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.
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PRUDENTIAL FINANCIAL, INC. PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 9, 2017
“The justification of the company’s existence is its advancement of the efforts of its policyholders and their families for better economic and social condition which confront the [middle] class.”
John F. Dryden, founder of The Prudential Friendly Society (a predecessor of Prudent al Financial, Inc.)
Prudential was founded more than 140 years ago on the belief that everyone should have the opportunity to achieve financial security and the peace of mind that comes with it.
Today, as Prudential’s global footprint continues to grow, our commitment to shared success remains strong. The company’s approach to creating innovative financial solutions draws on our expertise, our strong stakeholder relationships and the breadth and depth of our business model. In 2016, we continued to build upon our efforts to advance the well-being of a broad array of stakeholders. Three examples are highlighted below:
Prudential’s global investment management business, PGIM, is five years into its journey to create employment pathways for opportunity youth, young people who are not in school nor formally employed. Through a partnership with YouthBuild, an international organization that trains opportunity youth in both job and life skills, PGIM Real Estate is leveraging its business relationships, along with associate expertise, to accelerate the job placement of YouthBuild graduates.
Prudential remains committed to closing the insurance protection gap, and in 2016, demonstrated this by building on its relationship with LeapFrog Investments. The partnership’s long-term objective is to partner with local life insurance providers in high-growth African markets such as Ghana, Kenya and Nigeria to provide appropriate and affordable insurance products while simultaneously spurring the growth of the African middle class.
In keeping our commitment to diversity in practice, Prudential was a proud founding donor and sponsor of the Smithsonian National Museum of African American History and Culture’s grand opening in Washington, D.C. The museum’s opening reignited a national dialogue around the rich and complex heritage of the African American community.
Every day, more than 49,000 Prudential employees serve millions of people around the globe, delivering on our founding belief. We know the value we create for our stakeholders, combined with the societal value we create as a company, helps build a shared and lasting prosperity.
Prudential Financial, Inc. 751 Broad Street, Newark, NJ 07102
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Thomas J. Baltimore, Jr.
Gordon M. Bethune
Gilbert F. Casellas
James G. Cullen
Mark B. Grier
March 24, 201521, 2017
Letter from the Board of Directors
Toto Our Shareholders
As stewards of yourdirectors, we strive to govern Prudential in a prudent and transparent manner that helps the Company the Board values this opportunity to share our perspective on the work we undertookachieve sustainable operating and financial performance, and deliver long-term value for our shareholders during 2014. Our objective is to guide and oversee management inshareholders. We focus our attention on overseeing the creation of long-term value through the execution of a soundCompany’s business strategy, prudentstrategies, risk management, talent development, and succession planning, a commitmentplanning. We are pleased to corporate ethics,share with you our progress on specific actions undertaken in 2016.
BUSINESS STRATEGY
Our Board has and responsible citizenship. In pursuit of this objective, we focused considerable attention on preparing for changeswill continue to be vigilant in the businessoversight of our firm’s long-term strategy. By focusing on our long-term outlook, we are best able to support our common goal of creating enduring value in our firm and regulatory environmentfor our shareholders. At each Board meeting and during our annual strategy planning session, we contribute to management’s strategic plan by engaging Prudential’s senior leadership in whichrobust discussions about the Company will operate.Company’s overall strategy, priorities for its businesses, and long-term growth opportunities.
BOARD RISK MANAGEMENTOVERSIGHT
Risk taking and risk mitigation arePrudent risk-taking is an inherent partspart of ourPrudential’s business, and we takeapproach our responsibility for oversight of Prudential’s risk profileprofile—in its operations, product development and deployment of capital—very seriously. Fulfilling the Company’s long-term promises is only achievable by developing and maintaining an appropriate risk framework, transparency of risk reporting, and rigorous testing methodologies.
Through our oversight, we set standards for managing risks and monitoring how the Company manages those risks within the Company.
Effective in February 2015, the Board established arisks. The Risk Committee. The committee members areCommittee is comprised of the chairs of each of the other Board committees, which will allow the committeeenabling us to more closely coordinate the Board’s risk oversight functions of each Board committee.
As we reportedfunction. The Risk Committee has metrics in last year’s letter, the Financial Stability Oversight Council has determined that Prudential is a “Designated Financial Company.” Last year, we oversaw the development of the first Resolution Plan and the chairs of two of our Board committees met with representatives from the Board of Governors of the Federal Reserve System. We support management’s constructive dialogue with the Federal Reserve Board to attain appropriate regulation.
Cybersecurity is a critical priority for the entire Company. We are focused, among other things, on hiring additional talented individualsplace to monitor and address the ever changing standardsreview market, insurance, investment, and implementing high quality technology and protocols for managing thisoperational risk.
TALENT DEVELOPMENT AND SUCCESSION PLANNINGDIVERSITY
We recognize that over the long-term, our talent and culture provide our biggest competitive advantage. That is why we consider leadership and talent a priority throughout the Company. This “talent mindset” means embracing collaboration and diversity. We work diligently to build on our success as an organization where top talent across a variety of disciplines, and from a diverse set of backgrounds, aspires to work.
The Board works collaboratively with our executive team to cultivate a deep talent bench and plan for senior leadership succession. In 2014, as partBoard’s composition is indicative of our succession plan, there were a number of changes among the Company’s most visible leadership roles. As a Board, we believe that these changes aligned our management’s talent to the Company’s corporate strategies, and we were proud to acknowledge the dedication and accomplishments of these individuals. These promotions and rotations demonstrated our commitment to talent management, diversity teamwork, and positioninginclusion. Our Directors reflect diverse perspectives, including a complementary mix of skills, experience and backgrounds, which we believe are paramount to our Company for future growth.ability to represent your interests as shareholders. In the last two years, four new directors have been elected. The average tenure of our directors is now six years, andtwo-thirds of the Board is diverse.
ENGAGEMENT AND OUTREACH
Accountability to shareholders is not only a mark of good governance, but an important component of Prudential’s success. We value our shareholders’ views and insights and believe that positive,two-way dialogue builds informed relationships that promote transparency and accountability.
Notice of Annual Meeting of Shareholders and | 1 |
Letter from the Board of Directors
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Constance J. Horner
Martina Hund-Mejean
Karl J. Krapek
Christine A. Poon
Douglas A. Scovanner
ENGAGEMENT AND OUTREACH
TheIn 2016, we spoke with representatives from mutual funds, public pension funds, labor unions and other institutional investors that represent the majority of our outstanding shares. Topics discussed included strategy and performance; corporate governance matters, such as Board composition and Compensation Committee engage in ongoing discussion regarding the evaluation, compensation,refreshment, succession planning and performance of Prudential’s senior management team. Your views aboutBoard leadership structure; and our executive compensation program. This continuous and transparent communication with our shareholders serves as the foundation for our policy development and informs our business strategy.
CULTIVATING A STRONG ETHICAL CULTURE
For more than 140 years, our commitment to helping customers achieve financial security has never wavered. We know that only by doing business the right way, every day, do we continue to earn their trust.
Our corporate philosophy and practice of strong ethical values are importantreflected in the naming of Prudential as a 2016 World’s Most Ethical Company® by the Ethisphere Institute. This recognition is bestowed only on organizations that demonstrate a culture of ethics and transparency at every level.
CORPORATE RESPONSIBILITY
Prudential was founded to us. At last year’s annual meeting,address a social need—helping working families afford life insurance to achieve financial security and peace of mind. Since then, we have stayed true to our advisory “say on pay” proposal received approximately 86 percentpurpose of powering the ambitions of people, organizations and communities, and to driving social progress.
We believe everyone should have access to financial security. We recognize that equitable access to capital enhances prosperity and accelerates growth. We are committed to enabling economic prosperity through the work we do not only in our core businesses, but also through targeted efforts like our emerging manager program, which invests in women- and minority-owned firms. Through this and other initiatives, these core beliefs permeate our interaction with all of our stakeholders.
OUR INTERNATIONAL BUSINESSES ANCHORED BY JAPAN
Our international businesses present long-term opportunities for our Company. More than half of our employees work in our operations outside of the votes cast.U.S. Today, Japan is central to our international strategy. Consequently, in November 2016, we held our Board meeting in Tokyo, Prudential’s headquarters in Japan. Over the past year,course of several days, we met with investors and other stakeholders as partthe senior management of our ongoing effortsAsian businesses to align our compensation programs with the interests of our shareholders. In response to your feedback, we made a number of changes to our executive compensation program including extending our clawback policy to cover all incentive-based awards, material financial restatements,discuss their strategies, outlook, challenges and misconduct (including failure to report), and included a robust disclosure policy if such events occur. In addition, we implemented a relative performance modifier for our 2015 performance shares program.opportunities. We also increasedmet employees, whose observations and experiences reinforced the strength of Prudential’s culture, and our CEO stock ownership guidelinescommitment to doing business the right way and significantly reduced potential discretion in determining annual incentive awards for our Named Executive Officers. Lastly, over the last several months we engaged in thoughtful dialogue with shareholders regarding the concept of proxy access. Basedmaintaining a sharp focus on your feedback and in-line with our own philosophical beliefs about shareholders’ rights, we proactively adopted proxy access. We believe this proactive step further strengthens our governance standards.talent management.
BOARD DIVERSITY, INCLUSION AND ANNUAL ASSESSMENT
Our Board is composed of a highly capable and diverse group of Directors who are well-equipped to oversee the success of the business and effectively represent the interests of shareholders.
We encourage you to review the qualifications, skills and experience that the Board identifies as important attributes for our Directors, which appears as a chart in this proxy statement.
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.
COMMUNITY COMMITMENT AND SOCIAL RESPONSIBILITY
Sustainability is firmly entrenched in the values and principles that guide Prudential’s Board. Our commitment is clear and tangible: a deep understanding of environmental, social and corporate responsibilities is among the skills that should be, and are, represented on Prudential’s Board. Oversight of the Company’s sustainability strategy is included in the Charter of the Corporate Governance and Business Ethics Committee. Prudential once again released a Sustainability Report that outlines how the Company’s policies and programs support the Company’s long-term health.
Prudential collaborates with other private, public and non-profit sector leaders to create lasting solutions to pressing social challenges. At a White House event last year, the Company proudly committed to building a $1 billion impact investment portfolio by 2020. Impact investments create both a financial and social return, improving the economic health and overall well-being of urban communities.
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John R. Strangfeld
James A. Unruh
YOUR VIEWPOINT IS IMPORTANT
We value your support, and we encourage you to share your opinions, suggestions, interests, and concerns with us. You can do so by writing to us at the address below. You can also send an email to the independent directors atindependentdirectors@ prudential.com or provide feedback on executive compensation via our website atwww.prudential.com/executivecomp.
If you would like to write to us, you may do so by writingaddressing your correspondence to 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, NJNew Jersey 07102.
We suggest you access the two short videos of our Lead Independent Director, Karl Krapek, and the Chair of our Corporate Governance and Business Ethics Committee, Gilbert Casellas, from the Corporate Governance section of our website at www.prudential.com/directorvideos.
The Board of Directors of Prudential Financial, Inc.
2 | | Notice of Annual Meeting of Shareholders and |
Dear Fellow Shareholders:
You are invited to the Annual Meeting of Shareholders on May 12, 2015,9, 2017, at 751 Broad Street, Newark, NJ, at 2:0030 p.m. We hope that you will attend the meeting, but whether or not you attend, please designate the proxies on the proxy card to vote your shares.
We are excited that shareholder voting has increased each year and are again offering a voting incentive to registered shareholders. Because of your active participation, we have planted more than 550,000730,000 trees through the incentive initiative. This year, trees will be planted in Loyalsock State Forest located in Pennsylvania, as well as in Tydall Air Force Base located in Florida.
Every shareholder’s vote is important. Thank you for your commitment to the Company and please vote your shares.
Sincerely,
John R. Strangfeld
Chairman and Chief Executive Officer
Prudential Financial, Inc.
751 Broad Street
Newark, NJ 07102
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Notice of Annual Meeting of Shareholders of
Prudential Financial, Inc.
Place: Prudential’s Corporate Headquarters 751 Broad Street Newark, NJ 07102
Date: May
Time: 2: | AGENDA:
• Election of
• Ratification of appointment of PricewaterhouseCoopers LLP
• Advisory vote to approve named executive officer compensation; • Advisory vote on the frequency of future advisory votes to approve named executive officer compensation; • Shareholder proposal regarding an independent Board Chairman,
• Shareholders also will act on such other business as may | |||
Record date: You can vote if you were a shareholder of record on March
If you are attending the meeting, you will be asked to present your admission ticket and valid, government-issued photo identification, such as a driver’s license, as described in the Proxy Statement.
By Order of the Board of Directors,
Margaret M. Foran Chief Governance Officer, Senior Vice President and Corporate Secretary
March
Prudential Financial, Inc. 751 Broad Street Newark, NJ 07102 |
4 | | Notice of Annual Meeting of Shareholders and |
Summary Information
To assist you in reviewing the proposals to be acted upon at the Annual Meeting, 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 20142016 financial performance and key executive compensation actions and decisions.decisions, and corporate governance highlights. The following description is only a summary. For more complete information about these topics, please review the Company’s Annual Report on Form10-K and the completethis Proxy Statement.
Business Highlights
2014 was a year of progress and accomplishment for our Company on many fronts:Business
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We reportedafter-tax adjusted operating income of $4.11 billion, or $9.13 per share of Common Stock | ||||||
We reported GAAP book value Adjusted book value |
We reported operating return on average equity |
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Compensation Highlights
The Compensation Committee has instituted the following changes to our executive compensation program to align with evolving competitive and governance practices:
Expanded the clawback policy for executive officers to cover all incentive compensation, material financial restatements, and improper conduct (including failure to report), and to require the Company to disclose to shareholders the action taken by the Board, or the Board’s decision not to take action, with regard to compensation recovery following the occurrence of a material restatement or improper conduct.
Introduced a relative performance modifier for the 2015 performance shares program.
Increased our CEO stock ownership guidelines from five to seven times base salary.
Significantly reduced potential discretion in determining annual incentive awards for the named executive officers (“NEOs”).
Adopted a resignation notice period requirement as part of the terms and conditions of all long-term incentive awards.
Continued to require achievement of the midpoint of EPS guidance to earn target annual incentive award funding.
Maintained a strong performance-oriented long-term incentive program by providing 60% of long-term incentive awards in performance shares and units.
