual Meeting of Shareholders and | 11 |
Item 1—Election of Directors (continued) |
GASTON CAPERTON
| ||||||||
Age: Director Since:June 2004 | Prudential Committees:
| Public Directorships: • Owens Corning • United Bankshares, Inc. |
Mr. Caperton is the Vice Chairman of the Board of Advisors for Leeds Equity Partners, a private equity firm focused on companies within the knowledge industries. Mr. Caperton has beenis also the Chairman of The Caperton Group, a business investment and development company. He served as the President of The College Board (a non-profit membership association of more than 5,900 schools, colleges and universities) since 1999. Mr. Caperton has announced his retirement from The College Board effective June 30,October 1999 to October 2012. He served as the Governor of the State of West Virginia from 1988 to 1996. From 1963 to 1987, he was an entrepreneur and was CEO and owner of the tenth largest privately owned insurance brokerage firm in the United States. From 1997 to 1999, he was a fellow at Harvard University John F. Kennedy Institute of Politics and was an Executive Director of Columbia University’s Institute on Education & Government at Teachers College. Mr. Caperton was the 1996 Chair of the Democratic Governors’Governors Association, and served on the National Governors’ AssociationGovernors Association’s executive committee and was a member of the Intergovernmental Policy Advisory Committee on U.S. Trade. He also was the Chairman of the Appalachian Regional Commission, Southern Regional Education Board and the Southern Growth Policy Board.
Skills and Qualifications
Academia/Education —Education: Experience through his role as President of The College Board where he reshaped the mission to connect greater numbers of students to college success and opportunity while raising educational standards. Mr. Caperton was a fellow at the John F. Kennedy Institute of Politics at Harvard University and an Executive Director at Columbia University, where he founded and managed the Institute on Education and Government.
Business Head/Administration — ServesAdministration: Served as President of The College Board.
Business Operations: Served as CEO and owner of the tenth largest privately owned insurance brokerage firm in the U.S.
Corporate Governance—Governance: Experience serving as a director of several large public and private companies.
Environmental/Sustainability/Corporate Responsibility—Responsibility: As Governor of West Virginia from 1988 to 1996, he initiated groundbreaking ethics legislation for public officials, and integrated principles of sustainable
development into West Virginia policies and programs and significantly improved the future economic success of the citizens of that Appalachian state.
Government/Public Policy—Policy: Served two terms as Governor of West Virginia; former fellow at Harvard University’s John F. Kennedy Institute of Politics; former teacher and Executive Director of Columbia University’s Institute on Education & Government at Teachers College.
Insurance Industry—Industry: Insurance industry experience through service as CEO and owner of the tenth largest privately owned insurance brokerage firm in the United States.
International—International: Experience as a director on the boards of several international companies.
Marketing/Sales—Sales: Over two decades of experience as an entrepreneur, CEO and owner of a privately owned insurance brokerage firm, where he oversaw the company’s sales and marketing efforts.
12 | Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors (continued) |
|
GILBERT F. CASELLAS | ||||||||
Age: Director Since:January 2001 (Director of Prudential Insurance since April 1998) | Prudential Committees: • Audit |
|
Mr. Casellas has been Chairman of OMNITRU (consulting and investment firm) since 2011 and2011. He was the VP, Corporate Responsibility of Dell Inc. (a global computer manufacturer) from 2007 to 2010. He served as a Member of Mintz Levin Cohn Ferris Glovsky & Popeo, PC (a law firm) from June 2005 to October 2007. He served as President of Casellas & Associates, LLC (a consulting firm) from 2001 to 2005. During 2001, he served as President and CEO of Q-linx, Inc. He served as the President and COO of The Swarthmore Group, Inc. from January 1999 to December 2000. Mr. Casellas served as Chairman, U.S. EEOC from 1994 to 1998 and General Counsel, U.S. Department of the Air Force, from 1993 to 1994.
Skills and Qualifications
Business Ethics—Ethics: At Dell Inc., he was responsible for the company’s global sustainability and corporate philanthropy functions.
Business Operations —Operations: Former President and CEO of Q-linx; former COO of The Swarthmore Group.
Corporate Governance— Governance:Experience serving as a director of a private company and serving on the University of Pennsylvania Board for over 16 years and as VP, Corporate Responsibility at Dell Inc., where he oversaw the company’s global diversity, sustainability and corporate philanthropy functions. Mr. Casellas also has proven diversity experience through his appointment by the President as a civilian member to the Military Leadership Diversity Commission and as a member of the Diversity Advisory Board of Toyota Motor North America Inc., the Joint Diversity Council of Comcast Corporation, and previously as the chair of the Committee on Workplace Diversity for Yale University, a member of the board of the Hispanic Federation, a member of the board of the University of Pennsylvania, and as a member of The Coca-Cola Company’s Diversity Task Force.
Environmental/Sustainability/Corporate Responsibility — As VP of Corporate Responsibility atResponsibility: At Dell, he oversaw global diversity, sustainability and corporate philanthropy, and contributed to a company culture recognized for leadership in environmentally conscious packaging, support of diverse suppliers and human rights.
Government/Public Policy—Policy: Served as Chairman of the U.S. EEOC and as General Counsel of the U.S. Department of the Air Force.
Investments— Investments:Serves as Chairman of OMNITRU, a consulting and investment firm, and served as President and COO of The Swarthmore Group, a registered investment advisor.
Risk Management—Management: Former member of the law firm of Mintz Levin Cohn Ferris Glovsky & Popeo, PC; former General Counsel of the U.S. Department of the Air Force; former VP, Corporate Responsibility of a Fortune 100 company.Dell Inc.
JAMES G. CULLEN
| ||||||||
Age: Director Since:January 2001 Lead Director Since:May 2011 (Director of Prudential Insurance sinceApril 1994) | Prudential Committees: • Compensation (Chair) • Executive (Chair) | Public Directorships: • Agilent Technologies, Inc. • Johnson & Johnson • NeuStar, Inc. (Non-Executive Chairman) |
Mr. Cullen served as the President and COO of Bell Atlantic Corporation (a global telecommunications company) from December 1998 until his retirement in June 2000. Mr. Cullen was the President and CEO, Telecom Group of Bell Atlantic Corporation from 1997 to 1998 and served as Vice Chairman of Bell Atlantic Corporation from 1995 to 1997. The Presiding Director of the Board of Johnson & Johnson since 2004, Mr. Cullen has also served as Non-Executive Chairman of the Board of NeuStar, Inc. since November 2010 and the Non-Executive Chairman of the Board of Agilent Technologies, Inc. since March 2005.
Skills and Qualifications
Business Head/Administration—Administration: Formerly served as President and CEO of the Telecom Group at Bell Atlantic.
Business Operations—Operations: Former President and COO of Bell Atlantic.
Corporate Governance—Governance: Experience serving as a director of several large public companies including non-executive chairman and lead director.
International—International: Experience as a director on the boards of several international companies and held multiple positions at Bell Atlantic.
Marketing/Sales—: As Vice Chairman of Bell Atlantic, had accountability for strategic planning, business development and customer-focused network lines of business.
Talent Management —Management: As former President and COO of Bell Atlantic, responsible for acquisition and development of employee talent.
Notice of Annual Meeting of Shareholders and | 13 |
Item 1—Election of Directors (continued) |
| WILLIAM H. GRAY III
| ||||||||
Age: Director Since:January 2001 (Director of Prudential Insurance since September 1991) | Prudential Committees: • Corporate Governance and Business Ethics
|
| |||||||
Former Directorships Held During the Past Five Years: • JPMorgan Chase & Co. (May 2012) • Visteon Corporation (January 2010) | Public Directorships: • Dell Inc. • Pfizer Inc.
|
Mr. Gray is Chairman of Gray Global Strategies, Inc. (a business advisory firm), and is a Senior Advisor to Gray Global Advisors, L.L.C. Prior to founding Gray Global Strategies, Inc., Mr. Gray was Co-Chairman of GrayLoeffler, LLC (a business advisory and government relations firm, formerly the Amani Group) from 2009 to 2011. He served as the Chairman of the Amani Group from 2004 to 2009. Mr. Gray served as President and CEO of The College Fund/UNCF (a philanthropic foundation) from 1991 until his retirement in 2004. From 1979 to 1991, Mr. Gray served as a Member of the U.S. House of Representatives. Mr. Gray, an ordained Baptist minister, is Pastor Emeritus of the Bright Hope Baptist Church of Philadelphia since 2005.
Skills and Qualifications
Academia/Education—Education: Experience as President and CEO of the UNCF, a philanthropic organization that fundraises college tuition money for black students and provides general scholarship funds for 39 private historically black colleges and universities.
Business Ethics—Ethics: Mr. Gray has previous experience with the Business Roundtable Institute for Corporate Ethics.
Business Head/Administration—Administration: Over a decade of experience as President and CEO of The College Fund/UNCF. Mr. Gray is also Chairman of Gray Global Strategies, Inc. and was Co-Chairman of GrayLoeffler.
Business Operations— In his position at The College Fund/UNCF, Mr. Gray was responsibleOperations: Responsible for developing, implementing and assessing the organization’sUNCF’s operating plan.
Corporate Governance— Governance:Experience serving as a director and Chair of the Governance and Nominating Committees for several large public companies in addition to Prudential.
Environmental/Sustainability/Corporate Responsibility —Responsibility: As President and CEO of the UNCF for 13 years, Mr. Gray was at the forefront of leadership initiatives to ensure sustainable educational benefits for future generations of students at historically black colleges and universities.
Financial Services—Services: Over a decadetwo decades of experience serving as a director of JPMorgan Chase & Co., a global financial services firm. As Chair of the U.S. House of Representatives’ Budget Committee, Mr. Gray helped develop the fiscal policies of the U.S. Government.
Government/Public Policy—Policy: Served as Co-Chairman of GrayLoeffler and a Member of the U.S. House of Representatives. During his tenure in the House, Mr. Gray served on the Steering and Policy, Budget and House Appropriations Committees and was the leaderas Chair of the House Budget Committee and the Democratic Caucus.Caucus of the House and as the Majority Whip.
International—International: Experience as a director on the boards of several international companies.
14 | ||
Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors (continued) |
|
MARK B. GRIER | ||||||||
Age: Director Since:January 2008 |
Mr. Grier has served as Vice Chairman since 2007 and a member of the Office of the Chairman of Prudential Financial since August 2002. From April 2007 through January 2008, he served as Vice Chairman overseeing the International Insurance and Investments division and the Global Marketing and Communications. Mr. Grier was Chief Financial Officer of Prudential Insurance from 1995 to 1997 and has served in various executive roles. Prior to joining Prudential, Mr. Grier was an executive with Chase Manhattan Corporation.
Skills and Qualifications
Business Head/Administration—Administration: Experience as a current and former member of senior management for several large public companies.
Business Operations —: As Vice Chairman, Mr. Grier has oversight and responsibility for Finance, Risk Management, Investor Relations, Operations and Systems, Auditing, External Affairs, and Global Marketing and Communications.
Corporate Governance— Governance:Mr. Grier has developed corporate governance expertise through his membership on Prudential’s Board since 2008.
Environmental/Sustainability/Corporate Responsibility —Responsibility: As Vice Chairman, of Prudential, he supports ventures that create healthy and sustainable communities around the world and helps non-profit organizations achieve long-term sustainability, resulting in Prudential serving as a leading example of corporate citizenship and social responsibility, and he was a recent recipient of the UNICEF Spirit of Compassion Award, which recognizes advocacy to advance the course of children around the world.responsibility.
Finance/Capital Allocation—Allocation: Over a decade of financial experience through various roles at Prudential, including Vice Chairman overseeing International Insurance and Investments and CFO of Prudential Insurance; former executive with Chase Manhattan, a leading global financial services firm.
Financial Services —Services: Over two decades in the financial services industry.
Government/Public Policy—Policy: Mr. Grier has experience in oversight and responsibility for theof Prudential’s public policy and government affairs function.
Insurance Industry —Industry: Insurance industry experience through service as a member of senior management.
International—International: Experience as a current and former member of senior management for large public companies with international operations.
Risk Management—Management: Mr. Grier plays a key role in developing and implementing Prudential’s risk management policies and procedures.
Talent Management—Management: Experience leading large, global teams at Prudential.
Technology/Systems—Systems: Mr. Grier has oversight and responsibility for thePrudential’s Operations and Systems function.
