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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

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FBL Financial Group, Inc.

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SEC 1913 (02-02)

 

5400 University Avenue

West Des Moines, IA 50266

 

NOTICE OF ANNUAL MEETING

 

Dear Shareholder:

 

The Annual Meeting of Shareholders of FBL Financial Group, Inc. will begin at 9:00 a.m. Central Daylight Time on Wednesday, May 16, 2007, at the auditorium of our corporate headquarters, 5400 University Avenue, West Des Moines, Iowa.

 

Only shareholders who owned stock at the close of business on March 15, 2007 can vote at this meeting or any adjournments that may take place. At the meeting we will ask you to:

 

 

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE THREE PROPOSALS OUTLINED IN THIS PROXY STATEMENT.

 

At the meeting we will also report on FBL’s 2006 business results and other matters of interest to shareholders.

 

Enclosed with the mailing of this Proxy Statement is the 2006 Annual Report to Shareholders, which includes the 2006 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The approximate date of mailing for this proxy statement, plus the proxy card and Annual Report, is March 30, 2007.

 

By Order of the Board of Directors

 

 

Stephen M. Morain

Senior Vice President,
Secretary and General Counsel

 

March 30, 2007

 

TABLE OF CONTENTS

 

 

 

Corporate Governance Principles

 

The Board of Directors adopted governance principles to provide guidelines for the Company and the Board to ensure effective corporate governance. The governance principles are summarized below, and the full text of the governance principles is posted on the Company’s website at www.fblfinancial.com. We will also provide a copy of the governance principles to shareholders upon request.

 

Objective of the Board of Directors

 

The business of FBL is managed under the direction of the Board. The Board is to represent the interests of the shareholders; as such it is to oversee the strategic direction and conduct of the Company’s business activities so as to enhance the long term value of the Company. One of the Board’s principal roles is to select and oversee a well qualified and responsible Chief Executive Officer and management team to run the Company on a daily basis.

 

In addition to serving the long-term interests of the shareholders, the Board has responsibility to the Company’s customers, policyholders, employees and the communities where it operates. These responsibilities are founded upon the successful perpetuation of the business and the promotion of the highest ethical standards.

 

Board and Board Committee Responsibilities Include:

 

 

Board Organization

 

The Board consists of a majority of independent directors, even though the Company is a “controlled company” which is not required to have an independent majority. Eight Class A directors include the Chief Executive Officer and seven independent directors who are elected by the holders of the Class A common stock and the Series B preferred stock, voting as a single class. The Class B common stockholders elect five Class B directors. The Board should make its own determination from time to time of what leadership works best for the Company. However, as long as the Company has a single shareholder owning a significant voting block, it is expected that a representative of that shareholder will be Chairman of the Board, and that the Board will not choose to have the same individual serve as Chairman and Chief Executive Officer of the Company. So long as the Chairman of the Board is affiliated with the majority shareholder, the Board, by action of the independent directors, will appoint a Lead Director who will conduct any separate meetings of

non-management and independent directors and have such other duties and responsibilities as are set by the Board from time to time. Under this arrangement, Craig Lang, President of the Iowa Farm Bureau Federation, is the Chairman. The independent directors have elected Jerry Chicoine as the Lead Director. He was also elected Vice Chairman of the Board and appointed to the Executive Committee, as well as remaining a member of the Audit Committee. The Lead Director, among other matters, facilitates communications among directors, works with the Chief Executive Officer to ensure appropriate information flow to the Board and chairs an executive session of the non-management directors, and of the independent directors, at each formal Board meeting.

 

The Board also maintains three standing committees comprised solely of independent directors — the Audit Committee, the Management Development and Compensation Committee, and the Class A Nominating and Corporate Governance Committee. The Class B Nominating Committee is made up of all the Class B directors. The Finance Committee and the Executive Committee consist of both Class A and Class B members. Assignments to, and chairs of, the committees are recommended by the Class A Nominating and Corporate Governance Committee and selected by the Board. All committees report on their activities to the Board. See “Further Information Concerning the Board of Directors” for more information regarding membership on and workings of the various committees.

 

Board Operation

 

The Board normally has four regularly scheduled meetings each year and special meetings as needed. Committee meetings are normally held in conjunction with Board meetings, plus additional meetings as needed. The Chairman, the Board and the committee chairs are responsible for conducting meetings and informal consultations in a fashion that encourages communication, meaningful participation and timely resolution of issues. Directors receive the agenda and materials in advance of meetings and may ask for additional information from, or meet with, senior managers at any time. Strategic planning and succession planning sessions are held annually at regular Board meetings.