For additional information, see the CD&A in this Proxy Statement.
The compensation of our NEOs reflects both our 2014 performance and the increased rigor of our annual executive compensation program.
Named Executive Officer | 2014 Base Salary ($) | 2014 Annual Incentive Award (as adjusted for mandatory deferrals)(1) ($) | 2014 Long-Term Incentive Award Value(2) ($) | 2014 Total Direct Compensation ($) | ||||||||||||
John R. Strangfeld | 1,400,000 | 5,460,000 | 10,840,000 | 17,700,000 | ||||||||||||
Robert M. Falzon | 650,000 | 2,310,000 | 3,990,000 | 6,950,000 | ||||||||||||
Mark B. Grier | 1,190,000 | 4,550,000 | 8,950,000 | 14,690,000 | ||||||||||||
Charles F. Lowrey | 770,000 | 3,780,000 | 6,120,000 | 10,670,000 | ||||||||||||
Stephen Pelletier | 700,000 | 2,800,000 | 5,200,000 | 8,700,000 |
Our NEOs’ total compensation shown in the Summary Compensation Table in the CD&A includes pension accruals. These accruals are determined formulaicly and do not involve a Board decision. For our CEO, roughly half the 2014 increase in pension value is a result of the plan benefit formula, and half is driven by changes in actuarial assumptions, primarily updated longevity (or mortality) estimates as well as use of lower interest rates to value the plan liability. The traditional pension formula in which our CEO participates was closed to new participants in 2001. The traditional formula benefits are based on an average earnings calculation that is updated biennially. As a result, every other year the Company tends to have significant changes in its pension value calculation that reflect the use of more recent earnings. For next year, we expect the change in the benefit amount accrued to our CEO to be substantially lower.
Notice of Annual Meeting of Shareholders and | |
Summary Information
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Assets under management reached $1.264 trillion at December 31, 2016, an increase from $1.184 trillion a year earlier. |
We returned a total of $3.2 billion of capital to shareholders in 2016, including $2.0 billion through our share repurchase program and $1.2 billion in the form of Common Stock dividends, compared to a total of $2.1 billion of shareholder distributions in 2015. |
COMPENSATION HIGHLIGHTS
The Compensation Committee has instituted a number of changes to our executive compensation program over the last several years to align with evolving competitive and governance practices and to strengthen the link to performance and rigor of our program. Highlights of our program include:
material financial restatements and misconduct (including failure to report), which includes a robust disclosure policy if such events occur. |
• | The Compensation Committee closely monitors the risks associated with our executive compensation program and individual compensation decisions to ensure they do not encourage excessive risk-taking. |
• | The stock ownership guideline for our CEO is 700% of base salary. |
• | In addition to stock ownership guidelines, we have stock retention requirements covering shares acquired upon the exercise of stock options or the payment or vesting of any performance shares and restricted stock units. |
• | Each year we engage with our shareholders and bring back their feedback to the Compensation Committee and the Board. |
For additional information, see the Compensation Discussion and Analysis (“CD&A”) Section in this Proxy Statement.
The compensation of our NEOs reflects both our 2016 performance and the rigor of our executive compensation program.
Named Executive Officer | 2016 Base Salary ($) | 2016 Annual Incentive Award (as adjusted for mandatory deferrals)(1) ($) | 2016 Long-Term Incentive Award Value(2) ($) | 2016 Total Direct Compensation ($) | ||||||||||||
John R. Strangfeld | $ | 1,400,000 | $ | 4,183,200 | $ | 11,792,800 | $ | 17,376,000 | ||||||||
Robert M. Falzon | $ | 770,000 | $ | 2,093,000 | $ | 4,897,000 | $ | 7,760,000 | ||||||||
Mark B. Grier | $ | 1,190,000 | $ | 3,556,000 | $ | 9,524,000 | $ | 14,270,000 | ||||||||
Charles F. Lowrey | $ | 770,000 | $ | 2,789,500 | $ | 6,195,500 | $ | 9,755,000 | ||||||||
Stephen Pelletier | $ | 770,000 | $ | 2,789,500 | $ | 5,695,500 | $ | 9,255,000 |
1 | The following amounts are not included in the 2016 Annual Incentive Award column because they have been mandatorily deferred into our Book Value Performance Program: $1,792,800 for Mr. Strangfeld, $897,000 for Mr. Falzon, $1,524,000 for Mr. Grier, $1,195,500 for Mr. Lowrey, and $ 1,195,500 for Mr. Pelletier. |
2 | Represents long-term incentive awards granted in 2017 for 2016 performance. Amounts include portions of the 2016 Annual Incentive Awards mandatorily deferred into our Book Value Performance Program. |
Response to advisory vote and shareholder feedback
Approximately 86%95% of the votes cast at the 20142016 Annual Meeting of Shareholders on thenon-binding advisory vote on the compensation of our named executive officer compensationofficers were voted in support of our executive compensation program. Consistent with its strong commitment to engagement, communication, and transparency, the Compensation Committee continues to regularly receive feedback from our shareholders and review our executive compensation program to ensure alignment between the interests of our senior executives and shareholders, and, inshareholders. In part based on feedback from our shareholders, we made several modifications to the compensation program for our NEOs as discussed above and in more detail in the CD&A.
Recent
6 | | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Summary Information |
Corporate Governance ChangesHighlights
Compensation Recovery Policies.In 2015, we strengthened our clawback policy2016, management and adopted a resignation notice period requirement for all long-term incentive awards as described above.
Enhanced Risk Oversight. In February 2015, the Board established a new Risk Committee comprised of the chairs of each of the other Board committees to enhance the Board’s oversight of significant risks and risk oversight functions across the enterprise.
Increased Shareholder Engagement. In 2014, the Company metmembers engaged with shareholders who hold a majority of our shares. During these meetings,discussions, shareholders were encouraged to identify potential Board candidates and share feedback on the Company, its governance practices and governance policies.policies, and its compensation framework and programs. Our Board recently adopted proxy access based on the feedback from these meetings. The Company also responded to shareholder feedback on our executive compensation program by implementing several enhancements to better align executive compensation with the long-term interests of our shareholders, as described above under “Compensation Highlights.” Finally, our Lead Independent Director has recorded a video message to shareholders highlighting the Board’s view regarding2016 corporate governance explaining his role and describing the Board’s structure. You can find this video on our website at www.prudential.com/leadindependentdirector.highlights include:
Shareholder Actions
• | Executive Compensation Program.Received 95% shareholder support in 2016. |
• | Shareholder Engagement.In 2016, management and Board members met with shareholders who own the majority of our shares. |
• | Board Refreshment.Elected four new directors since 2015, including three in 2016, enhancing the Board’s breadth and depth of experience and diversity. |
• | Investor Communications.Nominated for Best Proxy Statement for a Large Cap Company by Corporate Secretary Magazine. |
ElectionBoards of Directors (Item 1)Nominees and Committees
You will find below important information about the qualifications and experience of each of the director nominees whom 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 ability, sound judgment, integrity, and a commitment to the success of our Company.
Name/Age | Independent | Director Since | Committee Membership | Other Public Boards | ||||||
Thomas J. Baltimore, 53 | Yes | Oct. 2008 | • Executive • Compensation | • Investment (Chair) • Risk | 2 | |||||
Gilbert F. Casellas, 64 | Yes | Jan. 2001 | • Corporate Governance & Business Ethics (Chair) | • Executive • Risk | 0 | |||||
Mark B. Grier, 64 | No | Jan. 2008 | 0 | |||||||
Martina Hund-Mejean, 56 | Yes | Oct. 2010 | • Audit | 0 | ||||||
Karl J. Krapek, 68 | Yes | Jan. 2004 | • Lead Independent • Compensation (Chair) | • Executive (Chair) • Risk (Chair) | 1 | |||||
Peter R. Lighte, 68 | Yes | Mar. 2016 | • Corporate Governance & Business Ethics | • Investment | 0 | |||||
George Paz, 61 | Yes | Mar. 2016 | • Audit | 2 | ||||||
Sandra Pianalto, 62 | Yes | Jul. 2015 | • Corporate Governance & Business Ethics | • Finance | 2 | |||||
Christine A. Poon, 64 | Yes | Sep. 2006 | • Executive • Finance (Chair) | • Investment • Risk | 3 | |||||
Douglas A. Scovanner, 61 | Yes | Nov. 2013 | • Audit (Chair) • Executive | • Risk | 0 | |||||
John R. Strangfeld, 63 | No | Jan. 2008 | • Executive | 0 | ||||||
Michael A. Todman, 59 | Yes | Mar. 2016 | • Compensation | • Finance | 2 |
Ratification of the Appointment of the Independent Registered Public Accounting Firm (Item 2)Annual Meeting Proposals
The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the Company’s independent registered public accounting firm (independent auditor) for 2015. While we are not required to have shareholders ratify the selection of PricewaterhouseCoopers as the Company’s independent auditor, we are doing so because we believe it is good corporate practice. If shareholders do not ratify the selection, the Audit Committee will reconsider the appointment, but may nevertheless retain PricewaterhouseCoopers as the Company’s independent auditor.
Advisory Vote to Approve Named Executive Officer Compensation (Item 3)
Shareholders are being asked to cast a non-binding advisory (“Say on Pay”) vote on our NEO compensation. Last year, approximately 86% of the votes cast by our shareholders on this proposal supported our executive compensation program. Please see “Consideration of Last Year’s ‘Say on Pay’ Vote” in the CD&A for a discussion of how the Board and the Compensation Committee responded to the results of the 2014 advisory vote.
Consistent with the recommendation of the Board and the preference of our shareholders, we have decided to hold annual Say on Pay votes. In evaluating this year’s Say on Pay proposal, we recommend that you carefully review the CD&A, which explains how and why the Compensation Committee arrived at its executive compensation actions and decisions for the 2014 performance year. We suggest you also refer to our corporate governance policies which are contained in this Proxy Statement.
Proposal | Recommendation of Board | |
Election of Directors | FOR each of the nominees | |
Ratification of Auditors | FOR | |
Advisory vote to approve named executive officer compensation | FOR | |
Advisory vote on the frequency of future advisory votes to approve named executive officer compensation | For “EVERY YEAR” | |
Shareholder proposal regarding an independent Board Chairman | AGAINST |
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ELECTION OF DIRECTORS
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APPOINTMENT OF THE INDEPENDENT
AUDITORS FOR 2013—2017—RATIFICATION
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ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION AND CD&A
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Submission of Shareholder Proposals and Director Nominations |
Proxy Statement
The Board of Directors of Prudential Financial, Inc. (“Prudential Financial” or the “Company”) is providing this Proxy Statement in connection with the Annual Meeting of Shareholders to be held on May 12, 2015,9, 2017, at 2:0030 p.m., at Prudential Financial’s Corporate Headquarters, 751 Broad Street, Newark, NJ 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 24, 2015.21, 2017.
ADVISORY VOTES TO APPROVE NAMED
EXECUTIVE OFFICER COMPENSATION
AND FREQUENCY OF VOTE, AND CD&A
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SHAREHOLDER PROPOSAL REGARDING AN INDEPENDENT BOARD CHAIRMAN
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30 | Item 5 – Shareholder Proposal Regarding an Independent Board Chairman |
8 | | Notice of Annual Meeting of Shareholders and |
Item 1—1–Election of Directors
Our Board of Directors has nominated 1112 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 directors. Each agreed to be named in this Proxy Statement and to serve if elected. All of the nominees are expected to attend the 20152017 Annual Meeting. All 12 directors, then serving on the Board, attended the 20142016 Annual Meeting.
James Unruh,Cullen, a member of the Board, will have attained the age of 74 and will not stand forre-election. As a result, the Board will be reduced to 1112 members immediately prior to the 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.
Director Criteria, Qualifications, Experience and Tenure
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.
BOARD HIGHLIGHTS
BOARD DIVERSITY
While the Company does not have a formal policy on Board diversity, diversity is an integral part of our Corporate Governance Principles and Practices place great emphasis on diversity, 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:
Total numberTwo-thirds of director nominees: 11our Board is diverse
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director nominees haveworked outside | ||||
2 | director nominees areAfrican-American | |||
1 | director nominee isAsian-American | |||
director nominees areHispanic | ||||
3 | director nominees areWomen | |||
1 | director nominee isLGBT | |||
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Total number of director nominees |
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Item 1—Election of Directors:Director Nominees
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DIRECTORS’ SKILLS AND QUALIFICATIONS
The Committee looks for its current and potential directors collectively to have a mix of skills and qualifications, some of which are described below:
It is of critical importance to the Company that the Committee recruit directors who help achieve the goal of a well-rounded, diverse Board that functions collegially as a unit. The Board has also carefully considered whether the slate of director nominees, taken as a whole, has representatives with the above-listed skills and qualifications.
Additionally, theThe Committee expects each of the Company’s directors to have proven leadership skills, 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 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 attendance, past performance on the Board and contributions to the Board and their respective committees.
Below each nominee’s biography, we have included an assessment of the skills and experience of such nominee. We have also included a chart that covers the assessment for the full Board.
The Board of Directors recommends that shareholders vote“FOR” alleach of the nominees.
| Thomas J. Baltimore Age: Director Since:October 2008 | Prudential Committees:
• Executive
•
• Investment (Chair)
• Risk
Former Directorships Held During the Past Five Years:
• Integra Life Sciences Corporation (August 2012) |
• RLJ Lodging Trust (May 2016) | Public Directorships:
• Duke Realty Corporation(1) • Park Hotels & Resorts, Inc. | ||||||
(1) Mr. Baltimore will not be standing for re-election at the annual meeting in April 2017. | ||||||||||
Mr. Baltimorehas been the President and Chief Executive Officer (CEO) of Park Hotels & Resorts, Inc. (a NYSE-listed lodging real estate investment trust) since January 2017. Between May 2016 and January 2017, Mr. Baltimore was the President and CEO of the planned Hilton Real Estate Investment Trust. Previously, he was President and CEO of RLJ Lodging Trust (a NYSE-listed real estate investment company) sincefrom May 2011. Previously, he2011 to May 2016. 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 & Qualifications
SkillsBOARD TENURE FOR 2017 NOMINEES Our directors’ expertise combines to provide a broad mix of skills, qualifications and Qualifications
proven leadership abilities. The Corporate Governance and Business Head/Administration:OverEthics Committee practices a decadelong-term approach to board refreshment. With the assistance of servicean independent search firm, the Committee regularly identifies individuals who have expertise that would complement and enhance the current board’s skills and experience. In addition, as Presidentpart of RLJ Development.