Notice of Annual Meeting of Shareholders and | 15 |
Item 1—Election of Directors (continued) |
| CONSTANCE J. HORNER
| |||||||
Age: Director Since:January 2001 (Director of Prudential Insurance | Prudential Committees:
• Compensation • Corporate Governance and • Executive | Public Directorships: • Ingersoll-Rand • Pfizer Inc. |
Ms. Horner served as a Guest Scholar at The Brookings Institution (non-partisan research institute) from 1993 to 2005, after serving as Assistant to the President of the United States and Director, Presidential Personnel from 1991 to 1993; Deputy Secretary, U.S. Department of Health and Human Services from 1989 to 1991; and Director, U.S. Office of Personnel Management from 1985 to 1989. Ms. Horner was a Commissioner, U.S. Commission on Civil Rights from 1993 to 1998.
Skills and Qualifications
Business Head/Administration—Administration: Former Assistant to the President of the U.S. and Director of Presidential Personnel; Deputy Secretary of the U.S. Department of Health and Human Services; Director of the U.S. Office of Personnel Management.
Corporate Governance—Governance: Experience serving as a director and Chair of the Corporate Governance and Nominations CommitteeCommittees of several large public companies.
Environmental/Sustainability/Corporate Responsibility—Responsibility: In providing oversight inof sustainability issues and maintaining responsible business models for several international companies, Ms. Horner has encouraged sustainable product development and strong corporate citizenship initiatives.
Government/Public Policy—Policy: Ms. Horner has government/public policy experience through her various senior positions in the federal government, including Commissioner of the U.S. Commission on Civil Rights.
International —International: Experience as a director on the boards of several international companies.
Talent Management—Management: Former Assistant to the President of the U.S. and Director, Presidential Personnel; former Director, U.S. Office of Personnel Management.
| MARTINA HUND-MEJEAN | |||||||
Age: Director Since:October 2010 | Prudential Committees: • Audit |
Ms. Hund-Mejean has served as the Chief Financial Officer and a member of the Executive Committee at MasterCard Worldwide (a global transaction processing and consulting services company) since 2007. Ms. Hund-Mejean served as SVP and Corporate Treasurer at Tyco International Ltd. from 2003 to 2007; SVP and Treasurer at Lucent Technologies from 2000 to 2002; and held management positions at General Motors Company from 1988 to 2000. Ms. Hund-Mejean began her career as a credit analyst at Dow Chemical in Frankfurt, Germany.
Skills and Qualifications
Business Operations —Head/Administration: Over a decade of experience in senior positions at multiple Fortune 500 companies.
Business Operations: Has served as CFO of MasterCard Worldwide since 2007; SVP and Corporate Treasurer at Tyco; SVP and Treasurer at Lucent Technologies; and held management positions at General Motors.
Corporate Governance—Governance: Experience through her role at MasterCard, where she is responsible for Global Risk Management, Internal Audit and Investor Relations.IR.
Finance/Capital Allocation —Allocation: Over a decade of financial experience through various roles within the financial divisions at MasterCard Tyco, Lucent Technologies and General Motors.other companies.
Financial Services — Services:Experience through her position as CFO of MasterCard.
International —International: Current and former member of senior management of several public companies with international operations.
Investments — Investments:Responsibilities included $30 billion Defined Benefit Plan while serving as SVP and Treasurer of Lucent Technologies Inc. (Alcatel-Lucent).
Talent Management —Management: Experience leading large global teams at a number of Fortune 500 companies.
16 | ||
Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors (continued) |
|
KARL J. KRAPEK
| |||||||||
Age: Director Since:January 2004 | Prudential Committees:
• Executive • Finance (Chair)
|
•
| |||||||
Former Directorships Held During the Past Five Years: • Visteon Corporation (June 2012) • The Connecticut Bank & Trust Company (April 2012) • Alcatel-Lucent (October 2008) |
• Northrop Grumman Corporation |
Mr. Krapek is a co-founder of The Keystone Companies, which was founded in 2002 and develops residential and commercial real estate. Mr. Krapek served as the President and COO of United Technologies Corporation (a diversified aerospace and industrial products company)(“UTC”) from 1999 until his retirement in January 2002. Prior to that time, Mr. Krapek held other management positions at United Technologies Corporation,UTC, which he joined in 1982.
Skills and Qualifications
Business Head/Administration—Administration: Formerly served as President and COO of United Technologies.UTC.
Business Operations—Operations: Formerly served as President and COO of United Technologies.UTC.
Corporate Governance—Governance: Experience serving as a director of several large public companies.
International—Environment/Sustainability/Corporate Responsibility: Led the business units of UTC when the company was at the forefront of environmental and industry firsts in sustainable equipment design sensitive to increasing efficiencies in the use of energy, water and materials.
Finance/Capital Allocation: President and COO of UTC with two decades of executive level experience reviewing financial statements and capital structures of UTC and its subsidiaries.
International: Served as current or former director of several public companies with international operations and as a former Chairman, President or CEO of several large public companies with global operations.
Real Estate—Estate:Co-founder of The Keystone Companies, which develops residential and commercial real estate.
Technology/Systems—Systems: Two decades of experience at United Technologies,UTC, which provides high-tech products and support to the aerospace and building industries, including President and Chief Operating Officer. Experience serving as a director at several companies in the technology industry.
| CHRISTINE A. POON | ||||||||
Age: Director Since:September 2006 | Prudential Committees:
• |
• | |||||||
Former Directorships Held During the Past Five Years: • Johnson & Johnson (March 2009) | Public Directorships: • Koninklijke Philips Electronics NV • Regeneron Pharmaceuticals |
Ms. Poon has served as Dean of Fisher College of Business, The Ohio State University since May 2009. She served as Vice Chairman and a Member of the Board of Directors of Johnson & Johnson (a global healthcare products and services company) from 2005 until her retirement in March 2009. Ms. Poon joined Johnson & Johnson in 2000 as Company Group Chair in the Pharmaceuticals Group. She became a Member of Johnson & Johnson’s Executive Committee and Worldwide Chair, Pharmaceuticals Group, in 2001, and served as Worldwide Chair, Medicines and Nutritionals from 2003 to 2005. Prior to joining Johnson & Johnson, she served in various management positions at Bristol-Myers Squibb (a global biopharmaceutical company) for 15 years.
Skills and Qualifications
Academia/Education— Education:Serving as the Dean of Fisher College of Business at The Ohio State University, an international leader in business education.
Business Head/Administration—Administration: Experience as former executive of two Fortune 500 companies.
Business Operations—Operations: Currently serves as Dean of Fisher College of Business at The Ohio State University; formerly served in a variety of managementexecutive positions at two Fortune 500 companies.
Corporate Governance—Governance: Experience serving as a director of large public companies.
International—International: Current or former director of public companies with international operations and as former Worldwide Chair of the Pharmaceuticals Group and the Medicines and Nutritionals Group of Johnson & Johnson.
Marketing/Sales—Sales: As Vice Chairman, Worldwide Chair of the Pharmaceuticals Group at Johnson & Johnson, Ms. Poon was responsible for the strategic growth of the global pharmaceuticals group.
Notice of Annual Meeting of Shareholders and | 17 |
Item 1—Election of Directors (continued) |
| JOHN R. STRANGFELD | |||||||
Age: Director Since:January 2008 (Elected Chairman May 2008) | Prudential Committees: • Executive |
Mr. Strangfeld has served as CEO and President of Prudential Financial since January 2008 and Chairman of the Board since May 2008. Mr. Strangfeld is a Member of the Office of the Chairman of Prudential Financial and served as Vice Chairman of Prudential Financial from 2002 through 2007, overseeing the U.S. Insurance and Investments divisions. Prior to his position as Vice Chairman, Mr. Strangfeld held a variety of senior investment positions at Prudential, both within the U.S. and abroad.
Skills and Qualifications
Business Head/Administration—Administration: Held a variety of executive management positions at Prudential, including oversight responsibility for the U.S. Insurance and Investments divisions.
Business Operations —Operations: Mr. Strangfeld is responsible for developing, implementing and assessing Prudential’s operating plan.
Corporate Governance—Governance: Mr. Strangfeld has developed corporate governance expertise through his leadership on Prudential’s Board.
Environmental/Sustainability/Corporate Responsibility —Responsibility: As CEO of Prudential, Mr. Strangfeld has addressed social, sustainability and environmental concerns and has ensured that the company’s corporate citizenship reflects its core values, through such activities as the company’s efforts to revitalize its home city of Newark, as well as its philanthropic, employee-volunteer and educational initiatives within the country and the international community.
Finance/Capital Allocation: Over a decade of financial experience through various roles at Prudential
Financial Services — Services:Over three decades in the financial services industry.
Insurance Industry —Industry: Mr. Strangfeld previously oversaw the U.S. Insurance and Investments divisions.
International— Has heldInternational: Held a variety of executive positions at Prudential, both within the U.S. and abroad.
Investments—Investments: Held a variety of senior investment positions at Prudential, including oversight responsibility for the U.S. Insurance and Investments divisions.
Risk Management—Management: Mr. Strangfeld is ultimately responsible for leading the management team in developing and implementing Prudential’s risk management policies and procedures.
Talent Management— Directs that effectiveManagement: Advocates talent management is foremost in Prudential’sas key component of Prudential's corporate strategy and reflected in individual employee performance objectives/evaluations.strategy. Actively engages the Board of Directors on talent management strategy and succession planning for senior leadership.
Technology/Systems—Systems: Mr. Strangfeld has oversight and responsibility for thePrudential’s Operations and Systems function.
JAMES A. UNRUH
| |||||||||
Age: Director Since:January 2001 (Director of Prudential | Prudential Committees: • Audit (Chair)
|
•
| |||||||
Former Directorships Held During the Past Five Years: • Qwest Communications International, Inc. (March 2011) • CenturyLink, Inc. (May 2012)
| Public Directorships: • CSG Systems International, Inc. • Tenet Healthcare Corporation |
Mr. Unruh became a founding Member of Alerion Capital Group, LLC (a private equity investment group) in 1998. Mr. Unruh was with Unisys Corporation (a global information technology consulting services and solutions company) from 1987 to 1997, serving as its Chairman and CEO from 1990 to 1997. He also held executive positions with financial management responsibility, including serving as Senior Vice President, Finance, Burroughs Corporation (a business equipment manufacturer), from 1982 to 1987. In addition, Mr. Unruh serves as a director of several privately held companies in connection with his position at Alerion Capital Group, LLC.
Skills and Qualifications
Business Head/Administration—: Served as Chairman and CEO of Unisys Corporation.
Business Operations—Operations: As the CEO of Unisys, Mr. Unruh was responsible for developing, implementing and assessing the company’s operating plan.
Corporate Governance— Governance:Experience serving as a director of public and private companies.
Finance/Capital Allocation—Allocation: Founding member of Alerion Capital Group, a private equity investment group; former executive with responsibility for financial management at Burroughs Corporation.
International—International: Former Chairman and CEO of Unisys and current director of several public companies with global operations.
Investments —Investments: Experience overseeing financial management at Burroughs Corporation.
Marketing/Sales— Sales:Extensive experience in marketing at several large public companies.
Risk Management—Management: As Chairman and CEO of Unisys, he was responsible for the company’s risk management initiatives.
Technology/Systems—Systems: Former Chairman and CEO of Unisys and currently at Alerion Capital Group, where he oversees private equity investments in later-stage technology and technology-enabled companies.
Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors (continued)
|
|
Notice of Annual Meeting of Shareholders and | |
The Company is committed to good corporate governance, which helps us compete more effectively, sustain our success and build long-term shareholder value. The Company is governed by a Board reviewsof Directors and committees of the Company’s policiesBoard that meet throughout the year. Directors discharge their responsibilities at Board and business strategiescommittee meetings and advises and counsels the Chief Executive Officer (“CEO”) and thealso through other executive officers who manage the Company’s businesses. communications with management.
The Board has adopted Corporate Governance Principles and Practices to provide a framework for the effective governance of the Company.
The Corporate Governance Principles and Practices are reviewed regularly and updated as appropriate. The full text of the Corporate Governance Principles, which includes the definition of independence adopted by the Board, the charters of the Corporate Governance and Business Ethics, Compensation and Audit Committees, the Lead Independent Director Charter, the Code of Business Conduct and Ethics and the Related Party Transaction Approval Policy can be found at www.prudential.com/governance. Copies of these documents also may be obtained from the Chief Governance Officer and Corporate Secretary.
