UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

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April 11, 2012

Dear Shareholder:

       You are cordially invited to attend the annual meeting of shareholders on Tuesday, May 22, 2012, at 9:00 a.m., Central Daylight Time, at 711 High Street, Des Moines, Iowa.

       The notice of annual meeting and proxy statement provide an outline of the business to be conducted at the meeting. I will also report on the progress of the Company during the past year and answer shareholder questions.

       We encourage you to read this proxy statement and vote your shares. You do not need to attend the annual meeting to vote. You may complete, date and sign a proxy or voting instruction card and return it in the envelope provided (if these materials were received by mail) or vote by using the telephone or the Internet. Thank you for acting promptly.

Distribution of annual meeting materials

       As we've done in the past, The Principal is taking advantage of the Securities and Exchange Commission's rule that allows companies to furnish proxy materials for the annual meeting via the Internet to registered shareholders.

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PRINCIPAL FINANCIAL GROUP, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 22, 2012

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        The annual meeting of shareholders of Principal Financial Group, Inc. (the "Company") will be held at 711 High Street, Des Moines, Iowa, on Tuesday, May 22, 2012, at 9:00 a.m., Central Daylight Time. Matters to be voted on are:

1.

Election of three Class II Directors;



2.

A proposal for the elimination of supermajority voting requirements;



3.

An advisory vote to approve executive compensation;



4.

Ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the year ending December 31, 2012; and



5.

Such other matters as may properly come before the meeting.

        These items are fully described in the proxy statement, which is part of this notice. The Company has not received notice of other matters that may be properly presented at the annual meeting.

        Shareholders of record at the close of business on March 26, 2012, are entitled to vote at the meeting. It is important that your shares be represented and voted at the meeting. Whether or not you plan to attend the meeting, please vote in one of the following ways:

•

By telephone: call the toll-free telephone number shown on the proxy or voting instruction card or the instructions in the email message that notified you of the availability of the proxy materials;



•

Through the Internet: visit the website noted below and in the notice of Internet availability of proxy materials shareholders received by mail, or on the proxy or voting instruction card, or in the instructions in the email message that notified you of the availability of the proxy materials; or



•

Complete, sign and promptly return a proxy or voting instruction card in the postage-paid envelope provided.

        Shareholders will need to register at the meeting and present photo identification to attend the meeting. If your shares are not registered in your name (for example, you hold the shares through an account with your stockbroker), you will need to bring proof of your ownership of those shares to the meeting in order to register. You should ask the broker, bank or other institution that holds your shares to provide you with either a copy of an account statement or a letter that shows your ownership of Principal Financial Group, Inc. common stock on March 26, 2012. Please bring that documentation to the meeting to register.

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PROXY STATEMENT

PRINCIPAL FINANCIAL GROUP, INC.
711 HIGH STREET
DES MOINES, IOWA 50392-0100

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Why didn't I receive a copy of the paper proxy materials?

        The Securities and Exchange Commission ("SEC") rules allow companies to deliver a notice of Internet availability of proxy materials to shareholders and provide Internet access to those proxy materials. Shareholders may obtain paper copies of the proxy materials free of charge by following the instructions provided in the notice of Internet availability of proxy materials.

Why did I receive notice of and access to this proxy statement?

        The Board of Directors ("Board") of Principal Financial Group, Inc. ("Company") is soliciting proxies to be voted at the annual meeting of shareholders to be held on May 22, 2012, at 9:00 a.m., Central Daylight Time, at 711 High Street, Des Moines, Iowa, and at any adjournment or postponement of the meeting ("Annual Meeting"). When the Board asks for your proxy, it must send or provide you access to proxy materials that contain information required by law. These materials were first made available, sent or given to shareholders on April 11, 2012.

What is a proxy?

        It is your legal designation of another person to vote the stock you own. The other person is called a proxy. When you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. The Company has designated three of the Company's officers to act as proxies for the 2012 Annual Meeting: Joyce N. Hoffman, Senior Vice President and Corporate Secretary; Terrance J. Lillis, Senior Vice President and Chief Financial Officer; and Karen E. Shaff, Executive Vice President and General Counsel.

What will the shareholders vote on at the Annual Meeting?

•

Election of three Directors for three year terms;



•

A proposal for the elimination of supermajority voting;



•

An advisory vote to approve executive compensation; and



•

Ratification of the appointment of independent auditors.

Will there be any other items of business on the agenda?

        The Company does not expect any other items of business because the deadline for shareholder proposals and nominations has passed. However, if any other matter should properly come before the meeting, the people authorized by proxy will vote according to their best judgment.

Who can vote at the Annual Meeting?

        Shareholders as of the close of business on March 26, 2012 ("Record Date") can vote at the Annual Meeting.

How many votes do I have?

        You will have one vote for every share of Company common stock ("Common Stock") you owned on the Record Date.

What constitutes a quorum?

        One-third of the outstanding shares of Common Stock as of the Record Date. On the Record Date, there were 300,874,236 shares of Common Stock outstanding. A quorum must be present, in person or by proxy, before any action can be taken at the Annual Meeting, except an action to adjourn the meeting.

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How many votes are required for the approval of each item?

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Each nominee for Director will be elected if there are more votes for the nominee than votes against the nominee. Directors are elected by the majority of votes cast in uncontested Director elections.



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The proposal to eliminate supermajority voting will be approved if at least three-fourths of the outstanding shares of Common Stock that are entitled to vote on the proposal are cast for the proposal.



•

The advisory vote to approve the Company's executive compensation will be approved if there are more votes for the proposal than against the proposal.



•

The appointment of the independent auditors will be ratified if there are more votes for the proposal than votes against the proposal.



•

Abstentions and broker non-votes will be treated as being present at the meeting for the purpose of determining a quorum but will not be counted as votes for the proposals.

What are Broker Non-votes?

        If your shares are held in a brokerage account, your broker will ask you how you want your shares to be voted. If you give your broker directions, your shares will be voted as you direct. If you do not give directions, the broker may vote your shares on routine items of business, but not on non-routine items. Proxies that are returned by brokers because they did not receive directions on how to vote on non-routine items are called "broker non-votes."

How do I vote by proxy?

        Shareholders of record may vote by mail, by telephone or through the Internet. Shareholders may vote "for," "against" or "abstain" from voting for each of the Director nominees, the proposal on the elimination of supermajority voting, the advisory vote to approve executive compensation and the proposal to ratify the appointment of the independent auditors.

        By Mail.    Sign and date each proxy or voting instruction card you receive and return it in the prepaid envelope. Sign your name exactly as it appears on the proxy. If you are signing as a representative (for example, as an attorney-in-fact, executor, administrator, guardian, trustee or an officer or agent of a corporation or partnership), indicate your name and your title or capacity. If the stock is held in custody for a minor, the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may sign on behalf of all owners.

        By Telephone.    Follow the instructions on the proxy or voting instruction card or the instructions in the email message that notified you of the availability of the proxy materials. If you vote by telephone, do not return your proxy or voting instruction card. Telephone voting for proxy cards will be available until 1:00 a.m., Central Daylight Time, on May 22, 2012, and until 1:00 a.m., Central Daylight Time, on May 18, 2012, for voting instruction cards.

        Through the Internet.    You may vote on line at www.investorvote.com. Follow the instructions provided in the notice of Internet availability of proxy materials or on the proxy or voting instruction card. If you vote through the Internet, do not return your proxy or voting instruction card. Internet voting for proxy cards will be available until 1:00 a.m., Central Daylight Time, on May 22, 2012, and until 1:00 a.m., Central Daylight Time, on May 18, 2012, for voting instruction cards.

How do I vote shares that are held by my broker?

        If you own shares held by a broker, you may direct your broker or other nominee to vote your shares by following the instructions that your broker provides to you. Most brokers offer voting by mail, telephone and through the Internet.

How do I vote in person?

        If you are going to attend the Annual Meeting, you may vote your shares in person. However, we encourage you to vote in advance of the meeting by mail, telephone or through the Internet even if you plan to attend the meeting.

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How do I vote my shares held in the Company's 401(k) plan?