Business Operations: As President and CEO of RLJ Lodging Trust, Mr. Baltimore is responsibleour shareholder engagement dialogue, we routinely ask our investors for the day-to-day oversight of its multi-billion dollar portfolio of 150 hotels in major markets in North America. As Co-Founder and President of RLJ Development, he has spent 15 years developing, implementing and assessing the company’s operating plan.
Corporate Governance:input regarding director recommendations. Director of several public companies in addition to Prudential.
Investments: Mr. Baltimore has been responsible for overseeing the management of several billion dollars in equity; formerly served as VP, Development and Finance of Hilton Hotels.
Real Estate: President and CEO of RLJ Lodging Trust; director of Duke Realty, one of the largest commercial real estate companies in the U.S., and former Co-Founder and President of RLJ Development.
10 | | Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors:Director Nominees
|
| Gilbert F. Casellas Age:64 Director Since:January 2001 (Director of Prudential Insurance since
|
| Prudential Committees:
• Corporate Governance and Business Ethics (Chair)
• Executive
• Risk
|
| ||||||
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. 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 (COO) 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.
Skills and Qualifications
Business Head/Administration: A decade of service as CEO of Continental Airlines.
Business Operations: Served as CEO and Chief Operating Officer of Continental Airlines.
Corporate Governance: Director of several large public companies in addition to Prudential.
International: Experience in the travel industry and as a director of two large public companies with international operations.
Marketing/Sales:Transformed Continental Airlines into an industry leader through innovative marketing initiatives.
Talent Management: Extensive experience in strategies and policies for the acquisition and development of employee talent.
|
|
Mr. Casellas has been Chairman of OMNITRU (a consulting and investment firm) since 2011. 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 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 ofQ-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: At Dell Inc., he was responsible for the company’s global sustainability and corporate philanthropy functions.
Business Head/Administration: As former Chairman of EEOC, he was responsible for an annual budget of approximately $250 million and a business administration serving approximately 3,000 employees.
Business Operations: Former President and CEO of Q-linx; former COO of The Swarthmore Group.
Corporate Governance: Experience serving as a director of a private company, serving on the University of Pennsylvania Board and as VP, Corporate Responsibility at Dell Inc. His diversity experience includes a Presidential appointment to the Military Leadership Diversity Commission and memberships on the Diversity Advisory Board of Toyota Motor North America Inc., the Joint Diversity Council of Comcast Corporation, and formerly as the chair of the Committee on Workplace Diversity for Yale University, a member of the board of
the Hispanic Federation and a member of The Coca-Cola Company’s Diversity Task Force.
Environmental/Sustainability/Corporate Responsibility:At Dell, he oversaw global diversity, sustainability and corporate philanthropy, and contributed to company leadership recognition for environmentally conscious packaging, support of diverse suppliers and human rights.
Government/Public Policy: Served as Chairman of the U.S. EEOC and as General Counsel of the U.S. Department of the Air Force.
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: Former member of Mintz Levin Cohn Ferris GlovskySkills & Popeo, PC; former General Counsel of the U.S. Department of the Air Force; former VP, Corporate Responsibility of Dell Inc.
• Business Head/Administration |
• Business Operations
• Corporate Governance • Environmental/Sustainability/Corporate Responsibility • Government/Public Policy • Investments |
|
•
|
|
Mr. Cullen served as the President and COO of Bell Atlantic Corporation 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.
Mr. Cullen has also served as the Non-Executive Chairman of the Board of NeuStar, Inc. since November 2010 and Non-Executive Chairman of the Board of Agilent Technologies, Inc. since March 2005.
Skills and Qualifications
Business Head/Administration: Formerly served as President and CEO of the Telecom Group at Bell Atlantic.
Business Operations: Former President and COO of Bell Atlantic.
Corporate Governance: Director of several large public companies including non-executive chairman and lead director.
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: As former President and COO of Bell Atlantic, responsible for acquisition and development of employee talent.
| Mark B. Grier Age:64 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 divisiondivisions and Global Marketing
and Communications. Mr. Grier was Chief Financial Officer (CFO) 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: Current and former member of senior management for two public companies.
Business Operations: Mr. Grier has oversight and responsibility for Finance, Risk Management, Investor Relations, Operations and Systems, Auditing, Global Marketing and Communications.
Corporate Governance: Membership on Prudential’s Board since 2008.
Environmental/Sustainability/Corporate Responsibility:Executive sponsor for sustainability at Prudential and leadership role in executing Prudential’s corporate citizenship strategy.
Finance/Capital Allocation: Two decades of financial experience at Prudential, including CFO of Prudential Insurance.
Financial Services Industry: Almost three decades in the financial services industry.
Government/Public Policy: Has overseen Prudential’s public policy and government affairs function.
Insurance Industry: Industry experience as a member of senior management.
International: Current and former member of senior management for large public companies with international operations.
Risk Management: Oversees and is responsible for Prudential’s risk management policies and procedures.
Talent Management: Leads large, global teams at Prudential.
Technology/Systems: Oversees and is responsible for Prudential’s Operations and Systems function.
• Business Head/Administration |
• Business Operations
• Corporate Governance • Environmental/Sustainability/Corporate Responsibility • Finance/Capital Allocation • Financial Services Industry • Government/Public Policy |
|
•
• Risk |
• • |
Ms. Horner served as a Guest Scholar at The Brookings Institution 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: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:Current and former Director and Chair of Governance Committees of several public companies.
Environmental/Sustainability/Corporate Responsibility:In providing oversight of sustainability and responsible business models for several international companies, Ms. Horner has encouraged
sustainable product development and strong corporate social responsibility.
Government/Public Policy:Government/public policy experience through various senior positions in the federal government, including Commissioner of the U.S. Commission on Civil Rights.
International:Director of several international companies.
Talent 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 (CFO)CFO 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 SVPSenior Vice President (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 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: Experience through her role at MasterCard, where she is responsible for Global Risk Management, Internal Audit and IR.
Finance/Capital Allocation:Over a decade of financial experience through various roles within the financial divisions at MasterCard and other companies.
Financial Services Industry:Experience through her position as CFO of MasterCard.
International: Current and former member of senior management of several public companies with international operations.
Investments: Responsibilities included $30 billion Defined Benefit Plan while serving as SVP and Treasurer of Lucent Technologies Inc. (Alcatel-Lucent).
Risk Management: Experience through her role at MasterCard, where she is responsible for Global Risk Management.
Talent Management:Experience leading large global teams at a number of Fortune 500 companies.
• Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Financial Services Industry • International • Investments | • Risk Management • Talent Management |
11 |
Item 1—Election of Directors:Director Nominees
|
| Karl J. Krapek Age:68 Director Since:January 2004 Lead Independent Director since May 2014
|
| Prudential Committees:
• Compensation (Chair) • Executive (Chair) • Risk (Chair)
Former Directorships Held During the Past Five Years:
• Visteon Corporation (June 2012) • The Connecticut Bank & Trust Company (April 2012) | Public Directorships:
• 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 (“UTC”)(UTC) from 1999 until his retirement in January 2002. Prior to that time, Mr. Krapek held other management positions at UTC, which he joined in 1982. Mr. Krapek is also theco-founder
Skills and Qualifications
Business Head/Administration:Formerly served as President and COO of UTC.
Business Operations: Formerly served as President and COO of UTC.
Corporate Governance: Director of large public companies.
Environmental/Sustainability/Corporate Responsibility:Led the business units of UTC when the company was at the forefront of environmental and industry in sustainable equipment design.
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: Current or former director of public companies with international operations and a former Chairman, President or CEO of large public companies with global operations.
Real Estate: Co-founder of The Keystone Companies, which was founded in 2002 and develops residential and commercial real estate.
Skills & Qualifications
Risk Management: As COO
• Business Head/Administration • Business Operations • Corporate Governance • Environmental/Sustainability/Corporate Responsibility • Finance/Capital Allocation • International • Real Estate | • Risk Management • Talent Management • Technology/Systems |
Peter R. Lighte Age:68 Director Since:March 2016 | Prudential Committees: • Corporate Governance and Business Ethics • Investment | |||||||
Mr. Lighteserved as the Vice Chairman, J.P. Morgan Corporate Bank, China, from 2010 to 2014, and was the founding Chairman of UTC, had oversightJ.P. Morgan Chase Bank China, from 2007 to 2010. Prior to that, he headed the Company’s International Client Coverage for risk management policies.Treasury and Securities Services in J.P. Morgan’s European Global Operating Services Division and was instrumental inre-establishing its corporate bank in London. Mr. Lighte previously served as the President of Chase Trust Bank in Tokyo from 2000 to 2002. He was also the founding representative in Beijing of Manufacturers Hanover Trust Company. Mr. Lighte has also taught at several academic institutions, including Middlebury College and the University of Santa Clara.
Skills & Qualifications
Technology/Systems: Two decades of experience at UTC, which provides high-tech products and support to the aerospace and building industries, serving as President and Chief Operating Officer. Director at companies in the technology industry.
• Academia/Education • Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Financial Services Industry • Government/Public Policy | • Insurance Industry • International • Investments • Risk Management • Talent Management |
|
|
Director Since:March 2016
| Prudential Committees: • Audit | Public Directorships: • Express Scripts Holding Company • Honeywell International, Inc. | ||||||
Mr. Pazis the Non-Executive Chairman of Express Scripts Holding Company (Express Scripts), a prescription benefit management company, and served as the CEO of Express Scripts from April 2005 to May 2016. Mr. Paz also served as the President of Express Scripts from October 2003 to February 2014 and has been a director since January 2004. He joined Express Scripts in 1998 as SVP and CFO. Prior to joining Express Scripts, Mr. Paz was a partner at Coopers and Lybrand from 1988 to 1993 and 1996 to 1998 and served as Executive Vice President and CFO for Life Partners Group from 1993 to 1995.
Skills & Qualifications
• Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Financial Services Industry • Government/Public Policy • Insurance Industry | • Risk Management • Talent Management |
12 | | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Item 1—Election of Directors:Director Nominees |
Sandra Pianalto
Age:62 Director Since:July 2015 | Prudential Committees: • Corporate Governance and Business Ethics • Finance | Public Directorships: • Eaton Corporation plc • The J.M. Smucker Company | ||||||
Ms. Pianaltoserved as the President and CEO of the Federal Reserve Bank of Cleveland (the Cleveland Fed) from February 2003 until her retirement in May 2014. She was the First Vice President and COO of the Cleveland Fed from 1993 to 2003 and served as its VP and Secretary to the Board of Directors from 1988 to 1993. Ms. Pianalto also served in various supervisory roles at the Cleveland Fed from 1983 to 1988. Prior to joining the Cleveland Fed, Ms. Pianalto was an economist at the Board of Governors of the Federal Reserve System and served on the staff of the Budget Committee of the US House of Representatives.
Skills & Qualifications
• Academia/Education • Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Financial Services Industry • Government/Public Policy | • Risk Management • Talent Management |
Christine A. Poon Age:64 Director Since:September 2006 | Prudential Committees: • Executive • Finance (Chair) • Investment • Risk | Public Directorships: • Koninklijke Philips Electronics NV
• Regeneron Pharmaceuticals
• The Sherwin-Williams Company | ||||||
Ms. Poon served as Dean of Fisher College of Business at The Ohio State University from May 2009 until November 2014 and is now a member of the faculty. She served as Vice Chairman and a Membermember of the Board of Directors of Johnson & Johnson 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 toPriorto joining Johnson & Johnson, she served in various management positions at Bristol-Myers Squibb for 15 years.
Skills and& Qualifications
Academia/Education: Former Dean of Fisher College of Business at The Ohio State University, an international leader in business education.
Education
Administration
Operations
International: Current or former director of public companies with international operations and former Worldwide Chair of the
Pharmaceuticals Group and the Medicines and Nutritionals Group of Johnson & Johnson.
International
Sales
|
| Douglas A. Scovanner Age: Director Since:November 2013
| Prudential Committees:
• Audit (Chair)
• | ||||||
Mr. Scovanner has been the Founder and Managing Member of Comprehensive Financial Strategies, LLC, a management consulting firm, since October 2013. Previously, he served as the CFO (1994 to 2012) and Executive Vice President (2000 to 2012) of the Target Corporation (a North American
retailer). Prior to joining the Target Corporation, Mr. Scovanner held various management positions at The Fleming Companies, Inc., Coca-Cola Enterprises, Inc., The Coca-Cola Company and the Ford Motor Company from 1979 to 1994.
Skills & Qualifications
• Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Financial Services Industry • Investments • Real Estate | • Risk Management • Talent Management |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | | 13 |
Item 1—Election of Directors:Director NomineesSkills and Qualifications
Business Head/Administration:As CFO of Target, demonstrated business leadership and management insights; previous senior leadership roles in Finance at Fortune 500 companies.
Business Operations: As CFO of Target, led key operational and financial areas including financial planning and analysis, risk management, internal audit, internal and external communications, investor relations, indirect procurement and corporate aviation.
Corporate Governance:Director and member of the Audit and Asset/Liability Management Committees of a public company; served as Chairman and Vice Chairman of the Board at private organizations.
Finance/Capital Allocation: Extensive financial expertise in cost management, creating value and resource allocation as CFO of Target, as well as previous leadership roles in Finance at other companies.
Financial Services Industry: Extensive experience in mergers, acquisitions, investments and strategic transactions as CFO of Target, as well as serving as a member of the board of directors of TCF Financial Corp., a national bank holding company.
Investments: As CFO of Target, developed extensive experience in capital markets, including capital raising and derivatives.
Real Estate: Implemented and refined capital investment analysis process that governed cumulative $40 billion-plus investment in real estate and related assets during 18-year tenure as CFO of Target.
Risk Management: Experience through his prior role as CFO of Target.