Governance is a continuing focus at the Company, starting with the Board and extending to management and all employees. Therefore, the Board reviews the Company’s policies and business strategies and advises and counsels the Chief Executive Officer (“CEO”) and the other executive officers who manage the Company’s businesses.
In addition, we solicit feedback from shareholders on governance and executive compensation practices and engage in discussions with various groups and individuals on governance issues and improvements.
The Company is governed by a Board of Directors and committees of the Board that meet throughout the year. Directors discharge their responsibilities at Board and committee meetings and also through other communications with management.
The Prudential Financial “poison pill” expired on December 18, 2011. The Board did not renew the pill.
PROCESS FOR SELECTING DIRECTORS
The Corporate Governance and Business Ethics Committee screens candidates and recommends candidates for nomination by the full Board. The Company’s By-laws provide that the size of the Board may range from 10 to 24 members. The Board’s current view is that the optimal size is between 10 and 15 members. In anticipation of retirements over the next several years, the Committee is seeking one or more candidates who meet the criteria described under “Director Criteria, Qualifications and Experience.” The Committee is being assisted with its recruitment efforts by an independent search firm to recommend candidates who satisfy the Board’s criteria. The search firm also provides research and pertinent information regarding candidates, as requested.
SHAREHOLDER-RECOMMENDED DIRECTOR CANDIDATES
The Committee will consider director candidates recommended by shareholders in accordance with the criteria for director selection described under “Director Criteria, Qualifications and Experience.” Shareholders recommending candidates for consideration should send their recommendations to the attention of the Chief Governance
Officer and Corporate Secretary at 751 Broad Street, Newark, NJ 07102. Shareholders who wish to nominate directors directly at an Annual Meeting in accordance with the procedures in our By-laws should follow the instructions under “Submission of Shareholder Proposals” in this proxy statement.Proxy Statement.
During 2011,2012, the Board of Directors held 11 meetings. Each of the incumbentAll directors of the Boardhave attended at least 94%75% of the combined total meetings of the full Board and the committees on which he or she served in 2011.2012. The average attendance of all directors in 20112012 was 98%approximately 97%.
The current Board consists of 13 directors, two of whom are currently employed by the Company (Messrs. Strangfeld and Grier). The Board conducted an annual review and affirmatively determined that all of the non-employee directors (Ms. Horner, Ms. Hund-Mejean and Ms. Poon and Messrs. Baltimore, Bethune, Caperton, Casellas, Cullen, Gray, Krapek and Unruh) and Mr. Hanson during his tenure, are “independent” as that term is defined in the listing standards of the NYSE and in Prudential Financial’s Corporate Governance Principles.
Our By-laws provide a majority voting standard for election of directors in uncontested elections (and require an offer to resign by any incumbent director who is not re-elected) and plurality voting in any election that is contested.
We are asking shareholders to approve amendments to eliminate the supermajority voting provisions in our Certificate of Incorporation (Item 4). Last year, we supported a shareholder proposal to eliminate the supermajority voting provisions and pledged we would submit the matter to shareholders.
The independent directors generally meet in executive session at both the beginning and then at the end of each regularly scheduled Board meeting, with the Lead Independent Director serving as Chair.
Currently, our Board leadership structure consists of a Chairman (who is also our CEO), a Lead Independent Director, who is elected by the independent directors, and strong committee chairs. The Board believes this structure provides independent Board leadership and engagement while providing the benefit of having our CEO, the individual with primary responsibility for managing the Company’s day-to-day operations, chair regular Board meetings as we discuss key business and strategic issues. Coupled with the Lead Independent Director, this structure provides strong
Notice of Annual Meeting of Shareholders and |
Corporate Governance(continued) |
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independent oversight of management.Letter from the Lead Independent Director
James G. Cullen Lead Independent | Currently, our Board leadership structure consists of a Chairman (who is also our CEO), a Lead Independent Director and strong committee chairs. Our Corporate Governance Principles require that the independent directors annually elect an independent director to serve as Lead Independent Director for a term of at least one year, but no more than three years. I am honored that my fellow independent directors have elected me for the past two years. The Board believes that our structure provides independent Board leadership and engagement while providing the benefit of having our CEO, the individual with primary responsibility for managing the Company’s day-to-day operations, chair regular Board meetings as we discuss key business and strategic issues. At this time, the Board believes that the Company is best served by having the same individual as both Chairman of the Board and CEO, but considers the continued appropriateness of this structure at least annually. |
Both the Board and CEO, but considers the continued appropriateness of this structure at least annually. The Board believesManagement believe that strong, independent Board leadership is a critical aspect of effective corporate governance.
Accordingly, our Corporate Governance Principles require that the independent directors annually elect an independent director to serve as Lead Independent Director for a term of at least one year, but no more than three years. The charter for As the Lead Independent Director, can be found at www.prudential.com/governance.I work with the other independent directors to ensure that strong oversight of management is provided.
The Lead Independent Director’s responsibilities include:
Chair all meetings of the Board at which the Chairman is not present, including executive sessions ofIn order to provide that independent oversight, the independent directors.
Call meetingsdirectors generally meet in executive session at both the beginning and the end of the independent directors.
Serveeach regularly scheduled Board meeting, and I serve as Chair. I also serve as a liaison between the Chairman and the independent directors.
Approve I approve information sent to the Board, including the quality, quantity, appropriateness and timeliness of such information.
Approveinformation, as well as the meeting agendas for the Board.
Approve meeting schedules to assure It’s important that there is sufficient time for discussion of all agenda items.
Authorizeditems, so I approve meeting schedules and make changes if needed. I am also authorized to retain outside advisors and consultants whoto report directly to the Board of Directors on Board issues.
BeEngagement and close attention to your perspectives on the Company are important components of fostering long-term relationships with shareholders. As your representative, I am available if requested by shareholders, when appropriate, for consultation and direct communication. I encourage you to review the charter for the Lead Independent Director at www.prudential.com/governance for additional insight.
Thank you for your past support of our leadership. On behalf of all of the independent directors we look forward to working with Management to achieve long-term performance and value.
The Board oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a whole Board and through its committees. At least annually, the full Board reviews strategic risks and opportunities facing the Company as a whole as well as those related to specificand certain of its businesses. Certain otherOther important categories of risk are assigned to designated Board committees (which are comprised solely of independent directors) that report back to the full Board. In general, the committees oversee the following risks:
Audit Committee oversees Committee:risks related to financial controls, legal, regulatory and compliance risks,functions, and the overall risk management governance structure and risk management function;
Finance Committee oversees: risks involving the capital structure of the enterprise, including borrowing, liquidity, allocation of capital, major capital transactions and expenditures, funding of benefit plans, statutory insurance reserves and policyholder dividends, and the strength of the finance function;
Investment Committee oversees: investment risk and the strength of the investment function;
Compensation Committee oversees our: the Company’s compensation programs so that they do not incentivizeencourage excessive risk-taking; and
Corporate Governance and Business Ethics Committee oversees Committee:the Company’s political contributions, lobbying expenses and overall strategy, as well as the Company’s environmental, sustainability and corporate social responsibility to minimize reputational risk and focus on future sustainability.
As these issues sometimes overlap, committees hold joint meetings when appropriate and address certain issues at the full Board level.
In performing theirits oversight responsibilities, the Board and committees review policies and guidelines that senior management uses to manage the Company’s exposure to material categories of risk. As these issues overlap, committees hold joint meetings when appropriate and address certain issues at the full Board level.
Notice of Annual Meeting of Shareholders and 2013 Proxy Statement | 21 |
Corporate Governance(continued) |
In addition, the Board and committees review the performance and functioning of the Company’s overall risk management function and management’s establishment of appropriate systems for managing risk (including brand and reputational risk), credit/counterparty risk, market risk (including interest rate and asset/liability matching risk), insurance risk, product risk, operational risk, legal and regulatory/compliance risk, liquidity and capital risk, and emerging risk/event risk.
During 2011,2012, the full Board received reports on the most important strategic issues and risks facing the Company. In addition, theThe Board and committees receive regularalso received reports from the Company’s Chief Risk Officer and other senior management regarding compliance with applicable risk-related policies, procedures and limits.
We believe that our leadership structure supports the risk oversight function. As indicated above, certain important categories of risk are assigned to committees that receive, review, and evaluate management reports on risk. We note that riskRisk management is an integral part of the Company’s culture: the Chief Risk Officer sits on many management committees and heads an independent enterprise risk management department; employee appraisals take into consideration sound risk management; and the legal and compliance functions operate independently of the business to separate management and oversight.
WeIn addition, we monitor the risks associated with our executive compensation program, as well as the components of our program and individual compensation decisions, on an ongoing basis. InEvery year since 2009, 2010 and again in 2011, management undertookhas undertaken a review of the Company’s compensation programs to assess the risks arising from our compensation policies and practices. Management has presented these risk assessments to the Compensation Committee. The risk assessments have included a review of the primary design features of the Company’s compensation plans and the process to determine compensation pools and awards for employees and analyzed how those features could encourage or mitigate risk-taking. As part of the risk assessment,assessments, it washas been noted that the Company’s compensation
plans allow for discretionary adjustments to the ultimate outcomes, which serves to mitigate risk-taking. The Company’s general risk management controls also serve to preclude decision-makers from taking excessive risk in order to achieve incentives under the compensation plans.
Moreover, senior management is subject to a share retention policy, and historically a large percentage of senior management compensation has been paid in the form of long-term grants. In addition, senior management compensation will beis paid over a multiple-year cycle, a compensation structure that is intended to align incentives with appropriate risk-taking. The Company’s general risk management controls also serve to preclude decision-makers from taking excessive risk in order to achieve incentives under the compensation plans. The Committee agreed with the conclusion that the risks were within our ability to effectively monitor and manage and that theseour compensation programs do not encourage unnecessary or excessive risk-taking and do not create risks that are not reasonably likely to have a material adverse effect on the Company.
In 2011,2012, the Compensation Committee again requestedreceived an updated risk assessment of our compensation program to supplement and expand on the studies conducted in 2009 and 2010.each year since 2009.
The Company’s Board is actively engaged and involved in talent management. The Board reviews the Company’s “people strategy” in support of its business strategy at least annually. This includes a detailed discussion of the Company’s global leadership bench and succession plans with a focus on key positions at the senior officer level.
In addition, the committees of the Board regularly discuss the talent pipeline for specific critical roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.
Shareholders and other interested parties may communicate with any of the independent directors, including Committee Chairs and the Lead Independent Director, by using the following address:
Prudential Financial, Inc.
Board of Directors
c/o Margaret M. Foran, Chief Governance Officer,
Vice President and Corporate Secretary
751 Broad Street
Newark, NJ 07102
Email: independentdirectors@ prudential.com
Feedback on Executive Compensation: You can also provide feedback on executive compensation at the following website www.prudential.com/executivecomp.
The Chief Governance Officer and Corporate Secretary of the Company reviews communications to the independent directors and forwards those communications to the independent directors as appropriate.discussed below. Communications involving substantive accounting or auditing matters will be immediately forwarded to the Chair of the Audit Committee
and the Company’s Corporate Chief Ethics Officer consistent with time frames established by the Audit Committee for the receipt of communications dealing with these matters. Communications that pertain to non-financial matters will be forwarded promptly. Certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded such as: business solicitation or advertisements; product-related inquiries; junk mail or mass mailings; resumes or other job-related inquiries; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications.
22 | Notice of Annual Meeting of Shareholders and 2013 Proxy Statement |
Corporate Governance(continued) |
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SHAREHOLDER ENGAGEMENT
In 2011,2012, we extended our philosophy of transparencyengagement, communication, and engagementtransparency in a variety of ways, such as:
• | Providing multiple avenues for shareholders to communicate with the Company and the Board. Over |
• | Continuing our successful vote incentive program to registered shareholders with over 200,000 shareholders participating again this year. During the |
• | Instituting a new program for |
• | Continuing our philosophy of promoting greater communication with our institutional |
Shareholder engagement through participation in our annual meeting is important to us. In 2012, quorum at our annual meeting exceeded 70% for the first time in our history as a public company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established various committees to assist in discharging its duties, including: Audit, Compensation, Corporate Governance and Business Ethics, Finance and Investment. The primary responsibilities of each of the committees are set forth below, together with their current membership and number of meetings. Each member of the Audit, Compensation, and Corporate Governance and Business Ethics Committees has been determined by the Board to be independent for purposes of the NYSE Corporate Governance listing standards.
