2018 Guide to Effective Proxies

2.17.2 Executive summary | 271 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES PROLOGIS COMPENSATIONDISCUSSIONANDANALYSIS Key Points Weanticipatedtheevolutionoftheglobalsupplychain.Ourbusiness modelpositionsustomeetthelogisticsdemandofourglobalcustomersin anever-changingworldwherelocationandspeedtoend-consumeris critical.Wehaveapproximately$78.7billioninAUMintheworld’smost vibrantconsumptionmarketsin19countries.Oursubstantialstrategic capitalbusinessanddevelopmentprogramareessentialtoourgrowth. Ourcompensationprogramsupportsourbusinessmodel.Our compensationisbasedonperformancemeasuredagainstouroperational goalsandtheTSRindicesimportanttoourstockholders. Ourcompensationreflectsthelevelofouroutperformance.As demonstratedin2015,ifwemissourestablishedperformancemetrics,our compensation(largelyformulaicindetermination)reflectsour underperformance.Ifweoutperform,aswedidin2016and2017,our compensationreflectsouroutperformanceaccordingtoplanformulas. Whenourcompensationprogramspayout,itmeansourstockholdersalso win.Whenouroutperformanceplanspaidoutin2017,over$13.0billionin valuewascreatedforourstockholdersbyexceedingtheoutperformance planhurdles. (1) (1) RelatingtoPPPawardspaidin2017andPOPawardspaidforthe2015-2017performanceyear.See“CEOPOPAwardvs.TotalValue CreatedForStockholdersInExceedingthePOPHurdle”and“CEOPPPAwardvs.TotalValueCreatedinAchievingPromoteHurdles”for thecalculationofouroutperformance. I 49 Total of 03 pages in section COMPENSATIONDISCUSSIONANDANALYSIS 2017DASHBOARD 2017hasbeenanotheryearofsignificantaccomplishment. 35 % increase inNet Earnings per share year-over-year 9 % increase inCore FFO (1) per share year-over-year A3/A- CreditRating (3) 66 % TSR (2) in last three years 19 % growth inAUM while decreasing leverage (4) andholdingG&A flat Added tobulkofoutperformance planawards 7-year vesting Continuous board refreshment Ms.CristinaBita isour thirdnew directornominee since2015 # 1 REIT inGreen StreetCorporate Governance rankings for15th consecutive year 10 GRESB Green Stars NorthAmerica andAsia Sector Leader Outstanding Stock Performance Smart Financial Management Responsible ESG and Compensation Practices Industry Recognitions Exceptional Financial Performance Indices Over 1200 bps of outperformance over MSCI andCohen& SteersREIT in3-year annualizedTSR (1) CoreFFOpershareisanon-GAAPmeasure.PleaseseeAppendixAforadiscussionandreconciliationstothemostdirectlycomparable GAAPmeasure. (2) TSRiscalculatedbasedonthestockpriceappreciationanddividendspaidtoshowthetotalreturntoastockholderoveraperiodoftime. TSRassumesdividendsarereinvestedincommonstockonthedaythedividendispaid. (3) ChangeinratingsbyMoody’sandS&P,respectively,in2016andmaintainedin2017.Maintenanceofcreditratingsimpactsourbonus determinationsasdiscussedlater.Asecuritiesratingisnotarecommendationtobuy,sellorholdsecuritiesandissubjecttorevisionor withdrawalatanytimebytheratingorganization. (4) IncreaseinAUManddecreaseinleverageyear-over-year. I 48 COMPENSATIONDISCUSSIONANDANALYSIS Executive Summary In 2017, we outperformed both operationally and in the equity markets, while managing our business responsibly Weachievednetearningsof$3.06pershareandCoreFFO (1) of$2.81per share,representinganincreaseof35%and9%,respectively,over2016.Our three-yearcompoundannualgrowthratefornetearningsandCoreFFO persharewas35%and14%,respectively. Ourannualizedthree-yearTSRoutperformedtheCohen&SteersREIT Index (2) by1290basispointsandtheMSCIREITIndex (2) by1350basis points. Wefurtherassessedandstrengthenedourcompensationprogramsin responsetostockholderfeedbacktofurtheralignstockholderandNEO interests. – WeamendedourPrologisOutperformancePlan(“POP”)toadd7-year vestingonthebulkofearnedequitystartingwiththe2018-2020 performanceperiod.OurNEOsvoluntarilyelectedtoapplytheadditional vestingrestrictionsretroactivelytoanyoftheirPOPawardsearnedforthe 2016-2018and2017-2019performanceperiods.TheNEOsdidnotreceive