Talent Management: Led and developed a multidisciplinary team of 3,000 employees at Target.
| 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 Membermember 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 Investment 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 & Qualifications
• Business Ethics • Business Head/Administration • Business Operations • Corporate Governance • Environmental/Sustainability/Corporate Responsibility • Finance/Capital Allocation • Financial Services Industry • Insurance Industry | • International • Investments • Risk Management • Talent Management • Technology/Systems |
Michael A. Todman Age:59 Director Since:March 2016 Prudential Committees: • Compensation • Finance Public Directorships: • Brown-Forman Corporation • Newell Rubbermaid, Inc. • Business Head/Administration • Business Operations • Corporate Governance • Finance/Capital Allocation • Government/Public Policy • International • Marketing/Sales • Risk Management • Talent ManagementSkills and Qualifications Business Head/Administration:ServedMr. Todman served as Vice Chairman of the Whirlpool Corporation (Whirlpool), a global manufacturer of home appliances, from November 2014 to December 2015. Mr. Todman previously served as President of Whirlpool International from 2006 to 2007 and 2010 to 2014, as well as President, Whirlpool North America from 2007 to 2010. Mr. Todman held several senior positions including Executive Vice President and President of Whirlpool Europe from 2001 to 2005 and Executive Vice President, Whirlpool North America, in 2001. Prior to joining Whirlpool, Mr. Todman served in a variety of executive managementleadership positions at Prudential.Business Operations: Responsible for Prudential’s operating plan.Corporate Governance: Leadership of Prudential’s Board since 2008.Environmental/Sustainability/Corporate Responsibility: Oversees execution of Prudential’s sustainabilityWang Laboratories Inc. and corporate social responsibility strategies in the U.S.Price Waterhouse and abroad.Finance/Capital Allocation: Over a decade of experience at Prudential.Financial Services Industry: Over three decades in the industry.Co.Insurance Industry: Previously oversaw the U.S. Insurance and Investments divisions.Skills & QualificationsInternational:Executive positions in international operations.Investments: Senior investment positions at Prudential.Risk Management: Ultimately responsible for Prudential’s risk management policies and procedures.Talent Management: Advocates talent management and actively engages the Board of Directors on strategy and succession planning.Technology/Systems: Oversight and responsibility for Prudential’s Operations and Systems function.
| Notice of Annual Meeting of Shareholders and |
Item 1—Election of Directors:Director Nominees
|
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 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 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 and Practices, 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 CEO and the other executive officers who manage the Company’s businesses.businesses, including reviewing, on at least an annual basis, the Company’s strategic plans.
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.
Process for Selecting Directors
The Corporate Governance and Business Ethics Committee screens candidates and recommends candidates for nomination by the full Board. The Company’sBy-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 turnover over the next several years, the Committee is seeking several candidates who meet the criteria described under “Director Criteria, Qualifications and Experience.” The Committee is being assisted with its recruitment efforts by an independent third party search firm, to recommendwhich recommends candidates whothat satisfy the Board’s criteria. The search firm also provides research and pertinent information regarding candidates, as requested.
Source Candidate Pool from Independent Search Firms Shareholders Independent Directors Our People In-Depth Review by the Committee Consider Skills Matrix Screen qualifications Consider diversity Review independence and potential conflicts Meet with directors Recommend Selected Candidate for Appointment to our Board Review by full board Select Director(s) 4 new directors since May 2016
16 | | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Corporate Governance |
Shareholder Nominations and Recommendations of Director Candidates
We recently amended ourBy-laws in March 2015 to permit a group of up to 20 shareholders who have owned at least 3% of our outstanding capital stock for at least three years to submit director nominees for up to 20% of the Board for inclusion in our Proxy Statement if the shareholder(s) and the nominee(s) meet the requirements in ourBy-laws.
Shareholders who wish to nominate directors for inclusion in our Proxy Statement or directly at an Annual Meeting in accordance with the procedures in ourBy-laws should follow the instructions under “Submission of Shareholder Proposals and Director Nominations” in this Proxy Statement.
Shareholders who wish to recommend candidates for consideration should send their recommendations to the attention of Margaret M. Foran, Chief Governance Officer, Senior Vice President and Corporate Secretary, at 751 Broad Street, Newark, NJ 07102. The Committee will consider director candidates recommended by shareholders in accordance with the criteria for director selection described under “Director Criteria, Qualifications, Experience and Experience.Tenure.”
|
Director Attendance
During 2014,2016, the Board of Directors held 1011 meetings. Together, the directors attended 98%99% of the combined total meetings of the full Board and the committees on which they served in 20142016, and no director attended less than 89%83% of the combined total meetings of the full Board and the committees on which he or she served in 2014.2016.
Director Independence
The current Board consists of 1213 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 thenon-employee directors (Ms. Horner, Ms.(Mss. Hund-Mejean, Pianalto and Ms. Poon, and Messrs. Baltimore, Bethune, Casellas, Cullen, Krapek, Lighte, Paz, Scovanner and Unruh)Todman) are “independent” as that term is defined in the listing standards of the NYSE and in Prudential Financial’s Corporate Governance Principles.Principles and Practices. In addition, the Board previously determined that Mr. Gaston Caperton,Bethune and Ms. Horner, who did not stand forre-election at our 20142016 Annual Meeting, was anwere “independent” director.directors.
Independent Director Meetings
The independent directors generally meet in an executive session at both the beginning and the end of each regularly scheduled Board meeting, with the Lead Independent Director serving as Chair.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | | 17 |
Corporate Governance |
Board Leadership
Currently, our Board leadership structure consists of a Lead Independent Director, a Chairman (who is also our CEO) and strong committee chairs. 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’sday-to-day operations, chair regular Board meetings as key business and strategic issues are discussed. 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.
Letter from theIn 2016, independent directors and our Chief Governance Officer engaged with shareholders, who held a majority of our shares, on their thoughts on our Board leadership structure. Our Lead Independent Director also met with certain of our shareholders in 2016. The discussions and feedback from these meetings has been given to the Board and will be considered during the annual review of the appropriateness of the Board leadership structure.
Under our Corporate Governance Principles and Practices, Prudential’sthe independent directors annually elect an independent director to serve as Lead Independent Director for a term of at least one year, but for no more than three years. As yourMr. Krapek has served as our Lead Independent Director it is an honor to serve with my fellow Board members who share my commitment to strong independent Board leadership, effectiveness and diversity. This year, I have also participated in a video which is contained in our on-line proxy materials as well as on the Corporate Governance Section of the Prudential website.
As my first year assince May 2014. A new Lead Independent Director draws to a close, I want to let you know howwill be elected by the Board views board governanceindependent directors immediately after the 2017 Annual Meeting. The responsibilities and why we believe that our philosophy and practices serve the best interestsauthority of our stakeholders.
Board Independence.Both the Board and Management believe that strong, independent Board leadership is a critical aspect of effective corporate governance. As the Lead Independent Director I work withinclude:
In my role as Lead Independent Director, I review and approve the
COMPREHENSIVE STEPS TO ACHIEVE BOARD EFFECTIVENESS The Board Compositionis committed to a rigorous self evaluation process. Through evaluation, directors review the Board’s performance, including areas where the Board feels it functions effectively, and Refreshment. Our Company’s businessimportantly, areas where the Board believes it can improve.1. Process is international and multi-cultural. Diversity is a cornerstone value and priority for the Board.
TheInitiated Corporate Governance and Business Ethics Committee screens and recommends candidates for nomination byChair Initiates annual board evaluation process with the full Board. Using our skills matrix as a guide, individual conversations with directors, and the assistancehelp of an independent search firm,third party consultant and our chief governance officer. 2. Evaluation The evaluation solicits each director’s opinion regarding the board’s effectiveness in monitoring and reviewing topics such as: The strategic planning process The annual budget process and financial performance Management compensation, performance and ethics Risk strategy and management Succession planning 3. Feedback Analysis Directors are encouraged to speak to the independent third party with specific feedback on individual directors, committees or the Board in general. The independent third party synthesizes the results and comments and may have oral interviews with directors regarding the full Board or any committee on which the director serves. 4. Presentation of Findings At the January board meeting, the Corporate Governance and Business Ethics chair, in conjunction with the independent, third party consultant, presents the findings to each Committee, identifies areasfollowed by review of expertisethe full Board 5. Follow Up Results requiring additional consideration are addressed at subsequent board and committee meetings and reported back to full Board, where appropriate. The Board followed-up on its most recent self-evaluation by reviewing materials about the competitive and regulatory environment as well as discussing talent at almost every scheduled Board meeting. For 2017, the Board has asked for more information in the following areas: Technology and Future Products Product Development Management Succession Planning Executive Compensation
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Letter from the Lead Independent Director
Under Prudential’s Corporate Governance Principles, the independent directors of the Board annually elect a Lead Independent Director for a term of at least one year, but for no more than three years. I am honored that my fellow independent directors elected me to serve for the last three years. My term ends in May 2017, effective at our Annual Meeting. Our directors share my commitment to strong, independent leadership, Board effectiveness and oversight. In this context, I would complementlike to share insights into our philosophy and enhancepractices on several important issues.
Strategic Oversight
As part of the currentannual strategic planning process, our Board reviews the Company’s strategy, opportunities, challenges, capabilities and leadership to ensure the Company is well-positioned to continue creating value for shareholders. My fellow independent directors and I are committed to, and value, our dialogue with management regarding the Company’s disciplined risk assessment, capital allocation strategy and long-term plans for growth.
Board Governance
Effective governance means ongoing and thoughtful evaluation of our governance structure, and constructive shareholder engagement on emerging governance issues. In 2016, our engagement efforts, which included my personal involvement and that of other directors, reached investors holding the majority of our outstanding shares.
Our recent shareholder engagement dialogue about governance has focused on, among other things, Board composition, refreshment and our Board’s leadership structure. Understanding the importance of the Board’s responsibility to provide effective oversight, we strive to maintain an appropriate balance of tenure, diversity, skills, and experience. Overexperience on the past several years weBoard. Since 2015, four new independent directors have added two newjoined our Board members. Always maintaining a long-term approach to Board refreshment, the Committee routinely evaluates areplace long-tenured directors. In addition, directors from diverse collectionbackgrounds comprisetwo-thirds of candidates. The pool reflects individuals with demonstrated ability to identify trends that will impact Prudential’s competitive standing and long-term business opportunities.our Board.
Board Effectiveness.Evaluation The
We are committed to provide transparency to our robust Board recognizes that constructive boardand committee evaluation process, which is asled by an essential componentindependent third-party consultant. Our proxy statement not only describes each step of goodthe evaluation process, but also provides specific areas where our directors seek improvement.
Governance Policies and Practices
We continue to maintain our focus on strong governance practices that we believe are important to our shareholders and promotesprotect the long-term vitality of the Company. Our accountability to you is indicative in our policies such as: proxy access, a strong Lead Independent Director, the right of shareholders to call a special meeting, majority vote, annual election of directors, and a robust clawback policy.
My board effectiveness.
Ourcolleague, Gilbert Casellas, chairman of our Corporate Governance and Business Ethics Committee, reviews incumbent directors as part ofand I address these topics in two short videos. You can access the annual nomination process, and in the context of the overall review of the strengths and weaknesses of the Board as a whole.
The Committee reviews each incumbent director with respect to a variety of factors, including his or her attendance, participation in committee initiatives, skills, and overall contribution to the Board. In addition, the Committee works with an experienced outside third-party consultant to complement internal efforts by introducing an objective perspective and knowledge of best practices. We believe that this adds rigor to the process.
I appreciate the opportunity to serve as your Lead Independent Director. Under my leadership, the Board will maintain our independence of thought–and action–by governing in a responsible and prudent manner. We appreciate your continued support.
To learn more about the role of the Lead Independent Director, please watch a short video I have prepared by going tovideos from the Corporate Governance section atof our website at www.prudential.com/leadindependentdirector.directorvideos. We view this videosee these videos as an additional means forimportant component of our shareholdersongoing efforts to evaluateshare information with shareholders.
Prudential’s founder, John Dryden, stated that the Board.
On behalf“justification of the entire Board, thank youcompany’s existence is its advancement of the efforts of its policy holders and their families for better economic and social condition.” More than 140 years after Mr. Dryden’s proclamation, my fellow directors and I are proud to carry on this purpose on your support and vote of confidence.behalf.
Karl J. Krapek Lead Independent Director |
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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 Board reviews strategic risks and opportunities facing the Company and certain of its businesses. Other 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:risks related to financial controls, legal, regulatory and compliance issues, and the overall risk management governance structure and risk management function;
Finance Committee: risks involving the capital structure of the enterprise, including borrowing, liquidity, allocation of capital, major capital transactions and expenditures, and funding of benefit plans, statutory insurance reserves and policyholder dividends;
Investment Committee:investment risk, and the strength of the investment function;
Compensation Committee:the design and operation of the Company’s compensation programs so that they do not encourage unnecessary or excessive risk-taking;
Corporate Governance and Business Ethics Committee:the Company’s political contributions, lobbying expenses and overall political strategy, as well as the Company’s environmental, sustainability and corporate social responsibility to minimize reputational risk and focus on future sustainability; and
In performing its oversight responsibilities, the Board and its committees review policies and guidelines that senior management uses to manage the Company’s exposure to material categories of risk. As these issues sometimes overlap, committees hold joint meetings when appropriate and address certain issues at the full Board level.
During 2016, the full Board received a report from the Chief Risk Officer on the important strategic issues and risks facing the Company. In addition, the Board and committees review the performance and functioning of the Company’s overall risk management functionfunction.
The Risk Committee is comprised of the chairs of each of the other Board committees. The principal activities of the Risk Committee are to: oversee the Company’s assessment and management’s establishmentreporting of appropriate systemsmaterial risks by reviewing the metrics used by management to quantify risk, applicable risk limit structures and risk mitigation strategies; review the Company’s processes and procedures for managing risk (including brandassessment and reputational risk), credit/counterparty risk marketmanagement, including the related assumptions used across the Company’s businesses and material risk (including interest ratetypes; and asset/liability matching risk), insurance risk, product risk, operational risk, legal and regulatory/compliance risk, liquidity and capital risk,receive reports from management on material and emerging risk/event risk.
During 2014, the full Board received reports on the important strategic issues and risks facing the Company. The Board and committees also received reports fromrisk topics that are reviewed by the Company’s Chief Risk Officer and other seniorinternal management regarding compliance with applicable risk-related policies, procedures and limits.committees.
The Company, under the Board’s oversight, is organized to promote a strong risk awareness and management culture. The Chief Risk Officer sits on many management committees and heads an independent enterprise risk management department; the General Counsel and Chief Compliance Officer also sit on key management committees and the functions they oversee operate independently of the businesses to separate management and oversight. Employee appraisals evaluate employees with respect to risk and ethics.