Audit Committee
The Audit Committee provides oversight of the Company’s accounting and financial reporting and disclosure processes; the adequacy of the systems of disclosure and internal control established by management; and the audit of the Company’s financial statements. The Audit Committee oversees risks related to financial controls and legal, regulatory and compliance matters, and oversees the overall risk
management governance structure and risk management function. Among other things, the Audit Committee: (1) appoints the independent auditor and evaluates its
independence and performance; (2) reviews the audit plans for and results of the independent audit and internal audits; and (3) reviews reports related to processes established by management to provide compliance with legal and regulatory requirements. The Board of Directors has determined that all of our Audit Committee members, Messrs. Unruh and Casellas and Ms. Hund-Mejean, are audit committee financial experts as defined by the SEC.
Compensation Committee
The Compensation Committee oversees the development and administration of the Company’s compensation and benefits policies and programs. For more information on the responsibilities and activities of the Compensation Committee, including the Committee’s processes for determining executive compensation, see the “Compensation Discussion and Analysis” section.
Corporate Governance and Business Ethics Committee
The Corporate Governance and Business Ethics Committee oversees the Board’s corporate governance procedures and practices, including the recommendations of individuals for the Board, making recommendations to the Board regarding director compensation and overseeing the Company’s ethics and conflict of interest policies, its political contributions and lobbying expenses policy and its strategy and reputation regarding environmental stewardship and sustainability responsibility throughout the Company’s global businesses.
Executive Committee
The Executive Committee is authorized to exercise the corporate powers of the Company between meetings of the Board, except for those powers reserved to the Board of Directors by the By-laws or otherwise.
Finance Committee
The Finance Committee oversees, takes actions, and approves policies with respect to capital, liquidity, borrowing levels, reserves, subsidiary structure and major capital expenditures.
Investment Committee
The Investment Committee oversees and takes actions with respect to the acquisition, management and disposition of invested assets; reviews the investment performance of the pension plan and funded employee benefit plans; and reviews investment risks and exposures, as well as the investment performance of products and accounts managed on behalf of third parties.
Notice of Annual Meeting of Shareholders and 2013 Proxy Statement | 23 |
Corporate Governance(continued) |
POLICIES AND PROCEDURES FOR APPROVAL OF RELATED PERSON TRANSACTIONS
The Company has adopted a written Related Party Transaction Approval Policy that applies to:when:
any transaction or series of transactions in which the Company or a subsidiary is a participant;
the amount involved exceeds $120,000; and
a related party (a director or executive officer of the Company, any nominee for director, any shareholder
THE ENVIRONMENT AND SUSTAINABILITY
The Company has been active in the environmental area for more than ten years, issuing owning an environmental commitment in 2009 to document its work. In 2011, we were named oneexcess of Computerworld’s top green-IT organizations. We also began to formalize an integrated sustainability strategy by:
direct or indirect material interest.
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The policy is administered by the Corporate Governance and Business Ethics Committee. The Committee will consider relevant facts and circumstances in determining whether or not to approve or ratify such a transaction, and will approve or ratify only those transactions that are, in the Committee’s judgment, appropriate or desirable under the circumstances.
Pursuant to our policy, the Corporate Governance and Business Ethics Committee determined that no reported transaction qualified as a related party transaction during 2011.2012.
ENVIRONMENT AND SUSTAINABILITY
The Board of Directors made clear Prudential’s commitment to the environment and sustainability in 2011 by formalizing its oversight of the function and including related skills and experience in qualifications for service on the Board. In 2012, the Company made significant progress in this area, including:
• | Releasing Prudential’s first consolidated Sustainability Report,A Commitment to Progress. |
• | Participating in the International Integrated Reporting Pilot by beginning to create frameworks that communicate the full story of Prudential’s long-term shared value creation. |
• | Becoming a Ceres Network Company. This prestigious affiliation will provide the Company access to a broader array of influential stakeholders and engagement opportunities. |
• | Energizing its sixth solar project, this one located in its service and data center in Ft. Washington, PA. As a result, Prudential reached its 2013 carbon reduction goal six months early. |
• | Adopting a new diversity strategy that integrates corporate social responsibility and sourcing with updated approaches to leadership, talent and inclusion. |
• | Continuing to engage with industry groups, advocates and shareholders on our efforts. |
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Notice of Annual Meeting of Shareholders and |
Corporate Governance(continued) |
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THE BOARD AND COMMITTEES
Director | Board | Audit | Compensation | Corporate Governance and Business Ethics | Executive | Finance | Investment | |||||||
Thomas J. Baltimore, Jr. | • | • | CHAIR | |||||||||||
Gordon M. Bethune | • | • | ||||||||||||
Gaston Caperton | • | |||||||||||||
Gilbert F. Casellas | • | |||||||||||||
James G. Cullen | LEAD | CHAIR | CHAIR | |||||||||||
William H. Gray III | CHAIR | • | ||||||||||||
Mark B. Grier | ||||||||||||||
Constance J. Horner | • | • | ||||||||||||
Martina Hund-Mejean | • | |||||||||||||
Karl J. Krapek | • | CHAIR | • | |||||||||||
Christine A. Poon | • | • | ||||||||||||
John R. Strangfeld | CHAIR | • | ||||||||||||
James A. Unruh | CHAIR | • | ||||||||||||
2011 Meetings | 11 | 10 | 8 | 8 | 0 | 8 | 4 |
POLICY ON SHAREHOLDER RIGHTS PLAN
Our Shareholder Rights Plan (“Pill”) expired in December 2011 and was not renewed. We therefore do not have a Pill.shareholder rights plan. The Board will obtain shareholder approval prior to adopting a future shareholder rights plan unless the Board, in the exercise of its fiduciary duties, determines that under the circumstances then existing, it would be in the best interests of the Company and our shareholders to adopt a rights plan without prior shareholder approval. If a rights plan is adopted by the Board without prior shareholder approval, the plan must provide that it will expire within one year of adoption unless ratified by shareholders.
POLITICAL CONTRIBUTIONS AND LOBBYING EXPENDITURE OVERSIGHT AND DISCLOSURE
The Corporate Governance and Business Ethics Committee has oversight foroversees the corporateCompany’s political strategy, political contributions and lobbying expenses and discussesexpenses. It presents the strategy and the contributions/expenditure report withto the Board. We discloseprovide on our website a description of our oversight process for political contributions and a summary of PAC corporate contributions, including those tofrom the federal PAC and three state PACs. We also include information on annual dues, assessments and contributions of $50,000 or more to trade associations and tax-exempt groups and a summary of Company policies and procedures for political activity. This disclosure is available on our website at www.prudential.com/governance under the heading “Political Activity & Contributions.”
ENVIRONMENTAL AND SUSTAINABILITY
The Corporate Governance and Business Ethics Committee has oversight of environmental issues and policies. In addition, three of our Board members traditionally sit on the Community Resources Oversight Committee, which oversees Prudential’s corporate social responsibility work. These directors inform the Company’s social responsibility efforts in
strategic philanthropy, employee engagement, corporate community involvement and investing for social return.
CORPORATE COMMUNITY INVOLVEMENTGOOD GOVERNANCE PRACTICES
A commitment to strong and sustainable governance practices are hallmarks of the Board’s stewardship on behalf of shareholders and stakeholders. As such, we continuously review our practices to ensure effective collaboration of management and our Board.
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• | All Directors participate in continuing education. |
• | We have stock ownership guidelines for executives and Directors. |
• | We have specific policies and practices to align executive compensation with long-term shareholder interests. |
• | An executive compensation clawback policy has been included in the |
• | The Board reviews management talent and succession at least annually. |
• | There is no shareholder rights plan or “poison pill”. |
• | The threshold to call a |
Notice of Annual Meeting of Shareholders and | 25 |
Item 2—Ratification of the Appointment of the Independent Registered Public Accounting Firm |
The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the Company’s independent registered public accounting firm (independent auditor) for 2012.2013. We are not required to have the shareholders ratify the selection of PricewaterhouseCoopers as our independent auditor. We nonetheless are doing so because we believe it is a matter of good corporate practice.
If the shareholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain PricewaterhouseCoopers, but may retain such independent auditor. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interest of Prudential Financial and its shareholders. Representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have the opportunity to make a statement and be available to respond to appropriate questions by shareholders.
FEES PAID TO PRICEWATERHOUSECOOPERS LLP
The following is a summary and description of fees billed for services provided by PricewaterhouseCoopers in 20112012 and 2010.2011.
WORLDWIDE FEES (IN MILLIONS)
Service | 2011 | 2010 | 2012 | 2011 | ||||||||||||
Audit(A) | $ | 42 | $ | 38 | $ | 43 | $ | 42 | ||||||||
Audit-Related(B) | $ | 6 | $ | 5 | $ | 4 | $ | 6 | ||||||||
Tax(C) | $ | 2 | $ | 1 | $ | 2 | $ | 2 | ||||||||
All Other | — | — | — | — | ||||||||||||
Total | $ | 50 | $ | 44 | $ | 49 | $ | 50 |
(A) | The aggregate fees for professional services rendered for the integrated audit of the consolidated financial statements of Prudential Financial and, as required, audits of various domestic and international subsidiaries, the issuance of comfort letters, agreed-upon procedures required by regulation, consents and assistance with review of documents filed with the SEC. |
(B) | The aggregate fees for assurance and related services including internal control and financial compliance reports, agreed-upon procedures not required by regulation, and accounting consultation on new accounting standards, acquisitions and International Financial Reporting Standards (IFRS). |
(C) | The aggregate fees for services rendered by PricewaterhouseCoopers’ tax department for tax return preparation, tax advice related to mergers and acquisitions and other international, federal and state projects, and requests for rulings. In 2012, tax compliance and preparation fees total $1.4M and tax advisory fees total $0.9M and in 2011, tax compliance and preparation fees total $1.7M and tax advisory fees total |
PricewaterhouseCoopers also provides services to domestic and international mutual funds and limited partnerships not consolidated by Prudential Financial, but which are managed by Prudential Financial. PricewaterhouseCoopers identified fees paid by these entities of $12M in 2012 and $10M in 2011 and $8M in 2010 and that all of these fees relate to audit, audit-related and tax services.
The Audit Committee has advised the Board of Directors that in its opinion the non-audit services rendered by PricewaterhouseCoopers during the most recent fiscal year are compatible with maintaining their independence.
PricewaterhouseCoopers has been the Company'sCompany’s independent auditor since 1996.
A new Lead Audit Partner is designated at least every five years to provide a fresh perspective. Consistent with this practice, a new Lead Audit Partner was designated for 2012.
In determining whether to reappoint the independent auditor, the Audit Committee considers the length of time the firm has been engaged, in addition to considering the quality of the discussions with the independent auditor and an assessment of the past performance of both the Lead Audit Partner and PricewaterhouseCoopers.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by the independent auditor. The policy identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that the independent auditor’s independence is not impaired; describes the Audit, Audit-Related, Tax and All Other services that may be provided and the non-audit services that may not be performed; and sets forth the pre-approval requirements for all permitted services. The policy provides for the general pre-approval of specific types of Audit, Audit-Related and Tax services and a limited fee estimate range for such services on an annual basis. The policy requires specific pre-approval of all other permitted services. The independent auditor is required to report periodically to the Audit Committee regarding the extent of services provided in accordance with their pre-approval and the fees for the services performed to date. The Audit Committee’s policy delegates to its Chairman the authority to address requests for pre-approval of services with fees up to a maximum of $100,000 between Audit Committee meetings if the Chief Auditor deems it reasonably necessary to begin the services before the next scheduled meeting of the Audit Committee, and the Chairman must
26 | Notice of Annual Meeting of Shareholders and 2013 Proxy Statement |
Item 2—Ratification of the Appointment of the Independent Registered Public Accounting Firm(continued) |
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report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee may not delegate to management the Audit Committee’s responsibility to pre-approve permitted services of the independent auditor.
All Audit, Audit-Related, Tax and All Other fees described above were approved by the Audit Committee before services were rendered.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS AS THE COMPANY’S INDEPENDENT AUDITOR FOR 2012.2013.