        You can vote your shares held in the Company's 401(k) plan by telling the trustees of the plan how you want them to vote your shares. Follow the instructions on the voting instruction card or the instructions in the email message that notified you of the availability of the proxy materials. The trustees vote shares for which voting instructions are not received in their discretion.

How are shares held in the Demutualization separate account voted?

        The Company became a public company on October 26, 2001, when Principal Mutual Holding Company converted from a mutual insurance holding company to a stock company (the "Demutualization") and the initial public offering of shares of the Company's Common Stock was completed. The Company issued Common Stock to Principal Life Insurance Company ("Principal Life"), and Principal Life allocated this Common Stock to a separate account that was established to fund policy credits received as Demutualization compensation by certain employee benefit plans that owned group annuity contracts. Although Principal Life will vote these shares, the plans give Principal Life voting directions. A plan may give voting directions by following the instructions on the voting instruction card or the instructions in the message that notified you of the availability of proxy materials. Principal Life will vote the shares as to which it received no direction in the same manner, proportionally, as the shares in the Demutualization separate account for which it has received instructions.

Who counts the votes?

        Votes will be counted by Computershare Trust Company, N.A.

What happens if I do not vote on an issue when returning my proxy?

        If no specific instructions are given, proxies that are signed and returned will be voted as the Board of Directors recommends: "For" the election of all Director nominees, "For" the proposal on the elimination of supermajority voting, "For" approval of the Company's executive compensation and "For" the ratification of Ernst & Young LLP as independent auditors.

How do I revoke my Proxy?

        If you hold your shares in street name, you must follow the instructions of your broker or bank to revoke your voting instructions. Otherwise, you can revoke your proxy or voting instructions by voting a new proxy or instruction card or by voting at the meeting.

What should I do if I want to attend the Annual Meeting?

        Please bring photo identification and, if your stock is held by a broker or bank, evidence of your ownership of Common Stock as of March 26, 2012. The notice of Internet availability of proxy materials you received in the mail, a letter from your broker or bank or a photocopy of a current account statement will be accepted as evidence of ownership.

How do I contact the Board?

        The Company has a process for shareholders and all other interested parties to send communications to the Board through the Presiding Director. You may contact the Presiding Director of the Board through the Investor Relations section of the Company's website at www.principal.com, or by writing to:

Presiding Director, c/o Joyce N. Hoffman, Senior Vice President and Corporate Secretary
Principal Financial Group, Inc.
Des Moines, Iowa 50392-0300

        All emails and letters received will be categorized and processed by the Corporate Secretary and then sent to the Company's Presiding Director.

How do I submit a shareholder proposal for the 2013 Annual Meeting?

        The Company's next annual meeting is scheduled for May 21, 2013. Proposals should be sent to the Corporate Secretary. Proposals to be considered for inclusion in next year's proxy statement must be received by December 12, 2012. In addition, the Company's By-Laws provide that any shareholder wishing to propose any

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other business at the annual meeting must give the Company written notice between January 22, 2013 and February 25, 2013. That notice must provide other information as described in the Company's By-Laws, which are on the Company's website, www.principal.com.

What is "householding?"

        We send shareholders of record at the same address one copy of the proxy materials unless we receive instructions from a shareholder requesting receipt of separate copies of these materials.

        If you share the same address as multiple shareholders and would like the Company to send only one copy of future proxy materials, please contact Computershare Trust Company, N.A. at 866-781-1368, or P.O. Box 43078, Providence, RI 02940-3078. You can also contact Computershare to receive individual copies of all documents.

Where can I receive more information about the Company?

        We file reports and other information with the SEC. This information is available on the Company's website at www.principal.com and at the Internet site maintained by the SEC at www.sec.gov. You may also contact the SEC at 1-800-SEC-0330. The Board committee charters, the Company's corporate governance guidelines, and the Corporate Code of Ethics are also available on the Company's website, www. principal.com.

        The Board urges you to exercise your right to vote by using the Internet or telephone or by returning the proxy or voting instruction card.

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PROPOSAL ONE — ELECTION OF DIRECTORS

        The Board is divided into three classes with each class having a three year term. All of the nominees are currently Directors of the Company.

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        The Board of Directors recommends that shareholders vote "For" all the nominees for election at the Annual Meeting.

Arjun K. Mathrani has decided not to seek reelection to the Board.

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PROPOSAL TWO — ELIMINATION OF SUPERMAJORITY VOTING

        The governing document that describes how the Company is organized under Delaware law is its Certificate of Incorporation. The Certificate of Incorporation provides in Articles V and IX that certain of its provisions cannot be changed without approval of at least three-fourths (³/4) of the voting power of the outstanding stock of the Company (a "supermajority").

        The Company adopted these supermajority voting provisions as part of our Demutualization and initial public offering in 2001 to facilitate stability in corporate governance, which allows the Company to pursue its strategy and the Board to focus on long-term growth for the benefit of all shareholders. The Board recognized the potential benefits to the Company and its shareholders in using supermajority voting requirements to provide protection against self-interested action by one or a few large shareholders. The provisions ensure that significant shareholder approval beyond a simple majority is required for changes to a few fundamental corporate governance provisions. In addition, supermajority voting provisions encourage any persons seeking control of a company to negotiate with its board. The provisions have the effect of giving the board greater leverage when negotiating with a potential acquirer who may have a short-term focus and affording the board time to consider alternatives that might provide greater value for all shareholders.

        Although these measures can be beneficial, the Board recognizes that some view these provisions as limiting a board's accountability to shareholders. Moreover, shareholders want the ability to effectively participate in corporate governance and supermajority voting requirements are a limitation on the ability of a majority of the shares to take certain corporate actions. The Nominating and Governance Committee and the Board regularly look at the Company's corporate governance practices for continued effectiveness in the current environment. The Committee and the Board undertook a careful review of the supermajority voting provisions and recognized that there are both advantages and disadvantages to the requirements, that governance trends indicate companies are moving away from supermajority voting requirements and that the Principal Financial Group is committed to good corporate governance. Thus, the Board determined to recommend to the shareholders that this proposal on elimination of supermajority voting requirements be approved and adopted.

        The proposed amendment to Article V removes the supermajority vote requirement for shareholders to adopt, amend or repeal any provision of the Company's By-Laws and provides that the applicable voting standard will be a majority of shares outstanding and entitled to vote.

        The proposed amendment to Article IX removes the supermajority vote requirement for changes to the following provisions, and provides that the applicable voting standard will be a majority of shares outstanding and entitled to vote:

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Classified Board structure;



•

Director discretion to consider all relevant factors in determining what is in the best interests of the corporation;



•

Shareholder removal of Directors only for cause;



•

Elimination of Director liability to the fullest extent provided by law;



•

Shareholder actions may be taken only at a regular or special meeting; and



•

Supermajority voting provisions.

        The Board of Directors recommends the amendments to the Company's Certificate of Incorporation set forth in Appendix A to eliminate the supermajority voting requirements and replace them with provisions requiring the affirmative vote of the holders of a majority of the voting power of the outstanding stock of the Company entitled to vote on these actions. Delaware law provides that the shareholders must approve this recommendation of the Board of Directors to amend the Certificate of Incorporation before the amendments and these changes can be effective. The Certificate of Incorporation requires that three-fourths of the outstanding shares entitled to vote on this proposal must approve the proposal for it to be adopted. If approved by the shareholders, the amendments to the Certificate of Incorporation will be effective upon filing with the Delaware Secretary of State and the Board of Directors will make conforming changes to the Company's By-Laws to eliminate the supermajority voting requirements in that document.

        RESOLVED, that the Company's Certificate of Incorporation be amended as set forth in Appendix A.

The Board of Directors recommends that shareholders vote "For" this resolution.

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CORPORATE GOVERNANCE

        The Principal Financial Group is a leading global financial company offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement solutions, insurance, wellness programs and investment and banking products. The businesses of the Company are managed under the direction of the Board. The Board selects and oversees management, provides advice and counsel to the Chief Executive Officer ("CEO"), reviews and discusses the strategic direction of the Company, oversees risk and monitors the Company's performance against goals the Board and management establish.