We monitor the risks associated with our executive compensation program and individual compensation decisions on an ongoing basis. Each year management undertakes a review of the Company’s various compensation programs to assess the risks arising from our compensation policies and practices. Management presents 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 analyzedan analysis of how those features could directly or indirectly encourage or mitigate risk-taking. As part of the risk assessments, it has been noted that the Company’s compensation plans allow for discretionary negative adjustments to the ultimate outcomes, which serves to mitigate risk-taking.
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 equity awards. In addition, senior management compensation is 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 to earn the incentives provided under our compensation plans. The Compensation Committee agreed with the conclusion that the identified risks were within our ability to effectively monitor and manage, and that our 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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In 2014, the Compensation Committee again received an updated risk assessment of our compensation program to supplement and expand on the studies conducted each year since 2009.
Succession Planning
The 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.annually and frequently discusses talent issues at its meetings. This includes a detailed discussion of the Company’sCompany���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,
Senior 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 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 tonon-financial matters will be forwarded promptly. 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 otherjob-related inquiries; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications.
SHAREHOLDER ENGAGEMENT
In 2014,This year, we continued our practice of engagement, communication, and transparency in a variety of ways, including the following:
Releasing a video featuring our Lead Independent Director, who describes the Board’s view regarding corporate governance, the role of the lead independent director and the Board’s structure.
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• | advanced open Board communication by facilitating interaction between our directors and shareholders; and |
• | received nomination from Corporate Secretary Magazine for Best Proxy Statement for a |
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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, Executive, Finance, Investment and Risk. The primary responsibilities of each of the committees are set forth below, together with their current membership and the number of meetings.meetings held in 2016. Committee charters can be found on our website at www.prudential.com/governance. 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 In addition, directors who serve on 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 Scovanner and Ms. Hund-Mejean, are financially literate and are audit committee financial experts as defined by the SEC. The Audit Committee met 11 times in 2014.
Compensation Committee
The Compensation Committee oversees the Company’s compensation and benefits policies and programs. For more information on the responsibilities and activities of the Compensation Committee includingmeet additional, heightened independence and qualification criteria applicable to directors serving on these committees under the Committee’s processes for determining executive compensation, see the “Compensation Discussion and Analysis” section of this Proxy Statement. The Compensation Committee met six times in 2014.
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. The Corporate Governance and Business Ethics Committee met six times in 2014.
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 by our By-laws or otherwise. The Executive Committee did not meet in 2014.
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. The Finance Committee met nine times in 2014.
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. The Investment Committee met four times in 2014.
Risk Committee
The Risk Committee oversees the governance of significant risks throughout the enterprise, including by coordinating the risk oversight functions of each Board committee and seeing that matters are appropriately elevated to the Board. The Board expects to further develop the Risk Committee’s risk oversight role during 2015.
Committees | Members & Meetings in 2016 | Description | ||
Audit Committee Meetings in 2016: 10 | Douglas Scovanner (Chair) Martina-Hund Mejean George Paz | 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 are financially literate and are audit committee financial experts as defined by the SEC. | ||
Compensation Committee Meetings in 2016: 7 | Karl J. Krapek (Chair) Thomas J. Baltimore Michael A. Todman | The Compensation Committee oversees 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 CD&A. | ||
Corporate Governance & Business Ethics Committee Meetings in 2016: 6 | Gilbert F. Casellas (Chair) Peter R. Lighte Sandra Pianalto | 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 Meetings in 2016: 0 | Karl J. Krapek (Chair) Thomas J. Baltimore Gilbert F. Casellas Christine A. Poon Douglas A. Scovanner John R. Strangfeld | 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 by our By-laws or otherwise. | ||
Finance Committee Meetings in 2016: 7 | Christine A. Poon (Chair) James G. Cullen Sandra Pianalto Michael A. Todman | 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 Meetings in 2016: 4 | Thomas J. Baltimore (Chair) James G. Cullen Peter R. Lighte Christine A. Poon | 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. | ||
Risk Committee Meetings in 2016: 7 | Karl J. Krapek (Chair) Thomas J. Baltimore Gilbert F. Casellas Christine A. Poon Douglas A. Scovanner | The Risk Committee oversees the governance of significant risks throughout the enterprise, including by coordinating the risk oversight functions of each Board committee and seeing that matters are appropriately elevated to the Board. |
In addition to the above Committee meetings, the Board held 11 meetings in 2016.
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The following table indicates the current members of each Board committee.
Certain Relationships and Related Party Transactions
The Company has adopted a written Related Party Transaction Approval Policy that applies:
to any transaction or series of transactions in which the Company or a subsidiary is a participant;
when the amount involved exceeds $120,000; and
when a related party (a director or executive officer of the Company, any nominee for director, any shareholder owning an excess of 5% of the total equity of the Company and any immediate family member of any such person) has a direct or indirect material interest.
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.
In the ordinary course of business, we may from time to time engage in transactions with other corporations or financial institutions whose officers or directors are also Directorsdirectors of Prudential Financial. In all cases, these transactions are conducted on anarm’s-length basis. In addition, from time to time executive officers and Directorsdirectors of Prudential Financial may engage in transactions in the ordinary course of business involving services we offer, such as insurance and investment services, on terms similar to those extended to employees of Prudential Financial and its subsidiaries and affiliates generally. The Corporate Governance and Business Ethics Committee has determined that certain types of transactions do not create or involve a direct or indirect material interest, including (i) any sales of financial services or products to a related party in the ordinary course of business on terms and conditions generally available in the market place (or at ordinary employee discounts, if applicable) and in accordance with applicable law and (ii) all business relationships between the Company and a 5% shareholder or a business affiliated with a director, director nominee or immediate family member of a director or director nominee made in the ordinary course of business on terms and conditions generally available in the market place and in accordance with applicable law.
Pursuant to our policy, the Corporate Governance and Business Ethics Committee determined that there were two transactions that qualified as related party transactions since the beginning of 2014.2016. The brother of Robert Falzon, our Executive Vice President and Chief Financial Officer, Michael Falzon, is a Vice President for Infrastructure Systems Development. In 2014,2016, the total compensation paid to Michael Falzon, including salary, bonus and the grant date value of long-term incentive awards, was less than $370,000.approximately $480,300. Theson-in-law of Barbara Koster, our Senior Vice President and Chief Information Officer, Joshua D. Howard, is an associate in Quantitative Management Associates, a subsidiary of the Company. In 2014,2016, the total compensation paid to Mr. Howard, including salary and bonus, was less than $130,000.approximately $141,500. In both cases the compensation is similar to the compensation of other employees holding equivalent positions. Neither individual is in the reporting chain of the executive officer.
SUSTAINABILITY AND ENVIRONMENT
At Prudential, sustainability represents how the Company anticipates and manages future risks and opportunities to meet its long-term promises. Sustainability advocates have noted Prudential’s work in the field, especially the active involvement of the Board and senior leadership. Sustainability highlights in 2016 include:
• | Receiving LEED Gold Certification from the U.S. Green Building Council for the new Prudential tower in Newark, NJ. |
• | Inviting registered shareholders to steward natural resource conservation by accessing shareholder materials online, voting online and registering for direct deposit of dividends. |
• | Releasing our annual sustainability report — Build, Preserve. Repeat. — with stakeholder input shaping the content. To review the report visitwww.prudential.com/sustainability. |
• | Adhering to the criteria for inclusion in the FTSE4Good Index Series since 2011, which measures the performance of companies’ environmental, social and governance (ESG) practices. |
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ENVIRONMENT AND SUSTAINABILITY
Prudential’s long-standing commitment to sustainability is reflected in its corporate culture. Advocates in sustainability have recognized Prudential’s work in the arena, particularly in the active involvement of the Board and senior leadership.
In 2014, Prudential continued the mobilization of its sustainable business practices by:
Providing the Board’s Governance and Business Ethics Committee a formal report on the Company’s strategy and progress.
Conducting an educational seminar for selected company executives facilitated by Ceres, a nonprofit focused on corporate sustainability and environmental performance. Feedback from Ceres guides the Company’s efforts in continuous improvement.
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Policy on Shareholder Rights Plan
We do not have a 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 reviews and approves an annual report on political activities, contributions and lobbying expenses. It monitors and evaluates the Company’s ongoing political strategy as it relates to overall public policy objectives for the next year and provides guidance to the Board. We provide on our website a description of our oversight process for political contributions and a summary of PAC contributions. We also include information on annual dues, assessments and contributions of $50,000$25,000 or more to trade associations andtax-exempt advocacy groups and a summary of Company policies and procedures for political activity. This disclosure is available at www.prudential.com/governance under the heading “Political Activity & Contributions.”
In 2016, Prudential received aCPA-Zicklin designation as Trendsetter. This honor represents atop-five ranking for political disclosure and accountability in the 2016CPA-Zicklin Trendsetters Designation Index of Corporate Political Disclosure and Accountability.
Environmental, Sustainability and Corporate Social Responsibility
The Corporate Governance and Business Ethics Committee has oversight of environmental issues and policies. In addition, three of our Board members sit on the Community ResourcesCorporate Social Responsibility Oversight Committee, which oversees Prudential’s corporate social responsibility work.Committee. These directors inform the Company’s social responsibility efforts in investing for financial and social returns, strategic philanthropy, employee engagement and corporate community involvement and investing for social return.involvement.
CORPORATE COMMUNITY INITIATIVESRESPONSIBILITY
The Office of Corporate Social Responsibility (CSR) leadsextends the reach of Prudential’s investments in underserved communities. These investments represent a continuum of resources–grants, investmentsbusiness model to create pathways for all individuals and human capital–families to achieve financial and are focused on eliminating barriers to financialsocial mobility.
In 2014,2016, Prudential invested:
$3541 million in grants to non-profit organizations through The Prudential Foundation, in grants to nonprofit organizations;
$173237 million in impact investments tonon-profits and businesses that seek to create both a financial and social return;return. In 2016, the company reached the halfway mark to achieving its goal of having a $1 billion impact investment portfolio by 2020; and
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In addition, Prudential employees continued the Company’s long tradition of corporate community involvement.
For these efforts, Prudential has once again been named to the Civic 50 list celebrating America’s most community-minded companies, an honor awarded by thenon-profit organization Points of LightLight.
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Corporate Governance: Good Governance Practices |
GOOD GOVERNANCE PRACTICES Board Strong Lead Independent Director including charter to guide oversight and Bloomberg LP.
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GOOD GOVERNANCE PRACTICES
A commitment to strong and sustainable corporate governance is a hallmark of the Board’s stewardship on behalf of shareholders and other stakeholders. As such, we continuously review our practices to ensure effective collaboration of management and the Board.
Of the Board’s 12 directors, 10 are independent, including a Lead Independent Director.
Directors are elected annually by a majority of votes cast in an uncontested election.
The Board has adopted and published committee charters and a charter for its Lead Independent Director to guide its oversight and independent governance leadership (these charters are available at www.prudential.com/governance).
The Board conducts an annual self-evaluation with the assistance of an independent third party, a review of Board independence and key committee self-evaluations.
New Directors receive an orientation and participate in continuing education on critical topics and issues.
We have stock ownership and stock retention guidelines for our executives and Directors. The stock ownership guideline for the CEO was increased in 2015.
We have specific policies and practices to align executive compensation with long-term shareholder interests.
We have a policy prohibiting derivative trading, hedging and pledging by our Section 16 officers and directors.
We adopted a clawback policy for executive officers covering all incentive compensation, material financial restatements, and improper conduct (including failure to report), that requires the Company to disclose to shareholders the action taken by the Board, or the Board’s decision not to take action, with regard to compensation recovery following a material restatement or improper conduct.
The Board proactively adopted proxy access based on feedback from shareholders.
The Board reviews management talent and succession at least annually.
There is no shareholder rights plan or “poison pill.”
The threshold to call a special meeting is 10% of shareholders.
There is no automatic enhancement of executive incentive compensation upon a change in control.
Prudential’s Board is proud of their engagement strategy. Prudential was recognized for Exemplary Shareholder Engagement by NYSE Governance Services and by Corporate Secretary Magazine.
Our Lead Independent Director has recorded a video message to shareholders available online with our proxy materials which highlights the Board’s view regarding corporate governance and other important issues.
In 2014, we conducted an educational seminar for selected Company executives facilitated by Ceres, a non-profit focused on corporate sustainability and environmental performance. Feedback from Ceres guides the Company’s efforts in continuous improvement.
PAPER OR BYTES? USING RESOURCES RESPONSIBLY
In communicating, we’re mindful that both paper documents and e-delivery have environmental costs. In many cases, our customers, investors or employees help us decide the best way to communicate by letting us know how they prefer to receive information.
Since 2008, many shareholders have decided that they would prefer to receive annual mailings, dividend payments and other information electronically. For the annual mailing alone, since 2008 we have reduced the amount of paper used by 1.5 billion pages–enough to circle the earth 7 times.
We’ve complemented this initiative by not printing Prudential’s annual Sustainability Report, as our Sustainability stakeholders are very comfortable reading electronic documents. Within Prudential we have instituted a managed print program that reduces paper usage and operational costs.
We also offered our registered shareholders a special incentive consisting of a $5 Starbuck’s card if they combined their registered account with their brokerage account before May 1, 2015. This consolidation will save more paper and energy.
Working with Shareholders to replant our National Forests and urban areas has had a major impact. Our partner in the initiative–American Forests–will celebrate their 140th anniversary this year by planting their 50 millionth tree. Of that number, Prudential shareholders have been responsible for over 550,000.
Please remember to vote this year. And when you do, help us improve the environmental health of our communities by choosing to plant a tree or shop with a reusable bag.
Item 2—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” or “PwC”) as the Company’s independent registered public accounting firm (independent auditor) for 2015.2017. 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 nevertheless retain it as the Company’s 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 for services provided by PricewaterhouseCoopers in 20142016 and 2013.2015.
Worldwide Fees (In Millions)
Service | 2014 | 2013 | 2016 | 2015 | ||||||||||||
Audit(A) | $ | 47 | $ | 45 | $ | 51 | $ | 50 | ||||||||
Audit-Related(B) | $ | 4 | $ | 4 | $ | 4 | $ | 4 | ||||||||
Tax(C) | $ | 2 | $ | 1 | $ | 3 | $ | 2 | ||||||||
All Other | — | — | — | — | ||||||||||||
Total | $ | 53 | $ | 50 | $ | 58 | $ | 56 |
(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 potential financial reporting requirements. |
(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 |
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 related to audit, audit-related, and tax services paid by these entities of $14M in 20142016 and $12M$14M in 2013.2015.