Three non-management directors comprise the Audit Committee. The Committee operates under a written charter adopted by the Board. The Board has determined that each member of the Committee has no material relationship with the Company under the Board’s independence standards and that each is independent and financially literate under the listing standards of the NYSE and under the SEC’s standards relating to independence of audit committees.
In addition, the Board of Directors has determined that all of our Audit Committee members: Messrs. Unruh and Casellas and Ms. Hund-Mejean satisfy the financial expertise requirements of the NYSE and have the requisite experience to be designated an audit committee financial expert as that term is defined by rules of the SEC.
Management is responsible for the preparation, presentation and integrity of the financial statements of Prudential Financial and for maintaining appropriate accounting and financial reporting policies and practices, and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Prudential Financial’s independent registered public accounting firm (independent auditor), PricewaterhouseCoopers, is responsible for auditing the consolidated financial statements of Prudential Financial and expressing an opinion as to their conformity with generally accepted accounting principles, as well as expressing an opinion on the effectiveness of internal control over financial reporting in accordance with the requirements of the SEC.Public Company Accounting Oversight Board (“PCAOB”).
In performing its oversight function, the Audit Committee reviewed and discussed the audited consolidated financial statements of Prudential Financial as of and for the year ended December 31, 20112012 and Management’s Annual Report on Internal Control Over Financial Reporting with
management and Prudential Financial’s independent auditor. The Audit Committee also discussed with Prudential Financial’s independent auditor the matters required to be discussed by the independent auditor with the Audit
Committee under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”).PCAOB.
The Audit Committee received from the independent auditor the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence, and has discussed with the independent auditor the independent auditor’sits independence.
The Audit Committee has discussed with, and received regular status reports from Prudential Financial’s Chief Auditor and independent auditor on the overall scope and plans for their audits of Prudential Financial, including their scope and plans for evaluating the effectiveness of internal control over financial reporting. The Audit Committee meets with the Chief Auditor and the independent auditor, with and without management present, to discuss the results of their respective examinations,audits, in addition to private meetings with the Chief Financial Officer, Chief Risk Officer, General Counsel and Chief Compliance Officer. In determining whether to reappoint PricewaterhouseCoopers as Prudential Financial’s independent auditor, the Audit Committee took into consideration a number of factors, including the length of time the firm has been engaged, the quality of the Audit Committee’s ongoing discussions with PricewaterhouseCoopers and an assessment of the professional qualifications and past performance of the Lead Audit Partner and PricewaterhouseCoopers.
In addition, the Audit Committee reviewed and amended its Charter and received reports as required by its policy for the receipt, retention and treatment of financial reporting concerns received from external and internal sources.
Based on the reports and discussions described in this report and subject to the limitations on the roles and responsibilities of the Audit Committee referred to above and in its Charter, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of Prudential Financial and Management’s Annual Report on Internal Control Over Financial Reporting be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 20112012 for filing with the SEC.
THE AUDIT COMMITTEE
James A. Unruh (Chairman)
Gilbert F. Casellas
Martina Hund-Mejean
Notice of Annual Meeting of Shareholders and | 27 |
Item 3—Advisory Vote to Approve Named Executive Officer Compensation |
The Board is committed to excellence in governance and recognizes the interest our shareholders have expressed on the Company’sin our executive compensation program. As a part of that commitment, and in accordance with SEC rules, our shareholders are being asked to approve an advisory resolution on the compensation of the named executive officers, as reported in this proxy statement.Proxy Statement. This proposal, commonly known as a “say“Say on pay”Pay” proposal, gives youshareholders the opportunity to endorse or not endorse our fiscal 20112012 executive compensation program and policies for the named executive officers through the following resolution:
RESOLVED, that the shareholders of Prudential approve, on an advisory basis, the compensation of the Company’s named executive officers set forth in the Compensation Discussion and Analysis, the Summary Compensation Table and the
related compensation tables and narrative in this Proxy Statement.
This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and procedures relating to the named executive officers. Accordingly, your vote will not directly affect or otherwise limit
any existing compensation or award arrangement of any of the named executive officers. Because your vote is advisory, it will not be binding upon the Board. The Board will, however, as it did last year,has done in prior years, take into account the outcome of the “say“Say on pay”Pay” vote when considering future compensation arrangements.
The Board of Directors has adopted a policy providing for annual “say“Say on pay”Pay” advisory votes. Accordingly, the next “say“Say on pay”Pay” vote will occur in 2013.2014.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THIS PROPOSAL.
At our 2011 Annual Meeting of Shareholders, holders of a majority of the outstanding shares of Common Stock approved a shareholder proposal, which was supported by the Board of Directors, requesting the Board take necessary steps to eliminate the supermajority voting provisions of the Company’s Certificate of Incorporation and By-Laws. The Board continues to support proposals to increase its accountability to shareholders and to strengthen the ability of shareholders to participate in corporate governance. In furtherance of these goals and in light of the strong support for the shareholder proposal, the Board, upon the recommendation of its Corporate Governance and Business Ethics Committee, has determined that removing the supermajority voting requirements in the Company’s Certificate of Incorporation and By-Laws is in the best interests of the Company and its shareholders.
Currently, the Certificate of Incorporation requires the affirmative vote of at least 80% of the votes cast in order (i) to approve the amendment or repeal of, or to adopt a by-law that is inconsistent with, certain sections of the By-Laws and (ii) to amend specified provisions of the Certificate of Incorporation. The Board of Directors has approved, and recommends that the shareholders approve, an amendment and restatement of the current Certificate of Incorporation to eliminate these 80% vote requirements as follows:
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Article SEVENTH would be revised to delete the second sentence in its entirety. This Article currently requires the affirmative vote of the holders of not less than 80% of the votes, cast in order to approve an amendment to Sections (b) and (f) of Article FIFTH, Section (b) of Article SIXTH, or any provision of Article SEVENTH, EIGHTH or NINTH of the Certificate of Incorporation. Upon the deletion of this sentence, an amendment to these specified provisions would be governed by the requirements of the New Jersey Business Corporation Act, which, for the Company, requires that amendments to the Certificate of Incorporation be approved by a majority of the votes cast at a meeting of shareholders entitled to vote thereon.
Article NINTH would be revised to delete the third sentence in its entirety. This Article currently requires the affirmative vote of the holders of not less than 80% of the votes cast in order to approve the amendment or repeal of, or to adopt a by-law that is inconsistent with, Sections 3, 4 and 7 of Article II, Sections 1(a), 2 and 3 of Article III or Articles VIII and IX of the Company’s By-Laws. Upon the
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The Board of Directors has approved, and recommends that the shareholders approve, the following additional amendments to the Certificate of Incorporation:
An amendment to Section (b) of Article FIFTH to specify the number of directors constituting the current Board of Directors of the Company and to provide the name and address of each of the directors.
An amendment to Section (c) of Article FIFTH to properly reflect that the Company no longer has a classified Board of Directors.
An amendment to Article EIGHTH to clarify that the holders of a “majority” of the shares entitled to cast votes shall constitute a quorum for the transaction of business at all meetings of the shareholders. Currently, the Certificate of Incorporation specifies the quorum requirement to be “50%” of the shares entitled to cast votes. The proposed revision is consistent with the language of the New Jersey Business Corporation Act.
An amendment to Article SECOND to provide that “Margaret M. Foran” is the name of the Company’s current registered agent at its registered office in New Jersey.
The terms of the proposed amendments to the Certificate of Incorporation are set forth in Appendix A to this proxy statement, with deletions indicated by strike-outs and additions indicated by underlining.
Approval of the proposed amendments to the Certificate of Incorporation requires the affirmative vote of at least 80% of the votes cast. This 80% vote is required because the provisions to be amended currently require this threshold for approval; no 80% vote would be required for any future amendments if the proposed amendments are approved at this Annual Meeting. If the amendments to the Certificate of Incorporation are approved, then they will become effective upon filing of an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of New Jersey, which filing would be made promptly after the Annual Meeting.
Subject to approval of these proposed amendments by the shareholders, the Board has approved conforming changes to the Company’s By-Laws, which will become effective upon the effectiveness of the Amended and Restated Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THIS PROPOSAL.Item 4 –Shareholder Proposal Regarding Written Consent
In accordance with SEC rules, we have set forth below a shareholder proposal, along with the supporting statement of the shareholder proponent. The Company is not responsible for any inaccuracies it may contain. The shareholder proposal is required to be voted on at our Annual Meeting only if properly presented. As explained below, our Board unanimously recommends that you vote“AGAINST”the shareholder proposal.
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, beneficial owner of 80 shares of Common Stock, is the proponent of the following shareholder proposal. The proponent has advised us that a representative will present the proposal and related supporting statement at the Annual Meeting.
5 – Independent Board ChairmanProposal 4—Right to Act by Written Consent
RESOLVED:Resolved, Shareholders request that our board of Directors adoptdirectors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a policymeeting at which all shareholders entitled to vote thereon were present and voting. This written consent includes all issues that whenever possible, the chairman of our board of directors shall be an independent director (by the standard of the New York Stock Exchange), who has not previously served as an executive officer of our Company.shareholders may propose. This policy should be implemented so as not to violate any contractual obligations in effect when this resolutionwritten consent is adopted. The policy should also specify how to select a new independent chairman if a current chairman ceases to be independent between annual shareholder meetings.
To foster flexibility, this proposal givesconsistent with applicable law and consistent with giving shareholders the option of being phased in and implemented when our next CEO is chosen.fullest power to act by written consent consistent with applicable law.
Supporting Statement of Shareholder Proponent
WhenThe shareholders of Wet Seal (WTSLA) successfully used written consent to replace certain underperforming directors
in October 2012. This proposal topic won majority shareholder support at 13 major companies in a CEO serves as our board chairman, this arrangement may hinder our board’s ability to monitor our CEO’s performance. Manysingle year. This included 67%-support at both Allstate and Sprint. Hundreds of major companies already have an independent Chairman. An independent Chairman is the prevailing practice in the United Kingdom and many international markets.enable shareholder action by written consent.
The merit of this Independent Board ChairmanThis proposal should also be consideredevaluated in the context of the opportunity for additional improvement in our company’s 2011 reportedCompany’s overall corporate governance as reported in order to more fully realize our company’s potential:
2012: GMI/The Corporate Library, an independent investment research firm, rated our company “D” with “High Governance Risk.” Also “High Concern” in Executive Pay – $14 million for Mark Grier and $22— $23 million for our CEO John Strangfeld. James Cullen, who chaired our executive pay committee, receivedStrangfeld, $13 million for Mark Grier, $10 million for Edward Baird and $9 million for Charles Lowrey. GMI said it was troubling because individual bonuses for our highest negative votes.
Mr.paid executives were determined subjectively. John Strangfeld was potentially entitled to $46also had a potential $47 million in the event ofentitlement for a change in control. Mr. Strangfeld has amassed $31 million in pension benefits
Five of our directors had 11-year long-tenure. Plus these long-tenured directors controlled the majority of our 3 most important board committees. GMI said such long-tenured directors can form relationships that could compromise their independence and $5.6 million in non-qualified deferred pay. Mr. Strangfeld’s pension value increased by $6 million intherefore hinder their ability to provide effective oversight. An independent perspective is so valued
28 | Notice of Annual Meeting of Shareholders and 2013 Proxy Statement |
Item 4 – Shareholder Proposal Regarding Written Consent (continued) |
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for a year – difficult to justify in termsboard of shareholder
value since it was not directly tied to company performance. The CEO stock ownership guidelinedirectors. Directors Constance Horner and William Gray were together on the Pfizer board and they were also 67% of five-times base salary was too low.
Our executives had, asour nomination committee. Intra-board relationships of the Pfizer kind can compromise a hefty portion of their long-term incentive pay, market-priced stock options and restricted stock units that simply vest, without performance restrictions.
Executive pay in terms of performance shares and performance units continued to be based on annual targets ROE and EPS, metrics that were used to determine annual cash incentive pay. Not only did this suggest a lack of incentives tied to our company’s long-term success, it also indicated that executives were being rewarded twice for the same goal.
We had a poison pill not approved by shareholders. We did not have a Lead Director, cumulative voting or rightdirector’s ability to act by written consent.
independently. William Gray (Visteon),and Karl Krapek (Visteon), andwere negatively flagged by GMI for their involvement with the Visteon Corporation bankruptcy. Gaston Caperton (Owens Corning) were onwas negatively flagged for his involvement with the boards of major companies leading up to their bankruptcies. And WilliamOwens Corning bankruptcy or reorganization.