anybenefitinexchangefortheirelection. – WeeliminatedthebonusexchangepremiumforourNEOsstartingwiththe 2018performanceyearandextendedvestingfrom3to4yearsonthe PrologisPromotePlan(“PPP”)andourannualequityawardsstartingwiththe 2018annualcompensationcycle.WeheldNEObasesalariesflatinthelast twoyears. (1) CoreFFOpershareisanon-GAAPmeasure.PleaseseeAppendixAforadiscussionandreconciliationtothemostdirectlycomparable GAAPmeasure.SeeAppendixAforacalculationofthecompoundannualgrowthrateofourCoreFFOpershare. (2) Arealestateinvestmenttrustisa“REIT.”MSCIUSREITIndexisthe“MSCIREITIndex”andtheCohen&SteersRealtyMajorsPortfolio Indexisthe“Cohen&SteersREITIndex.” AllcompanyoperationalinformationinCD&AisfortheyearendedorasofDecember31,2017,unlessotherwisenoted.SeeAppendixAfor definitionsanddiscussionofnon-GAAPmeasurementsandreconciliationstothemostdirectlycomparableGAAPmeasuresandforadditionaldetail regardingdefinitionsoftermsasgenerallyexplainedinCD&A.TheCompensationCommitteereviewsmanagement’sperformanceagainstkey companyperformancemeasures,suchasCoreFFOpershare,discussedbelow.See“2017CompensationDecisions:AnnualBaseSalaryandBonus Opportunity”formoreinformationaboutourkeyperformancemeasuresandtargets. I 47 PRUDENTIAL FINANCIAL, INC. CompensationDiscussionandAnalysis:ExecutiveSummary ExecutiveCompensationHighlights TheCompensationCommitteehasinstitutedanumberofchangestoourexecutivecompensationprogramoverthelastseveral yearstoalignwithevolvingcompetitiveandgovernancepractices,respondtofeedbackfromourshareholdersandstrengthen thelinktoperformanceandrigorofourprogram.Thesechangeshaveincluded: • StrengtheningtherigorofourAnnualIncentiveProgram bysettingtargetandmaximumawardsforsenior executives,includingtheNEOs. • EstablishingLong-TermIncentiveTargetOpportunities forNEOs. • Requiringdeferralof30%ofeachNEO’sannual incentiveawardintotheBookValuePerformance Program. • Beginningin2018,addingamodifiertothe PerformanceSharesProgramthatwillincrease(or decrease)thenumberofsharesandunitsearnedbyup to10%dependingontheincrease(ordecrease)inthe representationofdiversepersonsamongoursenior managementduringthe2018through2020 performanceperiod. • IncreasingourCEO’sstockownershipguidelinefromfive toseventimesbasesalary. • Expandingtheclawbackpolicyforexecutiveofficersto coverallincentive-basedawards,toaddressamaterial financialrestatementormisconduct,andtorequire disclosuretoshareholdersofactiontakenwithregardto compensationrecoveryfollowingamaterialfinancial restatementormisconduct. • Diversifyingtheperformancemetricsusedtodetermine awardsunderourAnnualIncentiveProgramand applyingagreaterweighttorelativeROEperformance versuspeercompaniesasafactorunderourAnnual IncentiveProgrambeginningin2016andPerformance ShareProgramin2017. • Excludingearningsfromspecifiedclassesof non-couponinvestmentsoutsideofarangeof-10%to +10%oftheearningsontheseinvestmentsthatare includedintheCompany’sEPSguidancerangefromthe performancemeasuresinourAnnualIncentivePlan beginningin2016andPerformanceSharesProgramin 2017. TotalDirectCompensationSummary 2017 (thousands) 2016 (thousands) $1,400 $17,376 $4,183 Cash $1,793 Mandatorily Deferred (1) $10,000 $5,976 Salary Annual IncentiveAward Long-TermAward (2) CEOTotalDirectCompensation $4,662 Cash $1,998 Mandatorily Deferred (1) $18,060 $1,400 $10,000 $6,660 Consistentwithourcompensationphilosophy,approximately 92%ofourCEO’stotaldirectcompensationfor2017was performance-based. Salary Annual Incentive (1) Long-term incentives (1)(2) 9% $875 29% $3,173 62% $6,735 CEO (thousands) 8% $1,400 26% $4,662 66% $11,998 Other NEOs (3) (thousands) (1) Performance-basedcompensation (2) Includesmandatorydeferralof30%ofannualincentive (3) Basedonaverageamounts 38 | NoticeofAnnualMeetingofShareholdersand2018ProxyStatement Total of 03 pages in section CompensationDiscussionandAnalysis:ExecutiveSummary WereportedGAAPbookvalueof$125.24pershareofCommonStockas ofDecember31,2017,comparedto$104.91pershareasofyear-end 2016. Adjustedbookvalueamountedto$88.28pershareofCommonStockas