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 theirits independence.
PricewaterhouseCoopersPwC has been the Company’s independent auditor since 1996.
In determining whether to reappoint the independent auditor, the Audit Committee annually considers several factors including:
the length of time the firm has been engaged;
the firm’s independence and objectivity;
PwC’s capability and expertise in handling the breadth and complexity of Prudential’s global operations, including the expertise and capability of the Lead Audit Partner;
historical and recent performance, including the extent and quality of PwC’s communications with the Audit Committee, and the results of a management survey of PwC’s overall performance;
data related to audit quality and performance, including recent Public Company Accounting Oversight Board inspection reports on the firm; and
the appropriateness of PwC’s fees, both on an absolute basis and as compared with its peers.
26 | | Notice of Annual Meeting of Shareholders and |
Item 2—Ratification of the Appointment of the Independent Registered Public Accounting Firm
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In determining whether to reappoint the independent auditor, the Audit Committee annually considers several factors including:
In accordance with SEC rules, independent audit partners are subject to rotation requirements limiting their number of consecutive years of service to our Company to no more than five. In 2016, Prudential’s Audit Committee oversaw a rigorous process of selecting a new Lead Audit Partner with PwC. PwC provided a list of qualified potential lead audit partners. The candidates were interviewed and assessed based on their related experience and industry expertise. Interviews were conducted and the Chair met with and interviewed the final candidate. The new Lead Audit Partner selected was approved by the Audit Committee and will assume oversight of the external audit of Prudential Financial effective for the 2017 audit.
AUDIT COMMITTEEPRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has established a policy requiring itspre-approval of all audit and permissiblenon-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 thenon-audit services that may not be performed; and sets forth thepre-approval requirements for all permitted services. The policy provides for the generalpre-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 specificpre-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 theirpre-approval and the fees for the services performed to date. The Audit Committee’s policy delegates to its ChairmanChair the authority to address requests forpre-approval of services with fees up to a maximum of $250,000 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 ChairmanChair must report anypre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee may not delegate to management the Audit Committee’s responsibility topre-approve permitted services of the independent auditor.
All Audit, Audit-Related, Tax and All Other services 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 2015.2017.
ENHANCING COMMUNICATION THROUGH AUDIT COMMITTEE REPORTING
In 2013, The Center for Audit Quality and a group of nationally recognized U.S. corporate governance and policy organizations, jointly released a paper entitled “Enhancing the Audit Committee Report: A Call to Action,” which encouraged audit committees of public companies to proactively consider strengthening their public disclosures to more effectively convey the critical work of audit committees to investors and stakeholders. Prudential was featured as an example of a company exhibiting voluntary practices strengthening audit committee disclosures.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | | 27 |
Item 2—Ratification of the Appointment of the Independent Registered Public Accounting Firm |
Threenon-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. UnruhPaz and Scovanner 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 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, 20142016 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 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 its independence.
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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 audits, in addition to private meetings with the Chief Financial Officer, Chief Risk Officer, General Counsel, Chief Actuary 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 firm’s independence and objectivity, PwC’s capability and expertise in handling the breadth and complexity of Prudential’s global operations, including the expertise and capability of the Lead Audit Partner, historical and recent performance, including the extent and quality of PwC’s communications with the Audit Committee, and the results of a management survey of PwC’s overall performance, data related to audit quality and performance, including recent PCAOB inspection reports on the firm, and the appropriateness of PwC’s fee,fees, both on an absolute basis and as compared with its peers.
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 Form10-K for the fiscal year ended December 31, 20142016 for filing with the SEC.
THE AUDIT COMMITTEE
JamesDouglas A. Unruh (Chairman)Scovanner (Chair)
Martina Hund-Mejean
Douglas A. ScovannerGeorge Paz
28 | | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Item 3—3–Advisory Vote to Approve
Named Executive Officer Compensation
The Board is committed to excellence in governance and recognizes the interest our shareholders have in our executive compensation program. As a part of that commitment, and in accordance with SEC rules, our shareholders are being asked to approve anon-binding advisory resolution on the compensation of theour named executive officers, as reported in this Proxy Statement. This proposal, commonly known as a “Say on Pay” proposal, gives shareholders the opportunity to endorse or not endorse our 20142016 executive compensation program and policies for theour 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 practices relating to theour named executive officers. Accordingly, your vote will not directly affect or otherwise limit any existing compensation or award arrangement of any of theour named executive officers. Because your vote is advisory, it will not be binding upon the Board. The Board will, however, as it has done in prior years, take into account the outcome of the “Say on Pay” vote when considering future compensation arrangements.
The Board has adopted a policy providing for annual “Say on Pay” advisory votes. Accordingly, subject to the outcome of Item 4 and the decision of the Board, the next “Say on Pay” vote will occur in 2016.2018.
The Board of Directors recommends that shareholders vote“FOR” the advisory vote to approve
our named executive officer compensation.
Item 4–Advisory Vote on the Frequency of
Future Advisory Votes to Approve Named
Executive Officer Compensation
As described in Item 3, our shareholders are being asked to vote to approve the compensation of our named executive officers, as reported in this Proxy Statement. In accordance with SEC rules, Item 4 gives you the opportunity to cast anon-binding vote on how often the Company should include an advisory vote on named executive officer compensation in its proxy materials for future annual or other meetings for which the Company must include executive compensation information. Shareholders may vote to have the advisory vote on executive compensation every year, every two years, or every three years. Shareholders may also abstain from voting.
The Board believes that these votes should occur every year so shareholders may annually express their views on our executive compensation program. The Company has been providing an advisory vote on executive compensation on an annual basis. The Board values the opportunity to receive feedback and will continue to consider the outcome of these votes in making executive compensation decisions.
The Board of Directors recommends that shareholders vote For“EVERY YEAR” on the frequency of future advisory votes to approve named executive officer compensation.
Notice of Annual Meeting of Shareholders and | 29 |
Item 5–Shareholder Proposal Regarding an
Independent Board Chairman
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 100 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.
Independent Board Chairman
Shareholders request our Board of Directors to adopt as policy, and amend our governing documents as necessary, to require the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next CEO transition, implemented so it does not violate any existing agreement. If the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chair. This proposal requests that all the necessary steps be taken to accomplish the above.
Caterpillar reversed itself by naming an independent board chairman in October 2016 after Caterpillar opposed a shareholder proposal for an independent board chairman at its June 2016 annual meeting. Wells Fargo also reversed itself and named an independent board chairman in October 2016.
According to Institutional Shareholder Services 53% of the Standard & Poors 1,500 firms separate these 2 positions—“2015 Board Practices,” April 12, 2015. This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix.
It is the responsibility of the Board of Directors to protect shareholders’ long-term interests by providing independent oversight of management. By setting agendas, priorities and procedures, the Chairman is critical in shaping the work of the Board.
A board of directors is less likely to provide rigorous independent oversight of management if the Chairman is also the CEO, as is the case with our Company. Having a board chairman who is independent of management is a practice that will promote greater management accountability to shareholders and lead to a more objective evaluation of management.
According to the Millstein Center for Corporate Governance and Performance (Yale School of Management), “The independent chair curbs conflicts of interest, promotes oversight of risk, manages the relationship between the board and CEO, serves as a conduit for regular communication with shareowners, and is a logical next step in the development of an independent board.”
A number of institutional investors said that a strong, objective board leader can best provide the necessary oversight of management. Thus, the California Public Employees’ Retirement System’s Global Principles of Accountable Corporate Governance recommends that a company’s board should be chaired by an independent director, as does the Council of Institutional Investors. An independent director serving as chairman can help ensure the functioning of an effective board.
Please vote to enhance shareholder value: Independent Board Chairman—Proposal 5
30 | | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Item 5—Shareholder Proposal Regarding an Independent Board Chairman |
Board of Directors’ Statement in Opposition to the Proposal
Your Board recommends a vote against this proposal because it believes that it is in the best interest of our shareholders for the Board to have the flexibility to determine the best person to serve as Board Chair, whether that person is an independent director or the CEO.
Every year, the Governance Committee reviews and makes a recommendation on the appropriate governance framework for Board leadership. The Committee takes into consideration governance best practices, the facts and circumstances of our Board and feedback that we receive from our shareholders. Specifically, our Board proactively asks for feedback from our shareholders and regularly meets with our shareholders in various settings. In 2016, independent directors, as well as the Company’s Chief Governance Officer, engaged with many investors on the issue of our Board leadership structure, among other things, and have presented their feedback to the Board as part of its decision-making process on the appropriate Board leadership structure going forward.
The Governance Committee has most recently determined that Board leadership is provided through the combination of a unified Chair and CEO, a clearly defined and significant Lead Independent Director role, active and strong committee chairs, and independent-minded, skilled, engaged, diverse and committed directors.
Our Board believes that its current structure and governance allows it to provide effective oversight of management. Specifically, we have a strong Lead Independent Director with significant responsibilities that are described in detail in this Proxy Statement, including approval of all Board agendas and information sent to the Board, shareholder engagement, oversight of the annual Board evaluation process by an independent third party, Board refreshment and succession planning, and guiding the Board’s overall governance processes. We also refer you to the Lead Independent Director’s letter which is contained in this Proxy Statement, as well as the Lead Independent Director’s video and Lead Independent Director Charter at www.prudential.com/governance. Mr. Krapek’s skills, experience, commitment and the time he devotes to serve his role all make him well qualified to serve as our Lead Independent Director.
Our independent directors meet regularly in executive sessions, at the beginning and end of each Board meeting. These are chaired by our Lead Independent Director with no member of management present. Independent directors use these executive sessions to discuss matters of concern, as well as evaluations of the CEO and senior management, management and Board successions, matters to be included on Board agendas, and additional information the Board would like management to provide to them, as well as other relevant matters.
The Chairs and all members of the Board committees are strong, independent directors. These Chairs shape the agenda and information presented to their committees. Oversight of critical issues within these committees is owned by the independent directors.
All directors have full access to all members of management and all employees on a confidential basis.
The proposed policy would unduly impair the Board’s flexibility to annually elect the individual it deems best suited to serve as Board Chair. Shareholders of Prudential are best served when the Board has the flexibility to elect the individual it deems best suited to serve as Board Chair at any particular time, depending on the circumstances. Our Board believes that a clearly defined and significant Lead Independent Director role, independent and strong committee chairs, experienced, diverse and committed directors, and frequent executive sessions provide a framework for effective direction and oversight by the Board.
THEREFORE, YOUR BOARD RECOMMENDS THAT YOU VOTE“AGAINST” THIS PROPOSAL.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | | 31 |
Voting Securities and Principal Holders
Beneficial Ownership
The following table shows all entities that are the beneficial owners of more than 5% of the Company’s Common Stock:
Name and Address of Beneficial Owner | Amount and Nature | Percent of Class | ||||||
BlackRock, Inc. 55 East 52nd Street, New York, NY | (1) | |||||||
The Vanguard Group 100 Vanguard Boulevard, Malvern, PA 19355 | (2) |
(1) | Based on information as of December 31, |
(2) | Based on information as of December 31, |
To our knowledge, except as noted above, no person or entity is the beneficial owner of more than 5% of our Common Stock.
The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 13, 2015,10, 2017, by:
each Directordirector and Named Executive Officer;NEO; and
all Directorsdirectors and Executive Officersexecutive officers of the Company as a group.
Voting Securities and Principal Holders
The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 10, 2017, by:
Name of Beneficial Owner | Common Stock | Number of shares Subject to Exercisable Options | Total Number of Shares Beneficially Owned1 | Director Deferred Stock Units / Additional Underlying Units2,3,4 | Total Shares Beneficially Owned Plus Underlying Units | Percent of Class | ||||||||||||||||||
Thomas J. Baltimore, Jr. | 250 | 250 | 28,118 | 28,368 | * | |||||||||||||||||||
Gordon M. Bethune | 13,935 | 13,935 | 1,808 | 15,743 | * | |||||||||||||||||||
Gilbert F. Casellas | 500 | 500 | 27,840 | 28,340 | * | |||||||||||||||||||
James G. Cullen | 2,033 | 2,033 | 41,115 | 43,148 | * | |||||||||||||||||||
Constance J. Horner | 6,720 | 6,720 | 6,200 | 12,920 | * | |||||||||||||||||||
Martina Hund-Mejean | 128 | 128 | 10,948 | 11,076 | * | |||||||||||||||||||
Karl J. Krapek | 1,007 | 1,007 | 39,791 | 40,798 | * | |||||||||||||||||||
Christine A. Poon | 7,967 | 7,967 | 12,519 | 20,486 | * | |||||||||||||||||||
Douglas A. Scovanner | 4,600 | 4,600 | 5,181 | 9,781 | * | |||||||||||||||||||
James A. Unruh | 32,377 | 32,377 | 4,552 | 36,929 | * | |||||||||||||||||||
John R. Strangfeld | 344,926 | 5 | 1,146,178 | 1,491,104 | 345,996 | 1,837,100 | * | |||||||||||||||||
Mark B. Grier | 321,761 | 275,906 | 597,667 | 252,649 | 850,316 | * | ||||||||||||||||||
Robert Falzon | 24,055 | 31,269 | 55,324 | 91,443 | 146,767 | * | ||||||||||||||||||
Charles F. Lowrey | 44,066 | 414,475 | 458,541 | 162,418 | 620,959 | * | ||||||||||||||||||
Stephen Pelletier | 3,351 | 42,141 | 45,492 | 137,187 | 182,679 | * | ||||||||||||||||||
All directors and executive officers as a group (21 persons) | 970,847 | 2,485,420 | 3,456,267 | 1,520,570 | 4,976,837 | 1.1% |
Name of Beneficial Owner | Common Stock | Number of shares Subject to Exercisable Options | Total Number of Shares Beneficially Owned1 | Director Deferred Stock Units2,3,4 | Total Shares Beneficially Owned Plus Underlying Units | |||||||||||||||
Thomas J. Baltimore, Jr. | 250 | 250 | 37,710 | 37,960 | ||||||||||||||||
Gilbert F. Casellas | 500 | 500 | 29,744 | 30,244 | ||||||||||||||||
James G. Cullen | 2,033 | 2,033 | 43,896 | 45,929 | ||||||||||||||||
Martina Hund-Mejean | 128 | 128 | 15,505 | 15,633 | ||||||||||||||||
Karl J. Krapek | 1,007 | 1,007 | 44,599 | 45,606 | ||||||||||||||||
Peter R. Lighte | 80 | 80 | 4,180 | 4,260 | ||||||||||||||||
George Paz | 500 | 500 | 4,177 | 4,677 | ||||||||||||||||
Sandra Pianalto | 200 | 200 | 3,765 | 3,965 | ||||||||||||||||
Christine A. Poon | 11,583 | 11,583 | 13,411 | 24,994 | ||||||||||||||||
Douglas A. Scovanner | 12,000 | 12,000 | 11,559 | 23,559 | ||||||||||||||||
Michael A. Todman | 450 | 450 | 4,180 | 4,630 | ||||||||||||||||
John R. Strangfeld | 287,821 | 814,369 | 1,102,190 | 328,995 | 1,431,185 | |||||||||||||||
Mark B. Grier | 364,887 | 334,973 | 699,860 | 231,322 | 931,182 | |||||||||||||||
Robert Falzon | 44,987 | 34,434 | 79,421 | 112,154 | 191,575 | |||||||||||||||
Charles F. Lowrey | 46,358 | 325,337 | 371,695 | 142,313 | 514,008 | |||||||||||||||
Stephen Pelletier | 7,051 | 0 | 7,051 | 166,861 | 173,912 | |||||||||||||||
All directors and executive officers as a group (22 persons) | 973,268 | 1,865,564 | 2,838,832 | 1,582,788 | 4,421,620 |
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 |
(2) | 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, |
(3) | Includes the following shares representing the target number of shares to be received |
(4) | Includes the following unvested stock options: Mr. Strangfeld, |
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Compliance With Section 16(a) of the Exchange Act
Each Director,director, executive officer of the Company and greater than 10% beneficial owner of Common Stock is required to report to the SEC, by a specified date, his or her transactions involving our Common Stock. Based solely on a review of the copies of reports furnished to the Company and written representations that no other reports were required to be filed, the Company believes that during 20142016 all reports required by Section 16(a) were timely filed.