Board Leadership Structure

        The Board currently has a combined position of Chairman of the Board and CEO, Larry D. Zimpleman, and a Presiding Director, Elizabeth E. Tallett. Betsy J. Bernard is the Alternate Presiding Director. The Presiding Director is selected by the other independent Directors, and the position does not automatically rotate. The Nominating and Governance Committee reviews the assignments as Presiding Director and Alternate Presiding Director annually. The Board regularly reviews its leadership model and is flexible about whether the positions of CEO and Chairman should be separate or combined. The decision is based on the tenure and experience of the CEO and the broader economic and operating environment of the Company. In the Company's experience, this is preferable to an approach that either requires or disallows a combined Chairman/CEO.

        The Presiding Director and the Chairman jointly make the decisions on the Board's agenda for each regular quarterly meeting, and the Presiding Director sends a draft agenda to all Directors for their input. The Presiding Director and Chairman share the duties of presiding at each Board meeting. The Chairman presides when the Board is meeting as a full Board. The Presiding Director:

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Presides when the Chairman is not present and during executive sessions of independent Directors ("Executive Sessions"). Executive Sessions generally occur at the start and end of each regular Board meeting, and were held in conjunction with each regularly scheduled Board meeting during 2011.



•

Plans and leads the Executive Sessions and provides feedback to the CEO based on these discussions.



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Leads the Board's annual self evaluation of its performance.



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Calls special Board meetings if the Chairman and CEO is unable to act for any reason.

Role of the Board of Directors in Risk Oversight

        The Board believes that risk oversight is a responsibility of the full Board. The Board weighs risk versus return in the context of the organization's key risks and risk philosophy when approving corporate strategy and major business decisions, setting executive compensation and monitoring the Company's progress. Like all financial services companies, we are exposed to financial, accounting, operational and other business and industry risks. The Board uses its committees for some of its risk oversight responsibilities and the committees report to the Board on these issues:

        The Audit Committee:

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Provides oversight of risks related to financial controls and legal, regulatory and compliance matters, and



•

Reviews the Company's policies with respect to risk assessment and risk management, including the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures.

        The Chief Risk Officer attends Audit Committee meetings and regularly meets in executive session with the Audit Committee along with selected other members of management and without other members of management present at least once per year.

        The Finance Committee:

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Assists the Board in its oversight of liquidity, credit, market, tax planning and insurance risk;



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Reviews and provides guidance to the Board on the organization's capital adequacy based on the organization's risk exposures; and



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Assists the Board with financial, investment and capital management policies.

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        The Human Resources Committee reviews all incentive compensation arrangements to confirm that they do not encourage inappropriate risk-taking and are appropriately designed to limit or mitigate risk.

        In selecting candidates for the Board, the Nominating and Governance Committee takes into account the need for the Board to have the collective skills and experience necessary to monitor the risks facing the Company.

        Risk management has long been an essential component of the Company's culture and operations. The Company has had a Chief Risk Officer since 2005, who:

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Oversees and coordinates business and service unit risk identification and mitigation efforts; and



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Works with other members of management (including the CEO, Chief Financial Officer ("CFO"), Chief Investment Officer, Chief Information Officer, General Counsel, Controller, Chief Compliance Officer, internal auditor, and business unit Presidents) to identify, assess and manage financial, operational and other risks through an Enterprise Risk Management ("ERM") program.

        These members of management make periodic reports to and have discussions with the Board and its committees on the ERM program, and how strategy and operational initiatives integrate with the Company's risk objectives. These reports and discussions provide the Board with a greater understanding of the material risks the organization faces, whether management is responding appropriately, how certain risks relate to other risks, and the level of risk in actions presented for Board approval.

        The Company has insurance and risk-related businesses supported by investment portfolios of diverse assets, so capital adequacy is an important focus of ERM. At each regular Board meeting, management reports on sources and uses of capital, satisfaction of regulatory and rating agency capital requirements, excess capital position, capital management and liquidity.

        The Chief Investment Officer reports quarterly to the Board on management's efforts to position the Company's investment policy to appropriately reflect risk, including credit risk, and reward in the investment portfolio.

        The Chief Risk Officer reports quarterly to the Board on a current risk management topic of interest and reports annually on the Company's ERM program. The annual presentation includes topics such as:

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Risk management philosophy;



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Risk identification;



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Appetite for risk and maximum risk tolerance;



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Risk assessment and mitigation throughout the year;



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An inventory of the Company's risks related to credit, market, product/pricing and business/operation and where in the Company these risks are managed;



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Risk modeling and capital adequacy analysis using various metrics;



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Relative impact on the organization of various financial risks;



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External perspectives on the organization's risk management; and



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Risk management priorities and initiatives for improving the ERM program.

Majority Voting

        Directors are elected by the majority of votes cast in uncontested Director elections. If an incumbent Director is not elected, and no successor is elected, the Board of Directors will decide whether to accept the resignation tendered by that incumbent Director. The Board's decision and reasons for its decision will be publicly disclosed within 90 days of certification of the election results.

Director Independence

        The Board determines at least annually whether each Director is independent, using its independence standards in these determinations. These independence standards include the New York Stock Exchange requirements for independence and are on the Company's website, www.principal.com. The Board considers all commercial, banking, consulting, legal, accounting, charitable, family and other relationships (as a partner,

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shareholder or officer of an organization) a Director may have with the Company and its subsidiaries. The Board most recently made these determinations for each Director in February 2012, based on:

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A review of relationships and transactions between Directors, their immediate family members or other organizations and the Company, its subsidiaries or executive officers;



•

Questionnaires completed by each current Director regarding any relationships or transactions that could affect the Director's independence;



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The Company's review of its purchasing, investment, charitable giving and customer records; and



•

Recommendations of the Nominating and Governance Committee.

        The Board determined that the following Directors are independent: Ms. Bernard, Ms. Carter-Miller, Dr. Costley, Mr. Dan, Mr. Ferro, Dr. Gelatt, Ms. Helton, Mr. Keyser, Mr. Maestri, Mr. Mathrani and Ms. Tallett. The Board also determined that all current members (and Directors who were members in 2011) of the Audit, Human Resources and Nominating and Governance Committees are independent.

        Dr. Costley and Mr. Mathrani have no relationships or transactions with the Company. In 2010, the Company used a law firm where Dr. Costley's son-in-law is a partner as one of the Company's many legal services providers. Another lawyer in a different office of the firm provided services to Principal Life on three local insurance claim and pension plan legal matters. The Company no longer uses the law firm.

        In applying the Board's independence standards, the Nominating and Governance Committee and the Board considered the following relationships and transactions to be categorically immaterial to the determination of a Director's independence due to the nature of the transaction and the amount involved (in each of the transactions described below, the annual payments made or received by the Company did not exceed the greater of $1 million or 2 percent of the recipient's gross revenues):

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Ms. Bernard, Ms. Carter-Miller, Dr. Gelatt, Ms. Helton, Mr. Keyser and Ms. Tallett are customers of the Company's subsidiaries. Directors who were in office before the Demutualization were required to personally own an insurance policy or annuity contract issued by Principal Life. All insurance policies, annuity contracts, agreements for trust services and bank accounts held by Directors are on the same terms and conditions offered to the public.



•

Brink's Company (Mr. Dan retired as Brink's CEO in 2011) provided armored car transportation services to Principal Life in ordinary commercial transactions. The Gelatt family companies (of which Dr. Gelatt is the CEO) own insurance products issued by Principal Life. The Company purchases or leases document equipment, supplies and software from Xerox Corporation (of which Mr. Maestri is an executive officer) in ordinary commercial transactions.



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Mr. Ferro and Ms. Tallett are directors of for-profit entities with which the Company's subsidiaries conducted ordinary commercial transactions.