 

Board Advisors

 

The Board and its committees (consistent with their respective charters) may retain their own advisors and consultants as they determine necessary to carry out their responsibilities.

 

Board Evaluation

 

The Class A Nominating and Corporate Governance Committee coordinates an annual evaluation process by the directors of the Board’s performance and procedures, including evaluation of committee performance. The Board and each of the standing committees have conducted annual evaluations of their performance and procedures, including the adequacy of their charters, as established in the bylaws and charter documents.

 

Board Compensation

 

The Management Development and Compensation Committee, in accordance with the policies and principles set forth in its charter, will review and make recommendations to the full Board with respect to compensation of directors. As part of such review, the Management Development and Compensation Committee shall periodically review director compensation (including additional compensation for committee members) in comparison to companies that are similarly situated to ensure that such compensation is reasonable, competitive and customary.

 

Director Share Ownership Guidelines

 

As part of a director’s total compensation and to more closely align the interests of directors and the Company’s stockholders, the Board believes that a meaningful portion of a director’s compensation should be paid in the form of common stock of the Company. Directors receive stock options annually under the Company’s existing stock option plan and may choose to receive some or all director fees in shares or in share equivalent units under the Directors Compensation Plan. In 2004, the Board determined that directors are

required to own FBL stock worth three times their annual retainer by the latter of year end 2009 or within five years of becoming a director.

 

Charitable Contributions

 

The Board shall also review charitable contributions by the Company to organizations with which any director is affiliated. In addition, the Board shall review all consulting contracts with, or other arrangements that provide other indirect forms of compensation to, any director or former director.

 

Corporate Conduct

 

We have adopted the FBL Corporate Compliance Manual, which applies to all employees, officers and directors of the company. An extract from the manual titled the Code of Conduct meets the requirements of a code of business conduct and ethics under the listing standards of the New York Stock Exchange (“NYSE”). We have also adopted a Code of Ethics for CEO and Senior Financial Officers. The Code of Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K. Both the Code of Conduct and the Code of Ethics are posted on our website at www.fblfinancial.com under the heading “Corporate Governance — Governance Library”. We will also provide copies of these documents, and the Corporate Compliance Manual, to shareholders upon request. Any amendments to the Code of Conduct or Code of Ethics are promptly incorporated into the website posting. We intend to disclose any waivers of the Codes for executive officers or directors on our website.

 

Communications with the Board of Directors

 

The Board has established a process for shareholders and other interested parties to communicate with members of the Board, including the Lead Director. If you have any concern, question or complaint regarding our compliance with any policy or law, or would otherwise like to contact the Board, you can mail materials c/o Secretary, FBL Financial Group, Inc., 5400 University Avenue, West Des Moines, IA 50266, or e-mail Contact.Board@FBLFinancial.com.

 

There are eight nominees for election as Class A directors, to be elected by the vote of the Class A common shareholders and holders of the Series B preferred stock, voting together as a single class. One nominee is the Chief Executive Officer of the Company, and seven nominees are independent of management. The Board of Directors, based on information received in questionnaires and in personal interviews, has determined that all nominees are qualified to serve, and the seven independent nominees — Messrs. Chicoine, Gill, Hanson, Larson, Mehrer and Walker, and Ms. Robak — possess the degree of independence from management and from the Company mandated by the Securities and Exchange Commission (“SEC”) and the NYSE.

 

In making its independence determinations, the board specifically reviewed information that director Paul E. Larson is also a director of Wellmark, Inc., a mutual insurance company which provides Blue Cross-Blue Shield health insurance policies sold by agents of the Company’s insurance affiliates in Iowa and South Dakota. The Company’s managed affiliate, Farm Bureau Mutual, received in excess of $17,000,000 of commission income for such sales in 2006, the bulk of which was in turn paid to the selling agents. Mr. Larson is not an officer or shareholder of Wellmark, Inc. The amounts involved are substantially below 3% of revenues of the affected companies. Mr. Larson is also a director of GuideOne Mutual Insurance Company and GuideOne Specialty Mutual Insurance Company. Based on these facts, the Board determined that these relationships are not material and do not affect the independence of Mr. Larson. The Board also reviewed Kim Robak’s position as a director of Fiserv, Inc. which has been a supplier of a modest amount of software to the company. She is also a director of First Ameritas Life Insurance Company of New York. The Board determined these relationships are not material and do not affect the independence of Ms. Robak. There were no other relationships involving the independent directors and the Company that required an assessment of independence by the Board. Biographical information on each nominee, including the five Class B director

nominees, is in the following pages. All directors are elected annually, and serve a one year term until the next annual meeting. If any director is unable to stand for election, the Board will designate a substitute. In that case, proxies voting for the original director candidate will be cast for the substituted candidate.