| Notice of Annual Meeting of Shareholders and |
The Corporate Governance and Business Ethics Committee reviews the compensation of the ournon-employee Directors directors periodically (generally every three years) and recommends changes to the Board, when it deems appropriate.
The following table describes the components of thenon-employee Directors’ directors’ compensation for 2014:2016:
Compensation | Director Compensation Program | |
Annual Cash Retainer | $150,000, which may be deferred, at the | |
Annual Equity Retainer | $150,000 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 | $35,000 for the Audit and Risk Committees $30,000 for the Compensation Committee $20,000 for all other committees* | |
Lead Independent Director Fee | $50,000 | |
Meeting Fee for members of the Company’s Community Resources Oversight Committee** | $1,250 per meeting | |
New Director Equity Award | $150,000 in restricted stock units that vest after one year | |
Stock Ownership Guideline | Ownership of Common Stock or deferred stock units that |
* | Includes anynon-standing committee of the Board that may be established from time to time, but excluding the Executive Committee. |
** | This is a committee comprised of members of management and the Board. This Committee typically meets on a separate day following the Board and Board committee meetings. Thenon-employee |
*** | As of December 31, |
The Company maintains a Deferred Compensation Plan forNon-Employee Directors (the “Plan”). Since 2011, 50% of the annual Board and committee retainer has been awarded in restricted stock units that vest after one year (or if earlier, on the date of the next Annual Meeting). Anon-employee Director director can elect to invest the cash portion of his or her retainer, fees and feesequity retainer upon vesting in accounts under the Plan 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”). The Plan provides for distributions to commence upon termination of Board service or while a Directordirector remains on the Board.
Each Directordirector receives dividend equivalents on the restricted stock units contained in his or her deferral account under the Plan, 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 Directordirector compensation program, if anon-employee Director director satisfies the stock ownership guideline, 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’sdirector’s option), and may be deferred beyond vesting at the Director’sdirector’s election. If a Directordirector does not satisfy the stock ownership guideline, the restricted stock units are automatically deferred until termination of Board service.
DIRECTOR STOCK OWNERSHIP GUIDELINE
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 | |
Compensation of Directors
|
20142016 Director Compensation Table
Fees Earned or Paid in | Fees Earned or Paid in | |||||||||||||||||||||||||||
Name | Cash($) | Stock Awards($)(1) | Total($) | Cash($) | Stock Awards($)(1) | All Other Compensation($)(2) | Total($) | |||||||||||||||||||||
Thomas J. Baltimore, Jr. | 170,000 | 150,000 | 320,000 | |||||||||||||||||||||||||
Thomas J. Baltimore | 170,000 | 150,000 | 320,000 | |||||||||||||||||||||||||
Gordon M. Bethune | 150,000 | 150,000 | 300,000 | 62,500 | 0 | 62,500 | ||||||||||||||||||||||
Gaston Caperton | 63,750 | 0 | 63,750 | |||||||||||||||||||||||||
Gilbert F. Casellas | 153,750 | 150,000 | 303,750 | 173,750 | 150,000 | 323,750 | ||||||||||||||||||||||
James G. Cullen | 183,333 | 150,000 | 333,333 | 150,000 | 150,000 | 5,000 | 305,000 | |||||||||||||||||||||
Constance J. Horner | 173,750 | 150,000 | 323,750 | |||||||||||||||||||||||||
Constance J. Horner2 | 63,750 | 0 | 25,000 | 88,750 | ||||||||||||||||||||||||
Martina Hund-Mejean | 150,000 | 150,000 | 300,000 | 150,000 | 150,000 | 5,000 | 305,000 | |||||||||||||||||||||
Karl J. Krapek | 205,000 | 150,000 | 355,000 | 265,000 | 150,000 | 5,000 | 420,000 | |||||||||||||||||||||
Peter R. Lighte3 | 125,000 | 300,000 | 5,000 | 430,000 | ||||||||||||||||||||||||
George Paz3 | 125,000 | 300,000 | 5,000 | 430,000 | ||||||||||||||||||||||||
Sandra Pianalto | 152,500 | 150,000 | 5,000 | 307,500 | ||||||||||||||||||||||||
Christine A. Poon | 174,167 | 150,000 | 324,167 | 173,750 | 150,000 | 323,750 | ||||||||||||||||||||||
Douglas A. Scovanner | 150,000 | 150,000 | 300,000 | 185,000 | 150,000 | 335,000 | ||||||||||||||||||||||
James A. Unruh | 185,000 | 150,000 | 335,000 | |||||||||||||||||||||||||
Michael A. Todman3 | 125,000 | 300,000 | 5,000 | 430,000 |
(1) | Represents amounts that are in units of our Common Stock. The amounts reported represent the aggregate grant date fair value of the 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, |
(2) | Represents amounts for 2016 matching charitable contributions; and with respect to Ms. Horner, includes a $25,000 donation in her honor for her service on the Company’s Community Resources Oversight Committee. |
(3) | Messrs. Lighte, Paz, and Todman each received grants of restricted stock units valued at $150,000 upon joining the Board in March 2016. |
| Notice of Annual Meeting of Shareholders and |
Compensation Discussion and Analysis
In this section, we describe the material components of our executive compensation program for our NEOs, whose compensation is set forth in the 20142016 Summary Compensation Table and other compensation tables contained in this Proxy Statement:
NAMED EXECUTIVE OFFICERS (NEOS)
John R. Strangfeld, our Chairman and Chief Executive Officer;
Robert M. Falzon, our Executive Vice President and Chief Financial Officer;
Mark B. Grier, our Vice Chairman;
Charles F. Lowrey, our Executive Vice President and Chief Operating Officer, International Businesses; and
Stephen Pelletier, 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”) arrived at the specific compensation decisions involving the NEOs for fiscal 2014.2016.
Executive Summary
Business Highlights
OUR BUSINESS
We are a global financial services business with $1.176$1.264 trillion of assets under management as of December 31, 2014,2016, and 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 Form10-K filed with the SEC on February 20, 2015.17, 2017.
20142016 BUSINESS HIGHLIGHTS
While financial markets showed signs of recovery in 2014,In 2016, global market conditions and uncertainty and challenges remaincontinued to be factors in the global economy and markets.markets in which we operate. Throughout this period, as a result of our steady leadership, we continued to seize opportunities and further differentiate ourselves from the competition. We view 20142016 as a successful year for the Company. We continued our focus on capital deployment, disciplined risk management, a balanced business mix and effective execution of our individual business strategies. Consequently, we were able to deliver solid results in a challenging environment of continued low interest rates andfar-reaching regulation of the financial services industry.
We recordedachieved the following significant accomplishments in 2014:
Our Financial Services Businesses reported after-tax adjusted operating income of $4.36 billion and posted earnings per share of Common Stock of $9.21, compared to $4.59 billion, and $9.67 per share, for 2013. 2013 results benefited significantly from market related and actuarial assumption updates while these items had a net negative impact on 2014 results.
We reported book value for our Financial Services Businesses, excluding accumulated other comprehensive income and the impact of foreign currency exchange rate remeasurement on net income or loss, of $64.75 per share of Common Stock as of December 31, 2014, compared to $59.99 per share as of year-end 2013. Based on U.S. generally accepted accounting principles as of December 31, 2014, we reported book value for our Financial Services Businesses of $88.80 per share of Common Stock, compared to $72.30 per share as of year-end 2013.2016:
We reported net income of $4.37 billion, or $9.71 per share of Common Stock in 2016, compared to $5.64 billion, or $12.17 per share, in 2015, based on U.S. generally accepted accounting principles (“GAAP”). Net income for 2015 included a greater benefit from gains driven by market impacts including interest rates than in 2016. | ||||||
We reportedafter-tax adjusted operating income of $4.11 billion, or $9.13 per share of Common Stock in 2016, compared to $4.65 billion or $10.04 per share, in 2015.(1) 2016 after-tax adjusted operating income was negatively affected by actuarial assumption updates, compared to a positive impact in 2015. |
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Compensation Discussion and Analysis: Executive Summary
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Adjusted book value amounted to $78.95 per share of |
Based on U.S. generally accepted accounting principles, our Financial Services Businesses reported net income of $1.53 billion, or $3.23 per share of Common Stock in 2014, compared to a net loss of $713 million, or $1.55 per share, in 2013. Net income was impacted in both periods by items that are volatile in nature and that do not necessarily reflect our economic results, including foreign currency exchange rate remeasurement, which is largely offset by changes in the unrealized gains/losses on assets in our balance sheet, but that are not included in net income.
We reported return on average equity based on income from continuing operations of 8.8% for 2016, compared to 13.3% for 2015. We reported operating return on average equity of 12% for 2016, compared to 14.5% for 2015 and to the long term target of 13% to 14% we had set in 2011.(1) Our 2016 return on equity reflects solid core performance from our businesses, partly offset by the impact of a number of inherently variable and episodic items including our annual actuarial review. Given the multi-year impact of very low interest rates in our two largest markets, the U.S. and Japan, and the short term impact of strategic investing in our businesses, we have moderated our ROE expectations to 12% to 13% over the near to intermediate term. |
Assets under management reached |
We |
We repurchased $1.0 billion of our outstanding shares of Common Stock, including $500 million under a program announced in June 2014 to repurchase up to $1 billion of our outstanding shares of Common Stock through June 2015.
Consolidated adjusted operating income (“AOI”) and operating return on average equity are non-GAAP measures of financial performance. Adjusted book value is a non-GAAP measure of financial position. We | nearest comparable GAAP measures, see Appendix A to this Proxy Statement. |
Also, in 2016:
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We successfullytook actions to restructure our Individual Annuities business to reduce capital volatility and improve earnings and cash flow prospects.
We 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.
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Compensation Discussion and Analysis: Executive Summary
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Executive Compensation Highlights
The Compensation Committee made the followinghas instituted a number of changes to our executive compensation program over the last several years to align with evolving competitive and governance practices:practices, respond to feedback from our shareholders and strengthen the link to performance and rigor of our program. These changes have included:
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• | Requiring deferral of 30% of each NEO’s annual incentive award into the Book Value Performance Program. |
• | Beginning in 2014, reducing the maximum performance share award from 150% to 125% of the target level. |
• | Increasing our CEO’s stock ownership guideline from five to seven times base salary in 2015. |
• | Expanding the clawback policy for executive officers to cover all |
disclosure to shareholders |
Introduced a relative performance modifier for the 2015 performance shares program to:
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Increased our CEO stock ownership guidelines from five to seven times base salary.
Significantly reduced potential discretion in determining annual incentive awards for the NEOs.
Adopted a resignation notice period requirement as part of the terms and conditions of all long-term awards.
In addition, the Compensation Committee maintained the rigor of our executive compensation program:
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• | Excluding earnings from specified classes of |
CEO Total Direct CompensationAs informed by our ongoing dialogue with our shareholders, and to more closely align with our value proposition to shareholders, this year, the Committee revised our Annual Incentive Program and Long-Term Incentive Program to further balance the financial metrics utilized by those programs between the Company’s absolute performance and its relative performance versus peer companies. Specifically, the Committee modified the Annual Incentive Program to eliminate the relative performance modifier and base the primary driver in determining the amount of the annual incentive awards for our NEOs, the initial annual performance factor, on three equally weighted performance metrics, including one relative metric:
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The Committee also revised the Annual Incentive Program to reduce the volatility of outcomes under the plan, by modifying the performance scales and by limiting the contribution of earnings that may come from specified classes of non-coupon investments (e.g., private equity, hedge funds, real estate funds, equity securities, and other real estate investments). Based on our discussions with shareholders and feedback from our engagement efforts, the short-term fluctuations in earnings on these non-coupon investments were generally not viewed by our shareholders as being reflective of true operating performance. The performance of these non-coupon investments is fully reflected under the Book Value Performance Program, a key component of ourLong-Term Incentive Program.
The use of a weighted relative ROE metric, in lieu of a relative performance modifier, provides simplicity and transparency of results under the Annual Incentive Program and more effectively balances absolute and relative performance (e.g.,the weighting of the previous relative performance modifier was limited to 10%).