Certain Relationships and Related Transactions

        Nippon Life Insurance Company ("Nippon Life"), which held approximately 6% of the Company's Common Stock at the end of 2011, is the parent company of Nippon Life Insurance Company of America ("NLICA"). Nippon Life, NLICA and Principal Life have had an ongoing business relationship for more than 20 years. Principal Life assisted Nippon Life in the start up activities of NLICA, which began business in 1991. Nippon Life and NLICA purchase retirement and financial services offered by Principal Life and it subsidiaries. NLICA paid Principal Life approximately $10 million for third party administration services related to its group welfare benefit plans and approximately $8,000 for wellness services during 2011. Nippon Life and NLICA also paid Principal Global Investors, LLC and its subsidiaries approximately $970,000 for investment services in 2011, and paid Principal Life approximately $184,000 for service related to its retirement plans in 2011. The Company owns approximately three percent of the common stock of NLICA.

        The Nominating and Governance Committee or Chair of the Committee must approve or ratify all transactions with Related Parties that are not pre-approved under the Company's Related Party Transaction Policy. At each quarterly meeting, the Committee reviews a report of any non-material transactions with Directors or the firms of which they are an executive officer or director, and any other Related Party transactions, including those involving executive officers and shareholders who own more than five percent of the Company's Common Stock. The Committee ratifies these transactions if it determines they are appropriate. Transactions involving employment

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of a relative of an executive officer or Director must be approved by the Human Resources Committee. The Company's Related Party Transaction Policy may be found at www.principal.com.

Board Meetings

        The Board held 11 meetings in 2011, five of which were two day, in person meetings. Each of the Directors then in office attended more than 75 percent in the aggregate of the meetings of the Board and the committees of which the Director was a member. All of the Directors then in office attended the 2011 Annual Meeting. The Company sets the date and place of Annual Meetings to coincide with a regular Board meeting so that all Directors can attend.

Corporate Code of Ethics

        Each Director and officer of the Company has certified compliance with the Corporate Code of Ethics.

Board Committees

        Only independent Directors may serve on the Audit, Human Resources and Nominating and Governance Committees. Committee members and Committee chairs are recommended to the Board by the Nominating and Governance Committee. The Committees review their charters and evaluate their performance annually. Committee charters are available on the Company's website, www.principal.com.

Committee Membership

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Audit Committee

        The Audit Committee is responsible for:

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Appointing, terminating, compensating and overseeing the Company's independent auditor;



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Reviewing and reporting to the Board on the independent auditor's activities;



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Approving all audit engagement fees and pre-approving compensation of the independent auditor for non-audit engagements, consistent with the Company's Auditor Independence Policy;



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Reviewing audit plans and results;



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Reviewing and reporting to the Board on accounting policies and legal and regulatory compliance; and



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Reviewing the Company's policies on risk assessment and management.

        The Committee meets at least quarterly with financial management, the internal auditor, the independent auditor, the CFO, the Chief Risk Officer and the General Counsel.

        The Board has determined that all members of the Audit Committee are financially literate, and that Ms. Helton is a "financial expert" as defined by the Sarbanes-Oxley Act.

Audit Committee Report

        The Audit Committee oversees the Company's financial reporting process. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The Committee reviewed with management the audited financial statements for the fiscal year ended December 31, 2011, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

        The Committee discussed with Ernst & Young LLP, the Company's independent auditor, the matters required to be discussed by Statement on Auditing Standards ("SAS") 114, The Auditor's Communication with those Charged with Governance, as adopted by the Public Company Accounting Oversight Board (United States) ("PCAOB") in Rule 3200T. SAS 114 requires the independent auditor to communicate (i) the auditor's responsibility under standards of the PCAOB; (ii) an overview of the planned scope and timing of the audit; and (iii) significant findings from the audit, including the qualitative aspects of the entity's significant accounting practices; significant difficulties, if any, encountered in performing the audit; uncorrected misstatements identified during the audit, other than those the auditor believes are trivial, if any; any disagreements with management; and any other issues arising from the audit that are significant or relevant to those charged with governance.

        The Committee received from Ernst & Young LLP the written disclosures and letter required by applicable requirements of the PCAOB regarding the independent auditor's communications with the Committee concerning independence. The Committee has discussed with Ernst & Young LLP its independence and Ernst & Young LLP has confirmed in its letter that, in its professional judgment, it is independent of the Company within the meaning of the federal securities laws.

        The Committee discussed with the Company's internal and independent auditors the overall scope and plans for their respective audits. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company's internal controls and the overall quality of the Company's financial reporting.

        In reliance on the reviews and discussions referred to above, the Committee recommended to the Board (and the Board approved) that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, for filing with the SEC. The Committee has also approved, subject to shareholder ratification, the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2012.

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        The Committee does not have the responsibility to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and in accordance with generally accepted accounting principles. That is the responsibility of the Company's independent auditor and management. In giving our recommendation to the Board, the Committee has relied on (i) management's representation that such financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles, and (ii) the report of the Company's independent auditor with respect to such financial statements.

Sandra L. Helton, Chair
Gary E. Costley
Dennis H. Ferro
C. Daniel Gelatt
Luca Maestri
Arjun K. Mathrani

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Nominating and Governance Committee

        The Nominating and Governance Committee recommends to the Board:

•

Director candidates;



•

Committee assignments; and



•

Service as Presiding Director and Alternate Presiding Director.

        The Committee also reviews and reports to the Board on:

•

Director independence;



•

Performance of individual Directors;



•

Process for the annual self-evaluations of the Board and its committees;



•

Content of the Company's Corporate Code of Ethics;



•

Director compensation; and



•

Company Corporate Governance Guidelines.

Director Qualifications, Process for Identifying and Evaluating Director Candidates and Diversity of the Board

        The Committee regularly assesses the appropriate mix of skills and characteristics of Directors in light of the current make up of the Board and the Company's needs. The Committee periodically uses an outside consultant to help the Committee evaluate the expertise, backgrounds and competencies of the Directors in view of the current strategic initiatives and risk factors of the Company. The results of these assessments provide direction in searches for Board candidates.

        Individual performance reviews are conducted for Directors who are eligible for re-nomination at the next Annual Meeting. These reviews assess Directors' contributions, present occupation and other commitments. The Committee has used an outside consulting firm for these Director evaluations.

        In Director and candidate evaluations, the Committee assesses personal and professional ethics, integrity, values, expertise and ability to contribute to the Board. The Board values experience as a current or former CEO or other senior executive, in financial services, in international business and with financial management or accounting responsibilities. The following competencies are also sought: strategic orientation, results-orientation and comprehensive decision-making. Directors' terms must end prior to the annual meeting following their 72nd birthday.

        All Board members have:

•

Backgrounds and experiences which support the Company's core value of integrity;



•

Training or experience which is useful to the Company in light of its strategy, initiatives and risk factors; and



•

A demonstrated willingness to prepare for, attend and participate effectively in Board and Committee meetings.

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        Several Directors have led businesses or major business divisions as CEO or President (Ms. Bernard, Dr. Costley, Mr. Dan, Mr. Ferro, Dr. Gelatt, Mr. Keyser and Ms. Tallett). The following chart shows areas central to the Company's strategy, initiatives and operations for which Directors have specific training and executive level experience that assists them in their responsibilities.

        Diversity of the Board is a valued objective. The Nominating and Governance Committee reviews the Board's needs and diversity in terms of race, gender and national origin, backgrounds, experiences and areas of expertise. The Board recognizes that diversity is an important factor in Board effectiveness, which is apparent by the Board's selection of Directors. The Board does not have a formal diversity policy. The Company's culture and commitment to diversity has been recognized by organizations such as Catalyst, the National Association of Female Executives and LATINA Style magazine. The Board's effectiveness benefits from Directors who have the skills, backgrounds and qualifications needed by the Board and who also increase the Board's diversity.

        The Committee will consider shareholder recommendations for Director candidates sent to the Nominating and Governance Committee, c/o the Corporate Secretary. Director candidates nominated by shareholders are evaluated in the same manner as Director candidates identified by the Committee and search firms it retains.