 

YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES FOR CLASS A DIRECTORS.

 

Nominees for Class A Director

 

Jerry L. Chicoine is the Lead Director of the independent directors, Vice Chairman of the Board, and serves on the Executive Committee and the Audit Committee. He has been named by the Board of Directors as one of our “audit committee financial experts.” Mr. Chicoine retired effective January 1, 2001 as Chairman and Chief Executive Officer of Pioneer Hi-Bred International, Inc. He had served in those capacities since 1999, and was Pioneer’s Executive Vice President and Chief Operating Officer since 1997. From 1988 to 1997 he had served as Senior Vice President and Chief Financial Officer. He was named a director of Pioneer Hi-Bred in March 1998. He was a partner in the accounting firm of McGladrey & Pullen from 1969 to 1986, and also holds a law degree. He is a member of the board of directors of several non-public companies, including Ruan Holdings and The Weitz Company.

Member: Audit and Executive Committees

Class A Director since 1996 Age: 64

 

Tim H. Gill has been President and Chief Executive Officer of Montana Livestock Ag Credit, Inc. since 1986. The company specializes in agricultural finance throughout the state of Montana, underwrites long term real estate loans and has its own investment offerings. Mr. Gill is on the finance committee of Montana Stockgrowers; a trustee and finance chairman of the Montana Stockgrowers Research and Education Foundation; a member of the tax and credit committee of the National Cattlemen’s Beef Association; a director and past chairman of the Montana Council on Economic Education, and a director of the Carroll College Athletic Association and a member of the Animal Bio-Science Committee for Montana State University College of Agriculture. He is chair of the Class A Nominating and Capital Governance Committee.

Member: Class A Nominating and Corporate Governance, and Management Development and Compensation Committees

Class A Director since 2004 Age: 54

 

Robert H. Hanson was an investment banker with Merrill Lynch, Pierce Fenner & Smith in New York from 1965 to 1989, since 1972 as a Vice President, specializing in providing corporate finance services to the regulated utilities and telecommunications industries. In 1990 he relocated to Cody, Wyoming, where he was employed by Dean Witter Reynolds, Inc. as an Account Executive, and later by D.A. Davidson & Co., as Vice President and Office Manager of that firm’s Cody office. In 1993 he joined GST Telecommunications, Inc., initially as Senior Vice President — Corporate Development, and subsequently as Chief Financial Officer, retiring from those positions in 1999. Mr. Hanson is a past member of the Wyoming Telecommunications Council and current Vice Chairman of the Cody Economic Development Council. In addition, he is a director and trustee of two national conservation organizations, for which he has the responsibility for financial and investment management. Mr. Hanson is a graduate of Yale University. He is chair of the Finance Committee, and has been named by the Board of Directors as one of our “audit committee financial experts.”.

Member: Finance and Audit Committees

Class A Director since 2004 Age: 65

 

Paul E. Larson is the chair of the Audit Committee.  He has been named by the Board of Directors as one of our “audit committee financial experts.” He retired in 1999 as President of Equitable Life of Iowa and its subsidiary, USG Annuity and Life, after 22 years with the companies. Mr. Larson holds both a law degree and a certified public accountant designation. He was named Outstanding CPA in Business and Industry by the Iowa Society of CPA’s in 1999, and inducted into the American Institute of CPA’s Business and Industry Hall of Fame in 2000. He is a member of the board of directors of non-public companies Wellmark, Inc., GuideOne Mutual Insurance Company and GuideOne Specialty Mutual Insurance Company. He was also a board member of EquiTrust Mutual Funds (which is managed by one of our subsidiaries), where he was chair of the Audit

Committee and the committee’s financial expert. He resigned from the EquiTrust Mutual Funds board upon election to our Board in 2004.