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Compensation Discussion and Analysis: Executive Summary
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Consideration of Last Year’s “Say on Pay” Vote
Following our 2014 Annual Meeting of Shareholders,
Similarly, the Committee reviewedeliminated the resultsrelative performance modifier from the Performance Shares Program under our Long-Term Incentive Program for awards granted in 2017. Instead, the program now uses a relative ROE measure over a three-year performance period compared to the median ROE performance of the shareholder advisory vote on executive compensation (“Say on Pay”) that was held at the meetingNorth American Life Insurance subset of our peer group, along with respect to the 2013 compensation actions and decisions for Mr. Strangfeld and the other NEOs. Approximately 86%absolute performance versus our long-term ROE target.
Total Direct Compensation Summary
(1) | 30% of the Annual Incentive Awards were mandatorily deferred into the Book Value Performance Program. |
(2) | Represents long-term awards granted in 2017 and 2016 for 2016 and 2015 performance, respectively. |
Consistent with our compensation philosophy, approximately 92% of our CEO’s total direct compensation for 2016 was performance-based. |
(1) | Performance-based compensation |
(2) | Includes mandatory deferral of 30% of annual incentive |
(3) | Based on average amounts |
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Compensation Discussion and Analysis: Executive Summary |
WHAT WE DO | WHAT WE DON’T DO | |||||
Establish target and maximum awards in our Annual Incentive Program. | CEO participation in our severance plan. | |||||
Executive officer severance payments and benefits exceeding 2.99 times salary and cash bonus without shareholder approval. | ||||||
Apply a formulaic framework based on the Company’s financial | ||||||
Exercise limited or no discretion to increase formulaic incentive compensation awards. | Excise tax“gross-ups” upon change in control. | |||||
Use balanced performance metricsfor annual incentive and performance share/unit awards that factor both the Company’s absolute performance and its relative performance versus peers | Discounting, reloading orre-pricing of stock options without shareholder approval. | |||||
Rigorous goal setting aligned to our externally disclosed annual and multi-year financial targets. | “Single-trigger” vesting of equity-based awards upon change in control. | |||||
90% or more of our NEOs’ total direct compensation is performance based. | Multi-year guaranteed incentive awards for senior executives. | |||||
Defer 30% of our NEOs’ annual incentive awards into the Book Value Performance Program. | Employment agreements with executive officers. | |||||
Impose stock ownership requirements, and retention of 50% of equity based awards. | Employee hedging or pledging of Company securities. | |||||
Maintain an enhanced clawback policy covering all executive officer incentive-based awards for material financial restatements and misconduct. | ||||||
Limit perquisitesto items that serve a reasonable business purpose. | ||||||
Closely monitor risks associated with our executive compensation program and individual compensation decisions to ensure they do not encourage excessive risk taking. |
Consideration of Most Recent “Say on Pay” Vote Following our 2016 Annual Meeting of Shareholders, the Committee reviewed the results of the shareholder advisory vote on executive compensation (the “Say on Pay” Vote) that was held at the meeting with respect to the 2015 compensation actions and decisions for Mr. Strangfeld and the other NEOs. Approximately 95% of the votes cast on the proposal were voted in support of the compensation of our NEOs. |
95% of the votes cast on the proposal were voted in support of the compensation of our NEOs. This compares with approximately 78%
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Compensation Discussion and Analysis: Executive Summary |
Based on the votes cast in supportresults of the “Say on Pay” proposal submitted for shareholder consideration at the 2013 Annual Meeting of Shareholders. In part in response to the 2014 vote, as well as our ongoing dialogue with our shareholders, the Committee took several actions to better alignand our executive compensation program with evolving competitive and governance practices. See “Executive Compensation Highlights” above.
Our Commitment to Shareholder Engagement
In 2014, we again demonstratedBoard concluded that, even though our commitment to shareholder engagement, communication and transparency. During the year, representatives of the Company met with holders of more than a majority of the total number of shares of Common Stock outstanding.
Ongoing Corporate Governance Policies
We endeavor to maintain good corporate governance standards, including those that impact the oversight of ouroverall executive compensation policies and practices. We havepractices enjoy favorable shareholder support, it was appropriate to make certain changes to our Annual Incentive Program and Long-Term Incentive Program to further balance the following policiesmetrics utilized in those programs between the Company’s absolute performance and practices:its performance relative to our peer companies. The Committee modified the Annual Incentive Program so that the primary driver in determining the amount of the annual incentive awards for our NEOs, the initial annual performance factor, is based on three equally weighted performance metrics:
We maintain a majority vote for the election of directors in uncontested elections (and requireEPS, on an offerAOI basis, assessed relative to resign by any incumbent director who is not re-elected by a majority vote) and plurality voting in any election that is contested.
The leadership structure
The Committee also made other changes to the design of the Annual Incentive and Long-Term Incentive Programs, including:
The Committee is composed solelystrengthening the relative performance metric under our Performance Shares Program, by replacing the use of independent Directors who have established methodsa relative performance modifier, which modified results by+/-10%, with the use of Relative ROE, weighted at 50%, which compares Prudential’s ROE performance to communicate with shareholders regarding their views on executive compensation.
The Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc., is retained directly bythat of the Committee and performs no other consulting or other services for the Company.
The Committee conducts an annual review and approvalNorth American Life Insurance subset 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.
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 “Communication with Directors” in this 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 — 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.
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Aligning our Compensation Policies with Shareholders’ Interests
Limited Board Discretion to Enhance Awards. The Board believes it generally should exercise limited or no discretion to increase formulaic incentive compensation awards.
Reduced Maximum Awards. Since the 2013 performance year the Company has maintained a maximum performance share award of 125% of the target level, down from 150%.
Consideration of Performance Relative to Peers. The Company introduced a relative performance modifier to its annual incentive program beginning with the 2013 performance year, and to its performance share program beginning with the 2015 awards.
Pension Value. Pension accruals are determined formulaicly and do not involve a Board decision. For the CEO, roughly half the 2014 increase in pension value is a result of the plan benefit formula, and half is driven by changes in actuarial assumptions, primarily updated longevity (or mortality) estimates as well as use of lower interest rates to value the plan liability. The traditional pension formula in which Mr. Strangfeld participates was closed to new participants in 2001. The traditional formula benefits are based on an average earnings calculation that is updated biennially. As a result, every other year the Company tends to have significant changes in its pension value calculation that reflect the use of more recent earnings. For next year, we expect the change in the benefit amount accrued to Mr. Strangfeld to be substantially lower.
Specific 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:
Formulaic Approach to NEO Incentive Compensation. Funding for our annual incentive and performance shares programs is primarily driven by formulas tied to our financial results.
Stock Ownership Guideline. We have stock ownership guidelines for our executive officers, including the NEOs, and in 2015 we increased the CEO stock ownership guidelines from five to seven times base salary. Each of the NEOs currently meets his individual stock ownership level under our policy.
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 held by
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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” Policy. We strengthened our compensation recovery (“clawback”) policy to cover all incentive compensation, material financial restatements and improper conduct, added a three-year look back provision and a requirement that the Company disclose to shareholders the action taken by the Board, or the Board’s decision not to take action, with regard to compensation recovery following the occurrence of a material restatement or improper conduct.
Compensation Discussion and
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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 hiretop-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;
Limit discretion: Incentive compensation should be based on the Company’s financial results relative to pre-established targets under applicable formulas, and the Board generally should not exercise discretion to adjust formula-based awards;
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;
and
Provide limited 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.
20142016 Incentive Programs
To ensure a strong link between our incentive compensation opportunities and our short-term and longer term objectives, we use two specific programs: our Annual Incentive Program and our Long-Term Incentive Program.
Annual Incentive Program. The Annual Incentive Program is designed to reward strong financial and operational performance that furthers our short-term strategic objectives. Financial performance is primarily determined based on three equally-weighted performance metrics: (i) EPS achievement relative to the Company’sour externally disclosed EPS targets.
Long-Term Incentive Program.Our Long-Term Incentive Program consists of three parts that incentivizeincent long-term value creation: performance shares and units that primarily reward the achievement of our long-term ROE goals and increases in the market value of our Common Stock; book value units that reward increases in book value per share; and stock options that reward 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 the components of our program and individual compensation decisions, on an ongoing basis. In January 2015,2017, the Committee was presented with the results of a study reviewing our compensation programs, including our executive compensation program, to assess the risks arising from our compensation policies 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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Compensation Discussion and
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How We Make Compensation Decisions
Role of the Compensation Committee
The Committee is responsible to our Board for overseeing the development and administration of our compensation and benefits policies and programs. The Committee, which consists of three independent directors, is responsible for the review and approval of all aspects of our executive compensation program. Among its duties, the Committee is responsible for formulating the compensation recommendations for our CEO and approving all compensation recommendations for our officers at the senior vice president level and above, including:
Reviewannual review and approval of corporate incentive program design, goals and objectives relevant to compensation;
Evaluationevaluation of individual performance results in light of these goals and objectives;
Evaluationevaluation of the competitiveness of each executive officer’s total compensation package; and
Approvalapproval of any changes to the total compensation package, including, but not limited to, base salary, annual and long-term incentive award opportunities, and payouts, and retention programs.
Following review and discussion, the Committee submits its recommendations for compensation for these executive officers to the non-employeeindependent members of our Board for approval.
The Committee is supported in its work by the head of the Human Resources Department, her staff, and the Committee’s executive compensation consultant,Compensation Consultant, as described below.
The Committee’s charter, which sets out its duties and responsibilities and addresses other matters, can be found on our website at www.prudential.com/governance.
Role of the Chief Executive Officer
Within the framework of the compensation programs approved by the Committee and based on management’s review of market competitive positions, each year our CEO recommends the level of base salary increase (if any), the annual incentive award, and the long-term incentive award value for our officers at the senior vice president level and above, including the other NEOs. These recommendations are based upon his assessment of each executive officer’s performance, the performance of the individual’s respective business or function, and employee retention considerations. The Committee reviews our CEO’s recommendations and approves any compensation changes affecting our executive officers as it determines in its sole discretion.
Our CEO does not play any role with respect to any matter affecting his own compensation.compensation, and is not present when the Committee discusses and formulates his compensation recommendation.
Role of the Compensation Consultant
The Committee has retained Frederic W. Cook & Co., Inc. as its executive Compensation Consultant. The Compensation Consultant reports directly to the Committee and the Committee may replace the Compensation Consultant or hire additional consultants at any time. A representative of the Compensation Consultant attends meetings of the Committee, as requested, and communicates with the Committee Chair between meetings.
The Compensation Consultant provides various executive compensation services to the Committee pursuant to a written consulting agreement with the Committee. Generally, these services include advising the Committee on the principal aspects of our executive compensation program and evolving industry practices and providing market information and analysis regarding the competitiveness of our program design and our award values in relationship to their performance.
During 2014,2016, the Compensation Consultant performed the following specific services:
Provided a presentation on executive compensation trends and external developments.
Provided an annual competitive evaluation of total compensation for the NEOs, as well as overall compensation program share usage, dilution, and fair value expense.
Reviewed with our CEO his compensation recommendations with respect to the other NEOs.
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Compensation Discussion and Analysis |
Provided advice on changes to the performance metrics under the Annual Incentive Program and the Long-Term Incentive Program.
Reviewed the peer group used for competitive analyses and recommended changes, if appropriate.
Attended executive sessions ofCommittee meetings when requested by the Committee.
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The Compensation Consultant provided no services to management during 2014.2016.
The Committee retains sole authority to hire the Compensation Consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance, and terminate its engagement.
The total amount of fees paid to the Compensation Consultant for services to the Committee in 20142016 was $134,645.$175,723. The Compensation Consultant received no other fees or compensation from us, except for $3,400 to participate in a general industry survey of long-term compensation. The Compensation Committee has assessed the independence of the Compensation Consultant pursuant to the listing standards of theThe New York Stock Exchange and SEC rules and concluded that no conflict of interest exists that would prevent the Compensation Consultant from serving as an independent consultant to the Compensation Committee.
Compensation Peer Group
The Committee uses compensation data compiled from a group of peer companies in the insurance, asset management, and other diversified financial services industries generally selected from the Standard & Poor’s 500 Financials Index (the “Peer Group”). The Committee periodically reviews and updates the Peer Group, as necessary, upon recommendation of the Compensation Consultant. We believe the Peer Group represents the industries with which we currently compete for executive talent, and also includes our principal business competitors.
FAQ – Internet Availability of Proxy Materials
The Securities and Exchange Commission (SEC) has issued rules requiring public companies to:
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| Make proxy materials (such as the Annual Report and Proxy Statement) available on the Internet Notify shareholders how and where to access those materials online |
These rules allow companies to give shareholders more options for reviewing important proxy materials. Information can be made available to shareholders more quickly and conveniently—online documents are easily searchable, enabling shareholders to quickly find the information they need to make informed voting decisions.
The SEC also allows companies to send a one-page Notice to holders with instructions on how to access the materials online, rather than sending a full set of materials. Our reasons for choosing the notice-only option are to:
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| Adopt more sustainable practices and be more environmentally responsible—by shrinking our carbon footprint through reductions in ink and paper used in printing and fuel used in shipping Increase shareholder value—by reducing print and mail costs |
Please refer to the information below to learn more and to find out what youroptions are as a shareholder to view materials and vote.
What is on the one-page Notice?
The Notice contains simple instructions on how to: Access and view the proxy materials online Vote your shares online Request a free set of printed materials Change delivery preferences for future proxy mailings DO retain the Notice for future reference DO NOT mark your vote on the Notice and return it; the Notice is not a proxy card or ballot If I received only a one-page Notice, how do I vote my shares? To vote your shares, follow the instructions on the Notice to vote online. If you request a paper copy of the proxy materials, you’ll receive a proxy card with voting instructions. You may also vote your shares in person by bringing the Notice with you and attending the meeting. If I received only a one-page Notice, how do I request a full set of printed materials for this meeting or future proxy mailings? To request a free set of printed materials for this meeting or for future mailings, refer to the Notice for detailed instructions on how to request a copy via Internet, telephone or email. If I received a full set of materials, may I request only a one-page Notice for future proxy mailings? Our company will make a decision for each meeting whether or not to use the notice-only option, and send notice-only mailings at our discretion. Can I elect to receive my proxy materials electronically? You may elect to receive materials via email for future mailings. You will receive the materials electronically if our company chooses to offer email delivery in the future. To change your delivery preferences, follow the instructions on the Notice.
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