Finance Committee

        The Finance Committee's primary purpose is to assist the Board with the organization's financial, investment and capital management policies. The Finance Committee is responsible for:

•

Reviewing the organization's capital structure and capital plan;



•

Reviewing and providing guidance to the Board on significant financial transactions; financial policies; credit ratings; matters of corporate finance including issuance of debt and equity; shareholder dividends; and proposed mergers, acquisitions and divestitures;



•

Reviewing and providing guidance to the Human Resources Committee and the Board on financial goals for the upcoming year;



•

Overseeing the organization's investment policies, strategies and programs, and reviewing the policies and procedures governing the use of financial instruments including derivatives; and



•

Assisting the Board in overseeing and reviewing information regarding the organization's enterprise risk management, including the significant policies, procedures and practices used to manage liquidity risk, credit risk, market risk, operational risk and insurance risk.

Human Resources Committee

        The Human Resources Committee is responsible for:

•

Evaluating the performance of the CEO and determining his compensation in light of the goals and objectives approved by the Committee;



•

Reviewing and approving compensation for all other officers of the Company and Principal Life at the level of Senior Vice President and above. These officers are referred to as "Executives" throughout the remainder of this document;

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•

Reviewing and approving any employment, severance or change of control agreements and perquisites for Executives;



•

Overseeing Executive development and succession planning;



•

Acting on management's recommendations for salary and employee compensation policies for all other employees;



•

Administering the Company's Annual Incentive Plan, Incentive Pay Plan ("PrinPay Plan"), Stock Incentive Plan, and any other compensation plans that provide compensation to Executives;



•

Acting on management's recommendations that require Director action for broad based employee pension and welfare benefit plans; and



•

Reviewing the Company's compensation programs to confirm that these programs encourage management to take appropriate risks, and to discourage inappropriate risk and behaviors that are inconsistent with the Company's business plan, policies and risk tolerance.

Executive Committee

        The Executive Committee generally acts only on matters delegated to it by the Board, and any actions must be approved by its independent members. The Executive Committee has all of the authority of the Board between Board meetings, unless the Board has directed otherwise or for matters set forth by law and in the Company's By-Laws. The Committee did not meet in 2011.

DIRECTORS' COMPENSATION

        Directors serve on the Boards of the Company, Principal Life and Principal Financial Services, Inc. Directors who are also employees do not receive any compensation for their service as Directors. The Company provides competitive compensation to attract and retain high-quality Directors. A substantial proportion of Director compensation is provided in the form of equity to help align Directors' interests with the interests of shareholders.

        The Director compensation program is reviewed annually. The Nominating and Governance Committee uses its independent compensation consultant, Fredrick W. Cook & Co., Inc. ("Cook") to conduct a comprehensive review and assessment of Director compensation. Cook reviewed Director compensation in November of 2011. As a result of that review, the Committee recommended to the Board, and the Board approved, changes to Director compensation which are intended to bring Director compensation in line with market practice. The Company targets Director compensation at approximately the median of the Peer Group, which aligns with its Executive compensation philosophy.

Fees Earned by Directors in 2011

        The following table summarizes the compensation earned by Directors in 2011.

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        As of December 31, 2011, each Director had the following aggregate number of outstanding stock options and RSUs as a result of Director compensation in 2011 and prior years, including additional RSUs as the result of dividend equivalents:

        The following chart shows how Director fees changed on January 1, 2012:

Restricted Stock Unit Grants

        Directors receive an annual grant of restricted stock units ("RSUs") pursuant to the Principal Financial Group, Inc. 2005 Directors Stock Plan. RSUs are granted at the annual meeting, vest at the next annual meeting and are deferred until at least the date the Director leaves the Board. At payout, the RSUs are converted to shares of Common Stock. Dividend equivalents become additional RSUs, which vest and are converted to Common Stock at the same time and to the same extent as the underlying RSU. The Nominating and Governance Committee has the discretion to make a prorated grant of RSUs to Directors who join the Board other than at the annual meeting.

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Deferral of Cash Compensation

        Directors may defer the receipt of their cash compensation under the Deferred Compensation Plan for Non-Employee Directors of Principal Financial Group, Inc. This Plan has four investment options:

•

Phantom units tied to the Company's Common Stock,



•

The Principal LargeCap S&P 500 Index Fund,



•

The Principal Real Estate Securities Inst Fund, and



•

The Principal Bond & Mortgage Securities Inst Fund.

        All of these funds are available to participants in Principal Life's Excess Plan. The returns realized on these funds during 2011 are listed in the table, "Qualified 401(k) Plan and Excess Plan," on page 46.

Director Perquisites and Reimbursement of Expenses

        Principal Life matches charitable gifts up to an annual amount of $6,000 per non-employee Director, and Directors' contributions to the United Way are also matched up to $10,000 per year. These matching contributions are available during a Director's term and the following three years. Principal Life receives the charitable contribution tax deductions for the matching gifts.

        Directors' spouses/partners may accompany them to the annual Board strategic retreat. The Company pays for some of the travel expenses and amenities for Directors and their spouses/partners, such as meals and social events. Directors are reimbursed for travel and other business expenses they incur while performing services for the Company. They are also covered under the Company's Business Travel Accident Insurance Policy and Directors' and Officers' insurance coverage.

Directors' Stock Ownership Guidelines

        To encourage Directors to accumulate a meaningful ownership level of Company stock, the Board has had a "hold until retirement" stock ownership requirement since 2005. All RSU grants must be held through a Director's service on the Board, and may only be converted to common shares when the Director's Board service ends. The Board has a guideline that Directors own interests in Common Stock equal to five times the annual Board cash retainer within five years of joining the Board. Directors have been able to achieve this level of ownership through the RSU "hold until retirement" requirement. Once this guideline is met, Directors will not need to make additional share purchases if the guideline is no longer met due to a reduction in stock price, as long as the Director's ownership level is not reduced as a result of share sales.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        This section of the Proxy Statement explains the Company's compensation philosophy and the rationale for the compensation decisions for the Company's Named Executive Officers:

Larry D. Zimpleman, Chairman, President and CEO
Terrance J. Lillis, Senior Vice President and CFO
Daniel J. Houston, President — Retirement, Insurance and Financial Services
James P. McCaughan, President — Global Asset Management
Norman R. Sorensen, Chairman(1) — Principal International

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(1)

Mr. Sorensen retired on February 29, 2012.

2011 Business Highlights

•

Reported total Company operating earnings of $878 million, a 4% increase from 2010



•

Full Service Accumulation operating earnings of $294 million, down 2% from 2010



–

Sales of $8.4 billion, up 27% from 2010, drove net cash flow of $3.8 billion



•

Principal Funds operating earnings of $48 million, up 22% from 2010



–

Record sales of $11.2 billion, up 20% from 2010, drove record net cash flow of $2.2 billion



•

Individual Annuities operating earnings of $113 million, down 5% from 2010



–

Record ending account value of $18.8 billion



•

Principal Global Investors operating earnings of $74 million, up 26% from 2010



–

Mandates awarded of $11 billion, more than double the amount awarded in 2010



•

Record Principal International operating earnings of $154 million, up 12% from 2010



–

Record net cash flow of $5.5 billion in 2011



•

Record Individual Life operating earnings of $119 million, up 18% from 2010



–

Sales of $186 million, up 13% from 2010



•

Specialty Benefits operating earnings of $97 million, up 5% from 2010



–

Sales of $285 million, up 18% from 2010

        The Company started and ended 2011 with $1.6 billion of excess capital. Yet, the Company deployed over $1.1 billion of capital during the year including $215 million for common stock dividend, $350 million for strategic acquisitions and $550 million for opportunistic share repurchases. Each of the three acquisitions announced and closed during the year—Finisterre Capital, Origin Asset Management and building scale in the Mexican Afore market—were important strategic initiatives that will continue to enhance our investment management capabilities and leadership.

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        The Company also had total shareholder performance slightly better than the peer group used for compensation comparisons, with a total shareholder return of -22.3% in 2011, compared to an average total shareholder return of -23.1% for companies in the peer group:

Summary of Compensation Elements:

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Compensation Policies

        Our Executive compensation program incorporates the following best practices:

•

The Human Resources Committee's independent compensation consultant is retained by the Committee to advise on Executive and Director Compensation.



