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:
- Hire and retain top-caliber executives: Executive officers should have base salaries and employee benefits that are market-competitive and that facilitate hiring and retention of world-class talent in our critical roles and high-caliber individuals at all levels;
- Pay for performance:A significant portion of the compensation of our executive officers should vary with 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;
- 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
- Reinforce succession planning process: The overall compensation program for our executive officers should reinforce our robust succession planning process.
Incentive Compensation Programs
To create 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. In 2020, we reviewed the metrics and design of both programs to ensure they are closely linked to our business strategy, are easily understood by employees, and maintain or increase their alignment with shareholder interests.
Annual Incentive Program.
Our Annual Incentive Program is designed to reward strong financial and operational performance that furthers our short-term strategic objectives. Financial performance is determined based on three equally weighted annual performance metrics. For performance year 2020, these were:
- EPS as compared to our pre-established EPS target;
- year-over-year change in EPS; and
- ROE relative to the median ROE of the North American Life Insurance subset of our Compensation Peer Group.
For performance year 2021, a transformation cost savings metric will replace year-over-year change in EPS.
Long-Term Incentive Program.
Our Long-Term Incentive Program ties the majority of our executives’ target total compensation to the achievement of our multiyear financial results and other goals related to long-term value creation. For grants made in or prior to February 2020, we awarded:
- performance shares that 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 adjusted book value per share (“BVPS”); and
- stock options that reward increases in the market value of our Common Stock.
In February 2021, we discontinued the use of stock options and book value units, incorporating BVPS as a metric in our performance shares program. We also introduced restricted stock units (“RSUs”) and increased the proportion of long-term incentive compensation delivered in the form of performance shares. With these changes, the NEOs’ entire long-term incentive compensation for the 2021-2023 performance period is settled in and tied to the market value of our Common Stock.
*SOURCE: PRUDENTIAL FINANCIAL, INC. 2021 PROXY STATEMENT