2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 476 Compensation Discussion and Analysis To assess the competitiveness of our executive compensation program, we analyze Peer Group compensation data obtained from peer company proxy materials as well as compensation and benefits survey data provided by national compensation consulting firms, such as Willis Towers Watson, McLagan Partners, and Mercer. As part of this process, we measure actual pay levels within each compensation component and in the aggregate. We also review the mix of our compensation components with respect to fixed versus variable, short-term versus long-term, and cash versus equity-based pay. This information is then presented to the Committee for its review and use. The Committee generally compares the compensation of each NEO in relation to both the 50th and the 75th percentiles of the Peer Group for similar positions, as we are significantly above the median of the Peer Group in terms of size. In addition, the Committee takes into account various factors such as our performance within the Peer Group, the unique characteristics of the individual’s position, and any succession and retention considerations. In general, compensation levels for an executive officer who is new to a position tend to be at the lower end of the competitive range, while seasoned executive officers with strong performance who are viewed as critical to retain would be positioned at the higher end of the competitive range. Generally, differences in the levels of total direct compensation among the NEOs are primarily driven by the scope of their responsibilities, differences in the competitive market pay range for similar positions, and considerations of internal equity. Components of Our Executive Compensation Program The principal components of our executive compensation program, purpose, key characteristic and type of performance measured (if applicable) are presented in the following table. We measure the program’s competitiveness both by comparing relevant market data with the target and actual amounts paid at each executive officer position as well as by salary grades, which are composed of many positions that we consider to have similar responsibilities. Total Direct Compensation Compensation Component Purpose Key Characteristic Performance Measured Base Salary • Compensate executive officers fairly for the responsibility of the position held Fixed Individual Annual Incentive Awards • Motivate and reward executive officers for achieving our short-term business objectives • Provide balance by rewarding performance relative to our Peer Group Variable Corporate and Individual Long-Term Incentive Awards • Motivate executive officers by linking incentives to the achievement of our multi-year financial goals, our relative performance, and the performance of our Common Stock and book value over the long term • Reinforce the link between the interests of our executive officers and shareholders Variable Corporate Other Forms of Compensation Compensation Component Purpose Key Characteristic Health & Welfare, and Retirement Plans • Provide benefits that promote employee health and support employees in attaining financial security Fixed Perquisites and Other Personal Benefits • Provide a business-related benefit to our Company, and assist in attracting and retaining executives Fixed Post-Employment Compensation • Provide temporary income following an executive’s involuntary termination of employment, and in the case of a change of control, also provide continuity of management Fixed In keeping with our commitment to diversity and inclusion in practice, the performance shares and units awarded in February 2018 to executives at the senior vice president level and above, and equivalents, are subject to a performance objective intended to improve the representation of diverse persons among our senior management over the 2018 through 2020 performance period: • If we meet our goal of increased representation of diverse persons by 5 percentage points or more over this period, payouts will be increased by up to 10%. • If there is no change in representation, payouts will be decreased by 5%. • If such representation decreases over this period, payouts will be decreased by up to 10%. Notice of Annual Meeting of Shareholders and 2018 Proxy Statement | 45 Compensation Discussion and Analysis • Reviewed Committee agendas and supporting materials in advance of each meeting, and raised questions/issues with management and the Committee Chair, as appropriate. • Reviewed drafts and commented on the CD&A and related compensation tables for the Proxy Statement. • Reviewed the compensation peer group used for competitive analyses. • Attended Committee meetings when requested by the Committee Chair. The Compensation Consultant provided no services to management during 2017. 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 2017 was $121,264. 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 The 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. For 2017, the Committee, along with the Compensation Consultant, reviewed the implications of the spin-off of Brighthouse Financial, Inc. from MetLife, Inc. in considering the composition of the Peer Group and determined that no changes to the Peer Group were warranted at this time. We believe the Peer Group represents the industries with which we currently compete for executive talent, and also includes our principal business competitors. Although included within the broad financial services sector, we exclude from the Peer Group companies such as property and casualty insurers and investment banking firms that predominantly offer different products, have substantially different business models and with whom we have less direct competition for executive talent. For 2017, the Peer Group consisted of the following 20 companies: North American Life Insurance Companies Consumer Financ Compani s Asset Management and Custody Banks Di r ifi d Banks • AFLAC, Incorporated • Lincoln National • Manulife Financial Corporation • MetLife, Inc. • Principal Financial Group • Sun Life Financial Inc. • American Express Company • Capital One Fin ncial Corporation • Ameriprise Financial, Inc. • The Bank of New York Mellon Corporation • Bla kRock, Inc. • Franklin Resources, Inc. • Northern Trust Corporation • State Street Corporation • Bank of America Corporation • Citigroup Inc. • JPM rgan Chas & Co. • PNC Financial Services Group, Inc. • U.S. Bancorp • Wells Fargo & Company Use of Competitive Data We compete in several different businesses, most of which re involved in helping i dividuals nd institutions grow and protect their assets. These businesses draw their key employees from different segments of the marketplace. Our executive compensation program is designed with the flexibility to be competitive and motivational within the various marketplaces in which we compete for executive talent, while being subject to centralized design, approval, and control. The Committee relies on various sources of compensation information to ascertain the competitiv market for our executive officers, including the NEOs. 44 | Notice of Annual Meeting of Shareholders and 2018 Proxy Statement PRUDENTIAL FINANCIAL, INC.