•

The Human Resources Committee regularly reviews an analysis of the Company's incentive compensation plans to ensure they are designed to create and maintain shareholder value and do not encourage excessive risk.



•

Much of our Executive compensation is variable and linked to meeting our short term and long term financial and strategic goals and to the Company's stock price over time.

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•

Executives receive a significant portion of their compensation in stock and are required to own stock in the Company.



•

The Company prohibits all employees, including Executive Officers, from purchasing any Company securities on margin (except for the exercise of stock options), engaging in short sales or trading in any put or call options.



•

The Company has a claw back policy to recover incentive compensation paid to Executive Officers if the compensation was based on achieving financial results that were subsequently restated, if the Committee decides that the Executive Officer engaged in fraud or intentional misconduct that caused the restatement, and that the amount of the Executive Officer's incentive compensation would have been lower had the financial results been properly reported.



•

In 2010, we entered into new change of control agreements with Executives which reduced benefits, including elimination of excise tax gross ups.



•

We do not provide perquisites to Executives that are not offered to all employees, except one physical examination per year and do not provide income tax gross-ups on that perquisite.



•

Our programs are designed to be financially efficient from tax, accounting, cash flow and share dilution perspectives. We make efforts to ensure tax deductibility of all compensation to the extent practicable. The Committee may provide compensation that is not tax deductible if it determines such action is appropriate.

Compensation Philosophy

        The Company's Executive compensation program is designed to:

•

Attract and retain talented Executives and motivate them to perform at the highest level and contribute significantly to the Company's success;



•

Vary with the Company's performance in achieving long and short term financial and strategic goals;



•

Align the interests of Executives and shareholders by having a significant portion of the Executives' compensation in stock and requiring Executives to hold stock;



•

Reinforce the Company's pay for performance culture by making a significant portion of total compensation variable and by differentiating awards based on Company and individual performance;



•

Cause a greater percentage of compensation to be at risk for Executives who bear higher levels of responsibility for the Company's performance; and



•

Support important corporate governance principles and established best practices.

Performance Goal Setting Process

        The Board's meets each September to review the Company's long term strategy. In November, the CEO, CFO and Division Presidents recommend preliminary financial goals for the Company and business units and strategic initiatives for the next year. The Finance Committee reviews the proposed goals, underlying assumptions of the goals and initiatives, key drivers of financial performance, trends and business opportunities and advises the Board and Human Resources Committee on the appropriateness of the financial goals. The Human Resources Committee reviews and approves the final goals for the Company, CEO and the other Executives with input from the Finance Committee and Board based on year end financial results. All employees develop individual performance goals with their leaders that support the Company's goals.

How We Make Compensation Decisions

        The Human Resources Committee oversees the development and administration of the Company's compensation and benefits policies and programs, approves of all aspects of the compensation program and compensation for Executives, and makes the compensation decisions for the CEO and:

•

Reviews and approves corporate incentive goals and objectives relevant to compensation;



•

Evaluates Executives' performance results;



•

Evaluates the competitiveness of each Executive's total compensation; and

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•

Approves changes to the total compensation package.

        Each year the CEO, with input from the Human Resources Department and Cook, recommends the amount of base salary increase (if any), annual incentive award and the long term incentive award for Executives (other than himself). These recommendations are based on the Executive's performance, the performance of the business areas for which the Executive is responsible (if applicable) and considerations such as retention. The Human Resources Committee reviews these recommendations and approves compensation decisions. The CEO takes no part in determination of his own compensation. The Human Resources Committee consults with the other independent Directors regarding the CEO's performance and then determines the compensation earned by the CEO for the current year and the CEO's compensation opportunity for the following year.

Interaction with Compensation Consultant and Management

        The Committee has the sole authority to:

•

Hire a compensation consultant;



•

Approve its compensation;



•

Determine the nature and scope of its services; and



•

Terminate its engagement.

        The Committee engaged Cook to advise it on the Company's Executive compensation program. Cook also advises the Nominating and Governance Committee on compensation for non-employee Directors. Cook receives compensation from the Company only for its work in advising these Committees. Cook does not and would not be allowed to perform services for management. No conflicts of interest have arisen in connection with Cook's work for these committees.

        Cook reviews the Company's Executive compensation program every other year. In the years in which Cook does not conduct a compensation study, the Committee makes compensation decisions, in part, on survey data provided by the Human Resources Department and information provided by Cook.

        Cook's compensation review in 2011 included a review of the design and structure of the Company's total Executive compensation program, including:

•

Base pay;



•

Annual incentive design and targets,



•

Long term incentive design and targets,



•

Non-qualified benefits,



•

Perquisites,



•

Stock ownership guidelines,



•

Severance; and



•

Change of control policies.

        The review process included:

•

Interviews with Executives and Committee members to discuss business strategy and the implications for human resources and compensation policy;



•

A competitive review of compensation opportunities for each of the Named Executive Officers compared to the pay opportunities of similarly-situated executives at the Peer Group companies (see pages 28-29)



•

An analysis to ensure that total share dilution and the economic costs of long term incentives are reasonable and affordable for the Company.



•

A review of Executive compensation plans against potential risks. Cook determined that the Company's Executive compensation programs are well designed, support the Company's business strategy, and do not provide incentives to Executives to take inappropriate risks.

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The goals of the review are to assist the Committee in:

•

Determining whether the Company's Executive compensation program is appropriately designed to support the Company's strategic and human resources objectives;



•

Determining whether the target Executive compensation levels are competitive with the market and whether actual compensation levels are reasonable given the Company's performance relative to peers;



•

Designing changes to Executive compensation plans or programs, as appropriate; and



•

Setting pay opportunities, benefits and perquisites for the next year.

Cook also:

•

Attended four meetings of the Committee in 2011, as requested by the Committee Chair; and



•

Reviews and comments on drafts of the Compensation Discussion & Analysis and related compensation tables for the proxy statement.

        In 2011, the Company's shareholders voted to approve the Company's executive compensation program. Of the votes cast, 98% supported the Executive compensation program. The Company considered the shareholders' approval of the compensation program to be approval of the Company's compensation philosophy, which has not changed since that vote. The compensation program has also not changed in the past year, and any changes to compensation have been consistent with the Company's philosophy.

2011 Executive Compensation Decisions

        The Committee made compensation decisions for the Named Executive Officers based on the following factors:

•

The Company's strategic and human resources objectives;



•

Competitive data for the Peer Group (discussed below) and for a broader group of diversified financial services companies;



•

Corporate and individual performance on key initiatives;



•

Economic conditions;



•

The CEO's compensation recommendations for other Executives;



•

Advice of the Committee's consultant; and



•

How the elements of compensation contribute to and interrelate to total compensation.

Use of Compensation Data

        The Committee reviews the group of companies it uses to compare Executive compensation (the "Peer Group") every other year as part of Cook's study. Cook recommends an appropriate Peer Group of public, similarly-sized, diversified financial services, insurance and asset management companies. Cook's recommendations take into account the Company's and the competitors' strategy, mix of business and size, as measured primarily by annual revenues, market capitalization and total assets. The companies in the Peer Group used in the analyses in 2009 and 2010 to assist in decisions related to 2011 compensation were:

        As a result of the most recent review, a decision was made to eliminate CIGNA from the Peer Group, given the Company's decision to exit the health insurance business. The Committee also determined that Genworth's business mix is no longer a good comparator to the Company. Four asset management companies were added: Affiliated Managers Group, Eaton Vance, Invesco and Janus Capital Group, as well as one insurance company, StanCorp. Although Stancorp is smaller than the Principal Financial Group, it has a similar business mix. These companies are the major competitors in one or more of the Company's businesses, but none represent the exact

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business mix of the Company. Some of these companies have higher or lower market capitalization and revenue than the Company. The Company targets compensation for the Named Executive Officers at the median of the compensation of the named executive officers at the Peer Group companies. The Peer Group used for 2012 compensation was:

        The Committee uses annual data from third party industry surveys for additional context for its compensation decisions(2). Further, every two to three years, the Company's non-cash benefit programs are compared with those of more than 100 diversified financial services companies. This is a larger group than the Peer Group because the information is used in designing and evaluating our broad-based employee benefit programs. Benefit programs are also compared against those of local employers in Des Moines, Iowa, due to the Company's significant employee population there.