ofDecember31,2017,comparedto$78.95pershareasofyear-end 2016. (1) GAAPbookvaluepershareandadjustedbookvaluepershareasof December31,2017includebenefitsof$6.59and$2.74,respectively,as aresultoftheenactmentoftheTaxCutsandJobsAct. GAAP Book Value PerShare $125.24 2016 2017 $104.91 AdjustedBook Value PerShare $88.28 2016 2017 $78.95 Wereportedreturnonaverageequitybasedonnetincomeof16%for 2017,comparedto8.8%for2016. Wereportedoperatingreturnonaverageequityof13%for2017, comparedto12%for2016. (1) GAAP Return on Average Equity Operating Return on Average Equity 2017 2016 2017 2016 8.8% 16% 13% 12% Assetsundermanagement reached$1.394trillionat December31,2017,anincrease from$1.264trillionayearearlier. $1.264 trillion $1.394 trillion 2016 2017 AssetsUnderManagement WepaidquarterlyCommonStock dividendstotaling$3.00pershare during2017,anincreaseof7% from2016. $2.80 $3.00 2016 2017 Dividends Per Share (1) Consolidatedadjustedoperatingincome(“AOI”)andoperatingreturnonaverageequityarenon-GAAPmeasuresoffinancialperformance.Adjustedbookvalueisanon-GAAP measureoffinancialposition.Weuseearningspershare(“EPS”)basedonAOI,operatingreturnonaverageequity,andadjustedbookvalueasperformancemeasuresinour incentivecompensationprograms.ForadiscussionofthesemeasuresandforreconciliationstothenearestcomparableGAAPmeasures,seeAppendixAtothisProxyStatement. NoticeofAnnualMeetingofShareholdersand2018ProxyStatement | 37 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 2017 Summary Compensation Table and other compensation tables contained in this Proxy Statement. We also provide an overview of our executive compensation philosophy and our executive compensation program. In addition, w explain how and why the Compensation Committee of our Board (the “Committee”) arrived at the specific compensation decisions involving the NEOs for 2017. NAMED EXECUTIVE OFFICERS (NEOS) • JohnR.Strangfeld ,ourChairmanandChiefExecutive Officer; • RobertM.Falzon ,ourExecutiveVicePresidentand ChiefFinancialOfficer; • MarkB.Grier ,ourViceChairman; • CharlesF.Lowrey ,ourExecutiveVicePresidentand ChiefOperatingOfficer,InternationalBusinesses;and • StephenPelletier ,ourExecutiveVicePresidentand ChiefOperatingOfficer,U.S.Businesses. Executive Summary Business Highlights OUR BUSINESS Weareaglobalfinancialservicesbusinesswith$1.394trillionofassetsundermanagementasofDecember31,2017,andwith operationsintheUnitedStates,Asia,Europe,andLatinAmerica.Throughoursubsidiariesandaffiliates,weofferawidearrayof financialproductsandservices,includinglifeinsurance,annuities,retirement-relatedservices,mutualfunds,andinvestment management.Formoreinformationaboutourbusiness,pleasesee“Business”and“Management’sDiscussionandAnalysisof FinancialConditionandResultsofOperations”inourAnnualReportonForm10-KfiledwiththeSEConFebruary16,2018. 2017 BUSINESS HIGHLIGHTS Theyear2017wasasuccessfulonefortheCompany,asourbusinessmixandsolidfundamentalsledtostrongresults.During theyear,wecontinuedtofocusonourbalancedbusinessmix,theeffectiveexecutionofourbusinessstrategies,capital deploymentanddisciplinedriskmanagement.Consequently,wewereabletodeliverstrongresults,despitealowinterestrate environmentinkeymarkets,whilecontinuingtoseizenewbusinessopportunitiesandfurtherdifferentiatingourselvesfromthe competition. Weachievedthefollowingaccomplishmentsin2017: Wereportednetincomeof$7.86billion,or$17.86pershareof CommonStockin2017,comparedto$4.37billion,or$9.71pershare, in2016,basedonU.S.generallyacceptedaccountingprinciples (“GAAP”). Netincomein2017includesabenefitof$2.87billion,or$6.64per share,asaresultoftheenactmentoftheTaxCutsandJobsAct. GAAPNet Income $4.37B 2016 $7.86B 2017 EPS Based on GAAPNet Income $9.71 2016 $17.86 2017 Wereportedafter-taxadjustedoperatingincomeof$4.65billion,or $10.58pershareofCommonStockin2017,comparedto $4.11billion,or$9.13pershare,in2016. (1) AOI $4.11B 2016 $4.65B 2017 EPS Based on AOI $9.13 2016 $10.58 2017 36 | NoticeofAnnualMeetingofShareholdersand2018ProxyStatement