It got worse with the potentially compromised Directors Horner and Gray was nonetheless allowed to chair our Nomination Committee.
An independent Chairman policy can enhance investor confidence in our Company and strengthencontrolling the integritymajority of our Board. nomination committee because 4 of our directors were beyond age 70 and it will be important to find qualified replacements. Thomas Baltimore, our youngest director, received a whopping 30% in negative votes. This compared to less than 1% in negative votes for some of his Prudential peers. And Mr. Baltimore showed he could do worse by getting 41% in negative votes at Duke Realty.
Please encourage our board to respond positively to this proposal for an Independent Board Chairmanto protect shareholder value:
Right to Act by Written Consent – Yes on 5.Proposal 4
Board of Directors’ Statement in Opposition to the Proposal
Your Board recommends a vote against this proposal because it believes that the written consent process, as required by the proposal, is less transparent, less democratic and deprives shareholders of a forum for discussion or opportunity for shareholders to make inquiries about proposed actions. Matters that are sufficiently important to require shareholder approval should be communicated in advance so they can be considered and voted upon by all shareholders. This proposal would allow a group of shareholders to take action by written consent without prior communication to all shareholders of the proposed action or the reasons for the action. We believe this proposal disenfranchises shareholders who do not have the opportunity to participate in the process. Permitting shareholder action by written consent has the potential to create confusion and the Board does not believe it is in the best interests of our shareholdersappropriate for thea widely-held public company.
Our Board tobelieves that every shareholder should have the flexibilityopportunity to determineconsider and vote upon shareholder actions.
Our shareholders have the best personright to servecall a special meeting at a ten-percent threshold. This right, as Board Chairman, whetherwell as our established shareholder communication and engagement mechanisms, provides shareholders the opportunity to raise important matters outside the annual meeting process.
The Company is committed to good corporate governance, which helps us compete more effectively, sustain our success and build long-term shareholder value. The Company has a strong governance structure in place and the Board’s philosophy and policies are responsive to shareholders. In addition to the unrestricted right for shareholders to call special meetings at a ten-percent threshold, the Company has many other governance provisions in place that person is empower shareholders including:
a majority voting standard in uncontested director elections;
no shareholder rights plan;
an annually elected Board;
no supermajority voting provisions; and
independent director or the Chief Executive Officer. We take to heart that independent, engaged, forthright and assertive directors are the key to investor-sensitive management whether the Board is led by a Chairman who is also the Chief Executive or a Chairman who is an independent Director.
Currently, our Boardboard leadership, structure consists of a Chairman, who is also our Chief Executive Officer andincluding a Lead Independent Director whoand strong committee chairs.
Requiring that all shareholder business be acted upon at a meeting helps to ensure complete information is elected solely by the independent directors.presented to shareholders to obtain their approval and is more democratic. The Board believes this structure providesthat the optimum benefitrisk of having our CEO, the individual most familiarabuse associated with the Company’s day-to-day operations, chair regular Board meetings as we discuss key businessright to act by written consent, including bypassing procedural protections that offer transparency and strategic issues. Coupledadvance notice, both of which are afforded with a Lead Independent Director,shareholder meeting, make this structure provides strong, independent oversightproposal not in the best interest of management. At the same time,all shareholders.
In summary, the Board evaluatesbelieves the adoption of this structure on an annual basis to assure it continues to provide effective corporate governance.
We take seriouslyproposal is unnecessary because of our commitment to the highest standards ofgood corporate governance including independent leadership, and the right of shareholders to call a special meeting. Furthermore, the Board believes that the written consent proposal would circumvent the protections, procedural safeguards and advantages provided to all shareholders by shareholder meetings.
THEREFORE, YOUR BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL.
Notice of Annual Meeting of Shareholders and | |
we base our policies and practices on the principles of transparency, accountability and integrity. In order to support the independence of our oversight and preserve the integrity of our stewardship on behalf of shareholders, the Board reviews and refines the role and responsibilities of the Lead Independent Director on an annual basis. The current Charter of the Lead Independent Director provides leadership authority to:
Chair all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors.
Call meetings of the independent directors.
Serve as a liaison between the Chairman and the independent directors.
Approve information sent to the Board, including the quality, quantity, appropriateness and timeliness of such information.
Approve meeting agendas for the Board.
Approve meeting schedules to assure there is sufficient time for discussion of all agenda items.
Retain outside advisors and consultants who report directly to the Board of Directors on Board issues.
Be available, if requested by shareholders, when appropriate, for consultation and direct communication.
A fixed policy regarding Board leadership structure is also unnecessary because of Prudential’s other governance practices, including: majority vote requirement in uncontested director elections, annual election of the Chairman by the Board, majority of independent directors, executive sessions for independent directors, independent director access to senior management, expiration of our shareholder rights agreement (poison pill), elimination of the classified Board, a philosophy of promoting communication with investors on corporate governance issues, and making publicly available corporate governance guidelines and charters on a dedicated corporate governance website.
The proposed policy would unduly impair the Board’s flexibility to annually elect the individual it deems best suited to serve as Board Chairman. Prudential and its long-term shareholders are best served when the Board has the flexibility to elect the individual it deems best suited to serve as Board Chairman at any particular time, depending upon the circumstances.
Therefore, your Board recommends that you voteAGAINSTthis proposal.
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The following table shows all entities that are the beneficial owners of more than 5% of any class of the Company’s voting securities:
Title of Class | Name and Address of Beneficial Owner | Amount and Nature | Percent of Class | |||||||
Common Stock | BlackRock, Inc. 40 East 52nd Street, New York, NY 10022 | (1) | ||||||||
Class B Stock | National Union Fire Insurance Company of Pittsburgh, PA c/o AIG Asset Management (U.S.), LLC 2929 Allen Parkway, Suite A-36-04, Houston, TX 77019 | 885,714 | (2) | 44.3% | ||||||
Class B Stock | Lexington Insurance Company, c/o AIG Asset Management (U.S.), LLC 2929 Allen Parkway, Suite A-36-04, Houston, TX 77019 Lexington Insurance Company | 914,286 | (2) | 45.7% | ||||||
Class B Stock | Pacific Life Corp. 700 Newport Center Drive, Newport Beach, CA 92660 | 200,000 | (3) | 10.0% |
(1) | Based on information as of December 31, |
(2) | National Union Fire Insurance Company of Pittsburgh, PA, and Lexington Insurance Company are subsidiaries of American International Group, Inc. (“AIG”), resulting in AIG beneficially owning 90% of the Class B Stock. AIG has informed us that its subsidiaries have sole voting and dispositive power with respect to these shares. |
(3) | Pacific Life Corp. has informed us that it has sole voting and dispositive power with respect to these shares. |
To our knowledge, except as noted above, no person or entity is the beneficial owner of more than 5% of our Common Stock or more than 5% of the voting power of the combined Common Stock and Class B Stock.
The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 9, 2012,15, 2013, by:
each Director and Named Executive Officer; and
all Directors and Executive Officers of the Company as a group:
Name of Beneficial Owner | Number of Shares of Common Stock | Number of Shares Subject to Exercisable Options | Total Number of Shares Beneficially Owned1 | Director Deferred Stock Units / Additional Underlying Units2,3,4,5 | Total Shares Beneficially Owned Plus Underlying Units | Shares of Common Stock | Number of Shares Subject to Exercisable Options | Total Number of Shares Beneficially Owned(1) | Director Deferred Stock Units / Additional | Total Shares Beneficially Owned Plus Underlying Units | ||||||||||||||||||||||||||||||
Thomas J. Baltimore, Jr. | 250 | 250 | 15,483 | 15,733 | 250 | 250 | 20,273 | 20,523 | ||||||||||||||||||||||||||||||||
Gordon M. Bethune | 200 | 200 | 15,235 | 15,435 | 13,935 | 13,935 | 2,399 | 16,334 | ||||||||||||||||||||||||||||||||
Gaston Caperton | 8,648 | 8,648 | 6,603 | 15,251 | 8,648 | 8,648 | 12,756 | 21,404 | ||||||||||||||||||||||||||||||||
Gilbert F. Casellas | 500 | 500 | 25,990 | 26,490 | 500 | 500 | 27,228 | 27,728 | ||||||||||||||||||||||||||||||||
James G. Cullen | 2,033 | 2,033 | 38,266 | 40,299 | 2,033 | 2,033 | 39,890 | 41,923 | ||||||||||||||||||||||||||||||||
William H. Gray III | 1,013 | 1,013 | 25,811 | 26,824 | 1,013 | 1,013 | 27,043 | 28,056 | ||||||||||||||||||||||||||||||||
Constance J. Horner | 1,076 | 1,076 | 25,729 | 26,805 | 11,720 | 11,720 | 2,399 | 14,119 | ||||||||||||||||||||||||||||||||
Martina Hund-Mejean | 128 | 128 | 4,391 | 4,519 | 128 | 128 | 6,928 | 7,056 | ||||||||||||||||||||||||||||||||
Karl J. Krapek | 1,000 | 1,000 | 33,843 | 34,843 | 1,000 | 1,000 | 39,844 | 40,844 | ||||||||||||||||||||||||||||||||
Christine A. Poon | 6,125 | 6,125 | 7,579 | 13,704 | 6,125 | 6,125 | 10,216 | 16,341 | ||||||||||||||||||||||||||||||||
James A. Unruh | 20,154 | 20,154 | 11,113 | 31,267 | 20,154 | 20,154 | 13,503 | 33,657 | ||||||||||||||||||||||||||||||||
John R. Strangfeld | 238,044 | 6 | 1,023,557 | 1,261,601 | 526,375 | 1,787,976 | 318,779 | (5) | 845,931 | 1,164,710 | 577,298 | 1,742,008 | ||||||||||||||||||||||||||||
Mark B. Grier | 175,275 | 697,078 | 872,353 | 387,461 | 1,259,814 | 226,969 | 705,865 | 932,834 | 431,868 | 1,364,702 | ||||||||||||||||||||||||||||||
Richard J. Carbone | 81,835 | 200,371 | 282,206 | 102,490 | 384,696 | 87,635 | 236,881 | 324,516 | 121,956 | 446,472 | ||||||||||||||||||||||||||||||
Edward P. Baird | 58,565 | 246,394 | 304,959 | 178,760 | 483,719 | 64,647 | 312,290 | 376,937 | 219,131 | 596,068 | ||||||||||||||||||||||||||||||
Charles F. Lowrey | 40,917 | 221,330 | 262,247 | 202,473 | 464,720 | 46,078 | 295,168 | 341,246 | 267,449 | 608,695 | ||||||||||||||||||||||||||||||
All directors and executive officers as a group (20 persons) | 759,890 | 2,775,524 | 3,535,414 | 1,821,427 | 5,356,841 | |||||||||||||||||||||||||||||||||||
All directors and executive officers as a group (22 persons) | 874,903 | 2,732,137 | 3,607,040 | 2,182,952 | 5,789,992 |
Individual directors and executive officers as well as all directors and executive officers as a group beneficially own less than 1% of the shares of Common Stock outstanding, as of March |
Includes the following number of shares or share equivalents in deferred units through the Deferred Compensation Plan for Non-Employee Directors and the Prudential Insurance Company of America Deferred Compensation Plan, as to which no voting or investment power exists: Mr. Baltimore, |
Includes the following shares representing the target number of shares to be received upon the attainment of ROE and EPS goals under the performance share program described under “Compensation Discussion and Analysis”: Mr. Strangfeld, |
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Includes the following unvested stock options: Mr. Strangfeld, |
Includes 4,400 shares held by the John and Mary K. Strangfeld Foundation. |
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Each Director, certain officers of the Company and greater than 10% beneficial owners of Common Stock are required to report to the SEC, by a specified date, his or her transactions involving our Common Stock. Based solely on review of the copies of reports furnished to the Company or written representations that no other reports were required to be filed, the Company believes that during 2012 our Directors and officers timely filed all reports, except that a Form 4 reporting an inadvertent non-directed purchase of 430 shares through an automatic-broker-administered dividend reinvestment plan was filed late by Scott Sleyster, an officer.
30 | ||
Notice of Annual Meeting of Shareholders and |
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The Corporate Governance and Business Ethics Committee reviews the compensation of our Directors periodically and recommends changes to the Board, when it deems appropriate.