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(2)

The surveys used were the McLagan Investment Management Survey, Towers Watson U.S. Financial Services Studies Executive Database, and Towers Watson Diversified Insurance Study of Executive Compensation. The names of the companies participating in these surveys are included in Appendix B.

        Each year, the Committee reviews the total compensation paid to the Executives by reviewing tally sheets, which include:

•

The dollar value of base salary;



•

Annual and long term incentive awards earned;



•

Deferred compensation:



•

Outstanding equity awards;



•

Benefits;



•

Perquisites: and



•

Potential payments for termination scenarios.

        The Committee uses this information to analyze the value of compensation actually delivered versus the compensation opportunities established by the Committee, and it is also used in making compensation and compensation plan design decisions. The Committee made no compensation adjustments as a result of the analysis in 2011 because the program continues to meet the Company's objectives.

        The Committee also considers the tax and accounting consequences of each element of compensation, and tries to maximize the tax deductibility of compensation under Section 162(m) of the Internal Revenue Code ("Tax Code"). This Tax Code section limits the Company from deducting annual compensation exceeding $1,000,000 for our CEO and the three other most highly paid Named Executive Officers (other than our CFO) who are in office on the last day of the fiscal year ("Covered Employees"). There is an exception to this rule for performance-based compensation. The Committee may provide compensation to Covered Employees that is not deducible if it determines that it is appropriate to do so in light of other goals, such as attracting and retaining key Executives. For 2011, Messrs. Zimpleman, Houston, McCaughan and Sorensen were Covered Employees.

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Compensation Elements

        The table below shows the 2011 pay mix for our Named Executive Officers as well as the proportion of their compensation tied to the Common Share price.

        Base Salary

        When determining base salary for each Executive, the Committee considers the Peer Group median for comparable executive positions as well as the survey data referenced above, the Executive's performance, work experience, the importance of the position to the Company and how difficult it would be to replace the Executive.

        Annual Incentive Pay

        The Named Executive Officers may earn annual cash bonuses under the Principal Financial Group, Inc. Annual Incentive Plan. This plan was approved by shareholders in 2004, and complies with Section162(m) of the Tax Code, so that bonuses to Named Executive Officers are considered performance based and are therefore fully tax deductible.

        The maximum aggregate bonus amount for the Named Executive Officers is 2% of annual operating income ("Bonus Pool"). For 2011, the maximum bonuses were:

        The Committee set the target and maximum annual incentive awards for each Named Executive Officer. The Committee then uses its negative discretion to reduce the awards. After this reduction, maximum annual incentive

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opportunities are generally 200% of the target annual incentive opportunity. The Committee approved the following target awards for Named Executive Officers in each of the past three years:

        These target awards were set slightly below the median of the Peer Group in the aggregate. Mr. Zimpleman's target award opportunity is greater than that of the other Named Executive Officers (except Mr. McCaughan's) because Mr. Zimpleman has overall responsibility for the Company and greater responsibilities than the other Named Executive Officers. The award opportunity for Mr. McCaughan was established by the Committee to be competitive with award opportunities of senior executives within asset management firms.

        The Committee reviewed performance on several key financial measures and on corporate and divisional goals to determine the annual bonus for Named Executive Officers. The Committee does not use any particular weighting for these goals; they are used as guideposts when the Committee exercises its discretion in its subjective evaluation of these factors.

        In determining corporate performance for 2011, the Committee reviewed Company achievements on these key financial goals:

1.

Achieve appropriate operating earnings and earnings per share

One of management's responsibilities is to lead the Company in achieving its goals for operating earnings and earnings per diluted share. For 2011, the target for operating earnings was $950 million and the target for earnings per diluted share was $2.98. Actual Company results for operating earnings were $878.1 million(3) and earnings per share were $2.76. In addition, Messrs. Houston, McCaughan and Sorensen had operating earnings goals specific to the business units they oversee:

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(3)

Operating earnings were reduced to $871 million for purposes of annual incentive compensation, due to a reporting lag for BrasilPrev, which resulted in 13 months of earnings being reported for 2011.

2.

Capital

Maintain a targeted National Association of Insurance Commissioners ("NAIC") risk based capital ratio above 350%. At year end, the NAIC risk based capital ratio was in excess of 400%.

3.

Minimize credit loss

A metric was established to measure whether the Company's invested assets (Principal Life's General Account) are appropriately managed. Ranges were established for after-tax credit losses for bond credit losses (27–37 basis points) and commercial mortgage loans (17–27 basis points). Actual 2011 after-tax credit losses for bond credit losses were 32.6 basis points and for mortgage loans, 10.8 basis points.

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4.

Achieve identified sales growth

Growth targets were established for each of the Company's lines of business. The following chart shows 2011 sales compared to the targets:

        Final Annual Incentive Pay Award Determination

        The following table shows the annual incentive award for each of the Named Executive Officers. The column "Reduction from Maximum Award" shows the amount the Committee reduced the maximum bonuses to the awards paid.

        Executives may defer annual bonuses into a nonqualified supplemental savings plan ("Excess Plan"), as illustrated in the footnote to the Non Equity Incentive Compensation column of the Summary Compensation Table, on page 37.

        Long term Incentive Compensation

        The long term incentive compensation program is designed to align the interests of Executives and shareholders. The compensation the Executives receive reflects the degree to which multi-year financial objectives are achieved and shareholder value is increased. The long term focus of the compensation programs supports the Company's businesses in which long term performance is critical, such as retirement products, life insurance and asset management. The long term incentive compensation program also encourages collaboration among Executives in pursuing corporate-wide goals.

        The Committee establishes a target long term award opportunity for each Named Executive Officer stated as a percentage of each Executive's base salary based on Peer Group and survey data, and on the advice of its independent compensation consultant. The Committee uses the following factors to adjust the target award and determine the actual award to be awarded to each Named Executive Officer ("Award Granted"):

•

Current competitive market data;



•

The Executive's past performance;



•

The Executive's current compensation;



•

Retention concerns;



•

The importance of the Executive to the Company over the long term



•

The potential impact the Executive could have on the Company's results; and



•

The Executive's performance relative to the Executive's peers within the Company.

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        The compensation ultimately received by Executives may vary considerably from the grant-date fair value of the Award Granted, due to the Company's performance and changes in share price that occur after the grant. The Target Awards granted in 2011 were based on the Executives' performance in 2010:

        Mr. Zimpleman's award opportunity is greater than that of the other Named Executive Officers because he has overall responsibility for the Company.

        Executives' long term compensation is received as stock options and performance based restricted stock units ("PSUs"): 50% of the award in stock options and 50% in PSUs. PSUs vest based on continued service and achieving financial objectives over a three-year period (with each three-year period treated as a "Performance Cycle"). For the 2011 PSUs, the performance threshold achieving pre-determined average ROE and cumulative operating income ("OI") targets. For this purpose, the ROE criteria require attaining a simple average ROE of 5% and the OI objective is cumulative OI of $1 billion for the three calendar years during the performance period. If neither the ROE nor the OI objective is met, no PSUs will be earned or paid out. If either the ROE or OI objectives is met or exceeded, the number of units earned is determined using performance scales based on average ROE and average Book Value per Share ("BV/Share"), each is weighted 50% over the performance period.

Performance Scale

        The BV/share measure was selected because it focuses on long term growth in equity needed to support the Company's growth. ROE was selected because it reflects the overall capital efficiency of the Company. In combination, these measures provide an appropriate balance to maintain a sufficient level of equity over the long term while also making sure that the capital is being used efficiently. Executives may defer the receipt of PSUs.

        Stock options have a ten-year term and an exercise price equal to the closing price on the date of grant. Stock options vest in three equal annual installments starting on the first anniversary of the grant date.