Member: Audit and Management Development and Compensation Committees

Class A Director since 2004 Age: 54

 

Edward W. Mehrer is currently a member of the board of directors, and the audit and compensation committees of NovaStar Financial, and the audit committee of MGI Pharma. He served as Interim Chief Executive Officer of CyDex, Inc., a drug delivery company, from late 2002 to mid 2003, and as its Chief Financial Officer from November 1996 to December 2003. Prior to joining CyDex in 1996, Mr. Mehrer was Executive Vice President and Chief Financial and Administrative Officer of Marion Merrell Dow and a Director and member of its executive committee. From 1976 to 1986, Mr. Mehrer served as partner-in-charge of audit and accounting for KPMG Peat Marwick in Kansas City, Missouri.

Member: Finance and Class A Nominating and Corporate Governance Committees

Class A Director since 2004 Age: 68

 

James W. Noyce, CPA, FCAS, ASA, FLMI, MAAA, became Chief Executive Officer of FBL and its major subsidiaries effective January 1, 2007, and of Farm Bureau Mutual and its subsidiaries, in February 2007. He was elected to the Board in February 2007. He had been Chief Financial Officer since January 1996, and Chief Administrative Officer since July 2002. Additionally, from January 2000 to July 2002 he was Executive Vice President and General Manager of the property-casualty companies managed by FBL. Mr. Noyce has been employed by the Company and its affiliates since 1985. He is also a director of Berthel Fisher & Company and two of its subsidiaries. Mr. Noyce is vice chair of the Grandview College Board of Trustees and a director of Special Olympics Iowa, United Way of Central Iowa, the Greater Des Moines Partnership and the Mid-Iowa Council of Boy Scouts of America.

Member: Executive and Investment Committees

Class A Director since February 2007 Age: 51

 

Kim M. Robak is a partner in the Lincoln, Nebraska law firm Ruth Mueller Robak LLC. Previously, Ms. Robak was Vice President for External Affairs and Corporation Secretary at the University of Nebraska from 1999 to 2004. Ms. Robak served the State of Nebraska as Lieutenant Governor from 1993 to 1999, as Chief of Staff from 1992 to 1993, and as Legal Counsel from 1991 to 1992. She is a member of the board of directors of Fiserv, Inc. and non-public companies Union Bank & Trust Company and First Ameritas Life Insurance Corporation of New York. Ms. Robak is also a trustee of Doane College, Crete, NE, and a member of the board of directors of the Nebraska Foundation for the Humanities, Lincoln Community Foundation, the Lincoln Partnership for Economic Development and the Strategic Air and Space Museum in Ashland, NE.

Member: Class A Nominating and Corporate Governance, and Management Development and Compensation Committees

 

Class A Director since July 2006 Age: 50

 

John E. Walker is the chair of the Management Development and Compensation Committee. He retired January 1, 1996 from Business Men’s Assurance (BMA), Kansas City, Missouri, where he had been the Managing Director of Reinsurance Operations since 1979. He had been a member of the board of directors of BMA for 11 years before his retirement, and a member of its executive committee.

Member: Management Development and Compensation, and Class A Nominating and Corporate Governance Committees

Class A Director since 1996 Age: 68

 

Nominees for Class B Director

 

Craig A. Lang is the Chairman of the Board, and chair of the Executive Committee. He has been a director of the Iowa Farm Bureau Federation since 1992 and was its Vice President for six years beginning in 1995. He has been a director of Farm Bureau Mutual and Farm Bureau Life Insurance Company (Farm Bureau Life) since 1993. In December 2001 he was elected President of the Iowa Farm Bureau Federation and director and President of its subsidiary, Farm Bureau Management Corporation. He was also then named President of

Farm Bureau Life and Farm Bureau Mutual (until 2003), a director and president of EquiTrust Life and a director of Western Agricultural Insurance Company (Western Ag). In 2003 Mr. Lang was elected to the Board of Directors of the American Farm Bureau Federation. He is also a director of FB BanCorp. He served as the Iowa governor’s appointed chairman of the Grow Iowa Values Fund, within the Iowa Department of Economic Development, in 2003 and 2006. Mr. Lang is the lead director of Iowa Telecom, and chairman of its Compensation Committee. Mr. Lang has farmed since 1973 in partnership with his father and brother on 1,200 acres near Brooklyn, Iowa where they have a 500 head dairy operation.