The following table describes the components of the Director compensation program for 2011:2012:
*Compensation Element | ||
Annual Retainer | $120,000, which may be deferred, at the Director’s option | |
Annual Equity Retainer | $120,000 in restricted stock units that vest after one year (or, if earlier, on the date of the next Annual Meeting) | |
Board and Committee Fees | None | |
Chair Fee | $25,000 for the Audit Committee $20,000 for the Compensation Committee $15,000 for all other committees* | |
Lead Director Fee | $50,000 | |
Meeting Fee for members of the Company’s Community Resources Oversight Committee** | $1,250 per meeting | |
New Director | $120,000 in restricted stock units that vest after one year | |
Stock Ownership Guideline | Ownership |
* | Includes any non-standing committee of the Board that may be established from time to time, but excluding the Executive Committee. |
** | This is a committee composed of members of management and the |
*** | Each of our non-employee Directors met this guideline as of December 31, |
The Company maintains a Deferred Compensation Plan for Non-Employee Directors (the “Plan”). Prior to 2011, 50% of the annual Board and committee retainer was deferred in a notional account that replicates the performance of our Common Stock. InSince 2011, 50% of the annual Board and committee retainer was awarded in restricted stock units that vest after one year (or if earlier, on the date of the next Annual Meeting of Shareholders). In addition, a non-employee Director can elect to invest the cash portion of his or her retainer and fees in accounts that replicate investments in either shares of our Common Stock or the Fixed Rate Fund, which accrues interest in the same manner as funds invested in the Fixed Rate Fund offered under the Prudential Employee Savings Plan (PESP)(“PESP”). Prior to 2011, the Plan required that distributions begin in the year a directorDirector reaches the age of 70 1/2. Beginning in 2011, the Plan does not require distributions of fees earned after 2010 to commence when a
Director reaches the age of 70 1/2. Instead, the Plan provides for distributions to commence upon termination of Board service or retirement or while a Director remains on the Board. Each Director receives dividend equivalents on the share units
contained in his or her deferral account, which are equal in value to dividends paid on our Common Stock. The dividend equivalents credited to the account are then reinvested in the form of additional share units.
Under the Director compensation program, if a non-employee Director satisfies the stock ownership guidelines, the restricted stock units granted as the annual equity retainer are payable upon vesting in cash or shares of our Common Stock (at the Director’s option), and may be deferred beyond vesting at the Director’s election. If a Director does not satisfy the stock ownership guidelines, the restricted stock units are automatically deferred until termination of Board service.
DIRECTOR STOCK OWNERSHIP GUIDELINES
Each director is expected, within six years of joining the Board, to own Common Stock or deferred stock units that have a value equivalent to six times his or her annual cash retainer.
Notice of Annual Meeting of Shareholders and | 31 |
Compensation of Directors (continued) |
20112012 DIRECTOR COMPENSATION
Fees Earned or Paid in | Stock Awards($)(1) | Total($) | Fees Earned or Paid in | Stock Awards($)(1) | Total($) | |||||||||||||||||||||||
Name | Stock($) | Cash($) | Stock($) | Cash($) | ||||||||||||||||||||||||
Thomas J. Baltimore, Jr. | 128,750 | 120,000 | 248,750 | 135,000 | 120,000 | 255,000 | ||||||||||||||||||||||
Gordon M. Bethune | 120,000 | 120,000 | 240,000 | 120,000 | 120,000 | 240,000 | ||||||||||||||||||||||
Gaston Caperton | �� | 120,000 | 120,000 | 240,000 | 122,500 | 120,000 | 242,500 | |||||||||||||||||||||
Gilbert F. Casellas | 123,750 | 120,000 | 243,750 | 123,750 | 120,000 | 243,750 | ||||||||||||||||||||||
James G. Cullen | 169,167 | 120,000 | 289,167 | 190,000 | 120,000 | 310,000 | ||||||||||||||||||||||
William H. Gray III | 135,000 | 120,000 | 255,000 | 126,250 | 120,000 | 246,250 | ||||||||||||||||||||||
Jon F. Hanson(2) | 134,583 | — | 134,583 | |||||||||||||||||||||||||
Constance J. Horner | 123,750 | 120,000 | 243,750 | 132,500 | 120,000 | 252,500 | ||||||||||||||||||||||
Martina Hund-Mejean | 120,000 | 120,000 | 240,000 | 120,000 | 120,000 | 240,000 | ||||||||||||||||||||||
Karl J. Krapek | 128,750 | 120,000 | 248,750 | 135,000 | 120,000 | 255,000 | ||||||||||||||||||||||
Christine A. Poon | 120,000 | 120,000 | 240,000 | 120,000 | 120,000 | 240,000 | ||||||||||||||||||||||
James A. Unruh | 145,000 | 120,000 | 265,000 | 145,000 | 120,000 | 265,000 |
(1) | Represents amounts that are in units of our Common Stock. The amounts reported represent the aggregate grant date fair value for restricted stock units granted during the fiscal year, as calculated under the Financial Accounting Standards Board’s Accounting Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our Common Stock on the date of grant, which is then recognized, subject to market value changes over the requisite service period of the award. As of December 31, |
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32 | ||
Notice of Annual Meeting of Shareholders and |
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In this section, we describe the material components of our executive compensation program for our Named Executive Officers, or “NEOs,” whose compensation is set forth in the 20112012 Summary Compensation Table and other compensation tables contained in this proxy statement:Proxy Statement:
NAMED EXECUTIVE OFFICERS (NEOS)
John R. Strangfeld, our Chairman and Chief Executive Officer;
Richard J. Carbone, our Executive Vice President and Chief Financial Officer;
Mark B. Grier, our Vice Chairman;
• |
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Edward P. Baird, our Executive Vice President and Chief Operating Officer, International Businesses; and |
• | Charles F. Lowrey, our Executive Vice President and Chief Operating Officer, U.S. Businesses. |
We also provide an overview of our executive compensation philosophy and our executive compensation program. In addition, we explain how and why the Compensation Committee of our Board (the “Committee”) arrives at specific compensation policies and decisions involving the NEOs.
Executive Summary
Our BusinessOUR BUSINESS
We are a global financial services business with approximately$901 billion1.06 trillion of assets under management as of December 31, 20112012 with operations in the United States, Asia, Europe, and Latin America. Through our subsidiaries and affiliates, we offer a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, and investment management. For more information about our business, please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on February 24, 2012.22, 2013.
2011 Business Highlights2012 BUSINESS HIGHLIGHTS
While the past 12 months marked2012 was another year of uncertainty and challenges in the global economy and financial markets, throughoutmarkets. Throughout this period, as a result of our steady leadership, we were ablecontinued to seize opportunities and further differentiate ourselves from the competition. Our performance in 20112012 was solid and continued to reflect our attention to capital deployment, balanced business mix, and effective execution of our individual business strategies. Consequently, as in 2010,2011, we were able to deliver strong
results for our
shareholders in a challenging environment of continued low interest rates and the enactmentfar-reaching regulation of far-reaching legislation impacting the financial services industry.
2011 was a yearWe recorded the following significant accomplishments in 2012:
• | Our Financial Services Businesses reported after-tax adjusted operating income of$3.0 billion and posted earnings per share of Common Stock of $6.27, compared to $2.8 billion, and$5.83 per share, in 2011; |
Notice of Annual Meeting of Shareholders and 2013 Proxy Statement | 33 |
Compensation Discussion and Analysis (continued) |
Our Financial Services Businesses reported operating return on average equity based on after-tax adjusted operating income of significant accomplishments:10.8% for 2012 compared to 10.6% for 2011.
Our Financial Services Businesses reported net income of $3.5 billion,$428 million, or $7.22$0.94 per share of Common Stock, compared to$2.73.4 billion, or$5.756.99 per share, in 2011;
We reported book value for our Financial Services Businesses, excluding accumulated other comprehensive income, of $57.86 per share of Common Stock in 2010;
Ouras of year-end 2012 compared to $58.39 as of year-end 2011. Based on U.S. generally accepted accounting principles as of year-end 2012, we reported book value for our Financial Services Businesses reported after-tax adjusted operating income of$3.1 billion and posted earnings per share of Common Stock of $6.41, compared to $2.9 billion, or$6.17 per share of Common Stock, in 2010;
Our Financial Services Businesses reported book value, excluding accumulated other comprehensive income related to unrealized gains and losses on investments and pension/post-retirement benefits as of year-end 2011, of$66.6379.19 per share of Common Stock, compared to $59.48$69.07 per share as of Common Stock a year earlier;year-end 2011.
Our total shareholder return was at the 63rd and 89th percentile of our 2011 compensation peer groupAssets under management surpassed, for the one and three years endedfirst time, the $1 trillion milestone reaching $1.06 trillion at December 31, 2011, respectively;
We successfully completed the acquisition2012, an increase of AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Co. for $4.7 billion in February 2011;18% from a year earlier.
• | In November, we declared an annual dividend of $1.60 per share of Common Stock for 2012, an increase of 10% from the 2011 Common Stock dividend, and announced that we will move to a quarterly Common Stock dividend schedule beginning in the first quarter of 2013. |
• | We solidified our position as the preferred provider of pension risk transfer strategies by entering into and completing landmark agreements to take on retiree pension obligations from General Motors Co., and Verizon Communications, Inc., which together brought us over $33 billion in group annuity account values. |
• | In September 2012, we announced an agreement to acquire The Hartford’s Individual Life Insurance business, including approximately 700,000 life insurance policies with face amount in force of approximately $135 billion, through a reinsurance transaction for cash consideration of $615 million, which was completed in January 2013. |
• | We successfully completed financing transactions valued at approximately $4.1 billion. |
• | We repurchased $650 million of our outstanding shares of Common Stock, including $150 million under a program announced in June 2012 to repurchase up to $1 billion of our outstanding shares of Common Stock through June 2013. |
In July 2011, we completed the divestiture of our global commodities business for proceeds of approximately $400 million;
In December 2011, we completed the sale of Prudential Real Estate and Relocation Services (“PRERS”), our real estate brokerage and relocation services unit, to Brookfield Residential Property Services for proceeds of approximately $100 million;
We successfully completed financing transactions valued at approximately $1.5 billion;
We increased assets under management to $901 billion as of year-end 2011, a 15% increase from 2010; and
We announced a program to repurchase up to $1.5 billion of our outstanding shares of Common Stock through June 2012. Through December 31, 2011, we repurchased approximately $1 billion of our Common Stock under this program.
In 2011,2012, we also continued to benefit from effective capital management, which remains a significant priority. MaintainingWe believe that maintaining robust capital and liquidity positions provides us with a protective cushion during difficult periods, as well as the ability to pursue new opportunities.
34 | Notice of Annual Meeting of Shareholders and 2013 Proxy Statement |
Compensation Discussion and Analysis (continued) |
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2011 Executive Compensation HighlightsEXECUTIVE COMPENSATION HIGHLIGHTS
AtThe Committee has increased the beginningrigor of 2011, in conjunction with making compensation decisionsthe performance goals and payout scales under our incentive programs with respect to our financial performance during 2010, the Committee decided to maintain the base salaries of the NEOs at their 2010 levels.
Subsequently, in October 2011, the Committee restructured the compensation arrangements for the NEOs to better align their compensation mix, including the relationship between fixed and variable compensation, to market and competitive practices and to tie more of their compensation to longer-term performance and risk outcomes. At that time, the Committee:2012 performance:
Increased theThere was no increase in base salary of eachsalaries for any of the NEOs, (retroactive to the beginning of 2011) by an amount ranging from $200,000 to $400,000;
Reduced the annual incentive award opportunities of the NEOs for 2011 (before consideration of 2011 performance) by 120% of each senior executive’s base salary increase to reflect, on a risk-adjusted basis, these base salary increases; and
Increased the mandatory deferral rates on NEO annual incentive awards into our Book Value Performance Program (formerly known as the Mid-Term Incentive Program) to 20% for 2011 awards payable in 2012 and to 30% for 2012 awards payable in 2013 and for future years.
The net effect of these actions was a modest reduction in the overall total direct compensation opportunity (that is, the sum of base salary, annual incentive award opportunity, and long-term incentive compensation value) of the NEOs for 2011 (before consideration of 2011 performance).