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Benefits

        The Named Executive Officers participate in Principal Life's broad-based employee benefits program, including:

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A qualified pension plan (except Mr. McCaughan)(4);

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(4)

Effective January 1, 2010, Mr. McCaughan no longer participates in the qualified pension plan, DBNQ and Excess Plan. This change was the result of a compensation and benefit review of asset management companies that showed that these are not common benefits for executives in the asset management industry. This change also applied to other investment professionals who work with Principal Global Investors.

•

A 401(k) plan;

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Group health, dental, vision and disability coverage and life insurance;

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A discounted employee stock purchase plan.

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Paid time off; and

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Flexible spending account plans.

        Principal Life also offers all Named Executive Officers (except Mr. McCaughan) defined benefit and defined contribution non-qualified retirement plans (the "DBNQ" and the "Excess Plan"). These benefits are offered to attract and retain talent and provide long term financial security to employees. The DBNQ helps the Company attract mid-career Executives and retain Executives by providing competitive retirement benefits. The DBNQ is coordinated with the qualified pension plan and is designed to restore benefits that otherwise would accrue to Executives in the absence of Tax Code limitations on the qualified pension plan. The narrative to the Pension Benefits Table on page 41 provides additional information about the DBNQ and the qualified pension plan. Principal Life maintains the Excess Plan to help attract and retain Executives by allowing Executives to save for retirement and to provide matching contributions on those savings, without regard to the limitations imposed by the Tax Code on 401(k) plans. The narrative to the Non-Qualified Deferred Compensation Table on pages 45-46 provides additional information about the Excess Plan.

        Effective January 1, 2006, Principal Life made several changes to the broad-based employee retirement program that affected all employees, and similar changes were also made to the corresponding DBNQ and Excess Plan. In general, the pension and DBNQ benefit formulas (both traditional and cash balance) were reduced and the 401(k) matching contribution was increased. Employees who were age 47 or older with at least ten years of service on December 31, 2005, could choose to retain the prior benefits. Employees who elected to retain the prior benefits are referred to as "Grandfathered Choice Participants." These changes were made to better align the pension and 401(k) plans with current market practice, while not adversely impacting more tenured employees.

        The value of the retirement and savings plans are targeted to be, in the aggregate, slightly above the median of diversified financial services companies because a large portion of the Company's business centers on the sale of retirement products. The traditional pension plan benefit for Grandfathered Choice Participants has a market value above the median and the 401(k) plan match for Grandfathered Choice Participants is below market median. These benefits, too, were originally designed to be slightly above market median to attract and retain employees. As retirement plans evolved in the marketplace, their value has changed, leading to the realignment with market in 2006.

        All other benefits are targeted at market median in the aggregate, which supports the Company's benefit strategy and aids in attracting and retaining talent.

Change of Control and Separation Pay

        The Committee believes it is in the best interests of the Company and its shareholders to:

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Assure that the Company will have the continued service of its Executives;



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Reduce the distraction of these Executives that would result from the personal uncertainties caused by a pending or threatened Change of Control;



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Encourage the Executives' full attention and dedication to the Company; and

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•

Provide the Executives with compensation and benefits upon a termination related to Change of Control that are competitive with those of similar businesses.

        For these reasons, the Company has entered into "Change of Control" employment agreements with each of the Executives. These agreements would help the Executives more fairly evaluate a potential acquisition of the Company, particularly when the acquisition would result in termination of the Executive's employment. These Change of Control employment agreements are based on market practice and do not affect other components of the Named Executive Officers' compensation. When entering into these agreements, the Committee reviewed survey data and practices of other public insurance and financial services companies. The Committee continues to review market practices in this area for potential changes in these agreements.

        All benefits provided to the Executives upon a Change of Control are paid after both a Change of Control and qualifying termination of employment have occurred (sometimes referred to as a "double-trigger"), except that the then current value of the Executive's Excess Plan and DBNQ will be paid upon a Change of Control to ensure that the value of those plans is not reduced if the Company is sold. The Company entered into new Change of Control Employment Agreements with Executives in 2010 that generally reduced severance amounts as multiples of cash compensation and eliminated excise tax gross-ups. See page 49 for details.

        The Company has a severance plan to provide benefits to employees whose employment is terminated by the Company due to a reorganization or reduction in the workforce. Additional payments may be permitted in some circumstances as a result of negotiations with Executives, particularly when the Company requests additional covenants from the Executives. The Company has an employment agreement with Mr. Zimpleman for his services as the Company's CEO. See pages 46-47 for details.

Perquisites

        The only perquisite for Executives that is not offered to all employees is one physical examination per year.

Stock Ownership Guidelines

        Executives are required to own stock in the Company to ensure their interests are aligned with the shareholders' interests and with the long term performance of the Company. Once the Executive achieves the required stock ownership level based on market value, the ownership requirement remains at the number of shares owned at that time, regardless of subsequent changes in stock price or salary. Upon promotion, the Executive is required to meet the next level of stock ownership.

        Until the ownership guideline is met, Executives are required to retain a portion of the "net profit shares" resulting from equity based long term incentive plan grants. Net profit shares are the shares remaining after payment of the option exercise price and taxes owed at time of exercise, vesting of restricted stock units or earn out of performance shares. The percentage of net profit shares that must be retained until the multiple of salary guidelines are met are shown below:

        All Named Executive Officers comply with these guidelines.

Claw Back Policy

        The Committee has also adopted a compensation recovery policy that applies to Executive Officers. The Company can recover incentive compensation if the amount of the compensation was based on achievement of financial results that were subsequently restated if the Committee decides that the Executive Officer engaged in fraud or intentional misconduct that caused the restatement of the Company's financial statements, and that the amount of the Executive Officer's incentive compensation or equity award would have been lower had the financial results been properly reported.

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Trading Policy

        The Company prohibits Directors and employees, including Executive Officers, from purchasing any Company securities on margin (except to the extent incident to the exercise of stock options), engaging in short sales or trading in any put or call options.

Succession Planning

        The Human Resources Committee, the CEO and the Senior Vice President — Human Resources maintain an ongoing focus on executive development and succession planning to prepare the Company for future success. In addition to preparing for CEO succession, the succession planning process has included all key executive positions. A comprehensive review of executive talent, including assessments by an independent consulting firm, has determined participants' readiness to take on additional leadership roles and identified the developmental and coaching opportunities needed to prepare them for greater responsibilities. The CEO makes a formal succession planning presentation to the Board of Directors annually. Succession planning is a responsibility of the entire Board and all members participate. In addition, the Company has an emergency succession plan for the CEO that is reviewed by the Board annually.

Human Resources Committee Report

        The Human Resources Committee of the Company has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Michael T. Dan, Chair
Betsy J. Bernard
Richard L. Keyser
Elizabeth E. Tallett

Risk Assessment

        The Chief Risk Officer and members of the Human Resources Department reviewed all of the Company's incentive compensation plans to determine whether any compensation policies or practices are reasonably likely to have a materially adverse effect on the Company.

        The following factors, among others, were reviewed:

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Plan design;



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Potential risks created by the plans;



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Risk mitigation factors within plans;



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The mix of pay received by the participating employees (base vs. incentive);



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Whether historical payments were in line with the intended results; and



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Governance practices regarding plan design and revisions.

        Other factors that mitigate risks of the Company's incentive plans are the Company's stock ownership guidelines for Executives and the compensation recovery policy. The Company also prohibits all employees from purchasing any Company securities on margin (except for the exercise of stock options), engaging in short sales or trading in any put or call options. A summary of this information was reviewed with the Human Resources Committee. Based on this analysis, the Company has determined that Company's compensation plans are designed to encourage behaviors that create and maintain shareholder value, do not encourage excessive risk, and are not reasonably likely to have a material adverse effect on the Company.

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Summary Compensation Table

        The following table sets forth the compensation paid to the Named Executive Officers for services provided to the Company and its subsidiaries during 2009, 2010 and 2011.

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maximum payout for the 2010 and 2011 PSUs is 150% of the target number of PSUs. If the 2010 and 2011 PSUs are earned at the maximum payout, the grant date value of such PSUs would be as shown in the following table, and the amounts reported in the Stock Awards column, above, would be increased by the amount shown in the column to the far right of the following table.