In February 2012, in view of our financial performance during 2011, as well as our other business accomplishments (as described above), the Committee took the following compensation actions:
We did not increase base salaries, which were kept at their 2011 level;2012 levels;
We madeThe Committee increased the rigor of the annual incentive program by setting target and long-term incentivemaximum awards for senior executives, including the NEOs, and requiring achievement of at least the midpoint of EPS guidance to maintain the same level of funding as in 2011;
• | Consistent with its 2011 decision to rebalance the compensation arrangements of the NEOs, the mandatory deferral of each NEO’s 2012 annual incentive award into our Book Value Performance Program was increased from 20% to 30%; |
• | The Annual Incentive Award earned by our CEO decreased by approximately 11% on a year-over-year basis while his long-term incentive awards are unchanged resulting in a decrease of approximately 4% in his total direct compensation; |
CEO Total Direct Compensation
2011 Total Direct = $16.2 million | ||||
Salary | Annual Incentive Award | Long-Term Award | ||
$1,400,000 | Cash(1) $5,040,000 | $8,500,000(3) | ||
Deferred(1) $1,260,000 | ||||
Total $6,300,000 |
2012 Total Direct = $15.53 million | ||||
Salary | Annual Incentive Award | Long-Term Award | ||
$1,400,000 | Cash(2) $3,941,000 | $8,500,000(3) | ||
Deferred(2) $1,689,000 | ||||
Total $5,630,000 |
(1) | 20% of the 2011 Annual Incentive Award was mandatorily deferred into the Long-Term Book Value Performance Program. |
(2) | 30% of the 2012 Annual Incentive Award was mandatorily deferred into the Long-Term Book Value Performance Program. |
(3) | Represents long-term awards granted in 2012 and 2013 for 2011 and 2012 performance, respectively. |
As a result of these actions, and consistent with our 2011 business results after taking into considerationcompensation philosophy, approximately 90% of our NEOs’ total direct compensation for 2012 was performance-based.
Long-term | incentive compensation consists of a combination of options to purchase shares of Common Stock, performance share and unit awards, and book value units. Each of these award arrangements are performance-based and, thus, aligned with the long-term interests of our shareholders because the value realized from the stock options is tied to the appreciation in the market value of Common Stock and the value realized from the performance awards is dependent on our return on equity performance. In addition, the value of the book value awards fluctuates based on our net income (or loss) from year to year. |
In addition, the reductionCommittee made the following changes which will be effective for our 2013 incentive programs:
Long-Term Incentive Program. Increased the rigor of each NEO’sthe performance share program by requiring achievement of average ROE (AOI basis, subject to certain adjustments) of 13.5% over the 2013 through 2015 performance period to receive a target award; and
Annual Incentive Program. Introduced a relative performance modifier to the 2013 annual incentive award opportunity as described above;program to balance reliance on absolute performance based on a single metric (EPS) with an assessment of relative performance to reward peer outperformance and penalize underperformance.
ConsiderationofLast Year’s“Say on Pay” Vote
Following our 2012 Annual Meeting of Shareholders, the Committee reviewed the results of the shareholder advisory vote on executive compensation (‘Say on Pay”) that was held at the meeting with respect to the 2011 compensation actions and decisions for Mr. Strangfeld and the other NEOs. Approximately 96% of the votes cast on the proposal were voted in support of the compensation of our NEOs. This compares with 86.5% of the votes cast in support of the “Say on Pay” proposal submitted for shareholder consideration at the 2011 Annual Meeting of Shareholders. We believe the increase in support from 2011 to 2012 reflects the actions taken by the Committee in response to the 2011 vote.
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| Compensation Discussion and Analysis (continued) |
We granted book value units under
While the Committee and our Book Value Performance Program reflectingBoard believe that the allocation“Say on Pay” vote, as well as our other ongoing shareholder engagement activities, provide effective means for us to monitor the views of 20%our shareholders
on our overall executive compensation policies and practices, we did not make any significant changes to our executive compensation program in 2012 as a direct result of each NEO’s long-term incentive compensation value and the mandatory deferraloutcome of 20% of his annual incentive award.the 2012 “Say on Pay” vote.
2011 Corporate Governance HighlightsONGOING CORPORATE GOVERNANCE POLICIES
We endeavor to maintain good governance standards, including the oversight of our executive compensation policies and practices. The following policies and practices were in effect during 2011:2012:
We maintain a majority vote for the election of directors in uncontested elections (and require an offer to resign by any incumbent director who is not re-elected)re-elected by a majority vote) and plurality voting in any election that is contested.
The leadership structure of our Board consists of a Chairman (who is also our CEO), a Lead Independent Director, who is elected by the independent directors, and strong Board committee chairs.
The Compensation Committee is composed solely of independent directors who have established methods to communicate with shareholders regarding their executive compensation ideas and concerns.
communicate with shareholders regarding their executive compensation ideas and concerns. |
The Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc., is retained directly by the Committee and performs no other consulting or other services for us.
• | The Committee conducts an annual review and approval of our compensation strategy, including a review of our compensation-related risk profile, to ensure that our compensation-related risks are not reasonably likely to have a material adverse effect on the Company. |
Currently, we maintain a compensation recovery (“clawback”) provision in our Book Value Performance Program.OPPORTUNITY FOR SHAREHOLDER FEEDBACK
We intend to adopt a general clawback policy covering our annual and long-term incentive award programs and arrangements once the SEC adopts the final implementing rules.
ConsiderationofLast Year’s“Say on Pay” Vote
Following our Annual Meeting of Shareholders in May 2011, the Committee reviewed the results of the shareholder advisory vote on executive compensation that was held at the meeting with respect to the 2010 compensation actions and decisions for Mr. Strangfeld and the other NEOs. Eighty-six and one half percent (86.5%) of the votes cast on the proposal were voted in support of the compensation of our NEOs set forth in the CD&A, the summary compensation table and the related compensation tables and narratives in last year’s proxy statement.
Based on the results of the “say on pay” vote, as well as our ongoing dialogue with our shareholders, the Committee and our Board concluded that, even though our overall executive compensation policies and practices enjoy favorable shareholder support, it was appropriate to rebalance the compensation mix of our senior executive officers to better align their compensation mix to market and competitive practices and to tie more of their compensation to longer-term performance and risk outcomes.
In addition, the Committee made several changes to the design and disclosure of our executive compensation program for 2012, including:
Establishing a more structured annual incentive program that features target and maximum annual incentive awards and performance factors aligned to our annual EPS targets;
Revising the financial measures for our Annual Incentive Program and Long-Term Incentive Program to eliminate overlap;
Revising the performance period for the performance share and performance unit awards under our Long-Term Incentive Program to a single three-year performance period;
Providing additional information on the objectives and factors impacting the value of our Mid-Term Incentive Program and, to reflect its purpose and to reposition it as a component of our Long-Term Incentive Program, renaming the program as our Book Value Performance Program; and
Developing a revised compensation peer group that better reflects our size in terms of total assets and market capitalization.
Opportunity for Shareholder Feedback
The Committee carefully considers feedback from our shareholders regarding our executive compensation program. Shareholders are invited to express their views to the Committee as described under the heading “Communication with Directors” in this proxy statement.Proxy Statement. In addition, the advisory vote on the compensation of the NEOs provides shareholders with an opportunity to communicate their views on our executive compensation program.
You should read this CD&A in conjunction with the advisory vote that we are conducting on the compensation of the NEOs (see “Item 3—Advisory Vote to Approve Named Executive Officer Compensation”). This CD&A, as well as the accompanying compensation tables, contains information that is relevant to your voting decision.
Specific Compensation and Corporate Governance Policies and PracticesSPECIFIC COMPENSATION AND CORPORATE GOVERNANCE POLICIES AND PRACTICES
Our compensation philosophy and related governance features are complemented by several specific policies and practices that are designed to align our executive compensation with long-term shareholder interests, including:
• | Stock Ownership Policy.We have stock ownership guidelines for our executive officers, including the NEOs. Each of the NEOs has met his individual stock ownership level under the current program. |
• | Stock Retention Policy.We have stock retention requirements for our executive officers, including the NEOs, that require retention of 50% of the net shares acquired upon the exercise of stock options or the payment or vesting of any performance shares and restricted stock units until the later of (i) one year following the date of acquisition of such shares or (ii) the date that the executive officer satisfies our stock ownership guidelines. |
• | Hedging Prohibition: Anti-Pledging Policy.We have a policy prohibiting all employees, including the NEOs and members of our Board, from engaging in any hedging transactions with respect to our equity securities |
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Compensation Discussion and Analysis (continued) |
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• | Limited Perquisites.Our executive officers, including the NEOs, receive no perquisites or other personal benefits, unless such benefits serve a reasonable business purpose, such as the use of a Company aircraft, Company-provided vehicles and drivers, and, in the case of our CEO and Vice Chairman, security services. |
• | “Clawback” Provision. Currently, we maintain a compensation recovery (“clawback”) provision in our Book Value Performance Program. We intend to adopt a general clawback policy covering our annual and long-term incentive award programs and arrangements once the SEC adopts final rules implementing the “clawback” provisions of the Dodd-Frank Act. |
PHILOSOPHY AND OBJECTIVES OF OUR EXECUTIVE COMPENSATION PROGRAM
The philosophy underlying our executive compensation program is to provide an attractive, flexible and market-based total compensation program tied to performance and aligned with the interests of our shareholders. Our objective is to recruit and retain the caliber of executive officers and other key employees necessary to deliver sustained high performance to our shareholders, customers, and communities where we have a strong presence. Our executive compensation program is an important component of these overall human resources policies. Equally important, we view compensation practices as a means for communicating our goals and standards of conduct and performance and for motivating and rewarding employees in relation to their achievements.
Overall, the same principles that govern the compensation of all our salaried employees apply to the compensation of our executive officers. Within this framework, we observe the following principles:
Retain and hire top-caliber executives: Executive officers should have base salaries and employee benefits that are market competitive and that permit us to hire and retain high-caliber individuals at all levels;
Pay for performance: A significant portion of the annual compensation of our executive officers should vary with annual business performance and each individual’s contribution to that performance;
Reward long-term growth and profitability:Executive officers should be rewarded for achieving long-term results, and such rewards should be aligned with the interests of our shareholders;
Tie compensation to performance of the Company’sour core business:A significant portion of our executive officers’ compensation should be tied to measures of performance of our Financial Services Businesses;
Align compensation with shareholder interests: The interests of our executive officers should be linked with those of our shareholders through the risks and rewards of the ownership of our Common Stock;
Provide modestlimited perquisites:Perquisites for our executive officers should be minimized and limited to items that serve a reasonable business purpose; and
Reinforce succession planning process:The overall compensation program for our executive officers should reinforce our robust succession planning process.
2012 INCENTIVE PROGRAMS
To ensure a solid link between our incentive compensation awards and our short-term and longer term objectives, we use two specific programs: our Annual Incentive Program and our Long-Term Incentive Program, which includes our Book Value Performance Program.
OurAnnual Incentive Program. The Annual Incentive Program rewardsis designed to reward strong financial and operational performance that furthers our short-term strategic objectives. Financial performance is determined based on the annual average percentage change in pre-tax adjusted operating income (AOI) and earnings per share (EPS). This calculation is subject to modification if return on equity (ROE) is outside a target range of 9% to 11%. For 2011, our Annual Incentive Program also provided the Committee with discretion to consider strategic measures of performance, such as performanceEPS achievement relative to our financial targets related to our 2011 earnings guidance, capital and liquidity management, risk management, and competitive performance.the Company’s externally disclosed EPS targets.
Through ourLong-Term Incentive Program. Our Long-Term Incentive Program weconsists of three parts that incentivize long-term value creation, by providing compensation in the form ofcreation: stock options and performance shares and units that reward increases in the market value of our Common StockStock; performance shares and units that reward the achievement of our long-term ROE goals and increases in the market value of our Common Stock; and book value units that reward increases in book value per share.
ANNUAL COMPENSATION-RELATED RISK EVALUATION
We monitor the risks associated with our executive compensation program, as well as achievementthe components of our ROEprogram and EPS goals forindividual compensation decisions, on an ongoing basis. In January 2013, the Financial Services Businesses.
The Book Value Performance Program is composedCommittee was presented with the results of a portion (20%) ofstudy reviewing our compensation programs, including our executive compensation programs, to assess the long-termrisks arising from our compensation valuepolicies and practices. The Committee agreed with the study’s findings that these risks were within our ability to effectively monitor and manage and that these compensation programs do not encourage unnecessary or excessive risk-taking and do not create risks that are reasonably likely to have a material adverse effect on the Company.
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