Member: Executive and Class B Nominating Committees

Class B Director since 2001 Age: 55

 

Steve L. Baccus became a Class B Director in May 2002 after being named President of the Kansas Farm Bureau Federation. He is also Chairman of the Board of Directors of Farm Bureau Mutual, and a director of Farm Bureau Life, EquiTrust Life, Western Ag and FB BanCorp. He is also a member of the Board of Trustees of Kansas Wesleyan University in Salinas, Kansas. In 2004 Mr. Baccus was elected to the Board of Directors of the American Farm Bureau Federation. His family farm in Ottawa County, Kansas produces wheat, milo, soybeans, sunflower and irrigated corn. Mr. Baccus earned bachelors and masters degrees in psychology from Washburn University and Chapman College, respectively.

Member: Executive and Class B Nominating Committees

Class B Director since 2002 Age: 57

 

Craig D. Hill was elected a Class B Director in February 2007 and previously served as a Class B Director from 2002 to 2004. He is Vice President of the Iowa Farm Bureau Federation and has served on its board of directors since 1989. He has served on the boards of Farm Bureau Life and Farm Bureau Mutual since 1989, and in 2001 was named to the board of GROWMARK, a multi state regional cooperative. Mr. Hill farms 1,200 acres of row crops and has a 260 sow farrow-to-finish hog operation near Milo, Iowa.

Member: Executive and Class B Nominating Committees

Class B Director 2002 to 2004, 2007 — Age: 51

 

G. Steven Kouplen previously served as a Class B Director from February 2000, following his late-1999 election as President of the Oklahoma Farm Bureau Federation, to May 2003. He was re-elected as a Class B Director in 2006. Mr. Kouplen has a commercial Hereford cow-calf operation on 2,000 acres near Beggs, Oklahoma, which also includes a small grain operation consisting of wheat, milo and alfalfa. He is a director of Farm Bureau Life and Western Ag, and was elected to the board of directors of American Farm Bureau Federation in 2000.

Member: Finance and Class B Nominating Committees

Class B Director 2000 to 2003, and since 2006 Age: 56

 

Keith R. Olsen is a nominee for election as a Class B Director. He previously served as a Class B Director from 2002 to 2004. Mr. Olsen was elected President of the Nebraska Farm Bureau Federation in 2002, and has been a member of its Board of Directors since 1992. He was elected to the Board of Directors of the American Farm Bureau Federation in 2004. He is also a director of Farm Bureau Life, Farm Bureau Mutual and Western Ag. In February 2003 he became a director of Blue Cross-Blue Shield of Nebraska. Mr. Olsen received a Bachelor of Science Degree in Agricultural Economics in 1967, and since then has been raising dryland wheat and corn on 3,000 acres in southwest Nebraska. He is also a producer and marketer of certified seed wheat, and was a self employed tax practitioner for a number of years.

Class B Director 2002 to 2004 Age: 62

 

Class A directors and Class B directors receive annual retainers of $24,000 and $10,000, respectively, plus a fee of $1,250 for each Board meeting attended ($500 for telephonic meetings). Members of the Audit Committee receive $1,000 per meeting; members of the Class B Nominating Committee receive $500 per meeting; members of the other committees receive $1,000 per meeting ($500 per telephonic meeting). The chairpersons of the Audit, Management Development and Compensation, Class A Nominating and Corporate Governance, and Finance committees receive 200% of the fee paid to the members. Directors may elect to receive their fees in cash, in shares, or in deferred stock equivalent units pursuant to the Director Compensation Plan. All directors are reimbursed for travel expenses incurred in attending Board or committee meetings, and are reimbursed for travel expenses of their spouse for one Board meeting per year. The non-employee directors each annually receive nonqualified stock options to purchase 4,000 shares at the date of grant fair market value. The directors are also subject to stock ownership guidelines they adopted in late 2004. Under the guidelines, the directors are to own company stock worth three times the director’s annual retainer by the latter of year end 2009 or within five years of the date they joined the board.

 

Director Compensation Table

 

 

 

 

The Board of Directors met six times during 2006, including one telephone conference meeting. All of the current directors attended at least 75% of the Board meetings and committee meetings of which they were members, except for Ms. Robak, who was elected in mid year. The Company has adopted a formal policy that attendance of directors at the annual shareholder meeting is expected; all directors then in office did attend the last annual meeting in May 2006.

 

The committees of the Board of Directors and the number of meetings held by each committee in 2006 were:

 

 

The Executive Committee is composed of Lang (Chairman), Baccus, Chicoine, Hill and Noyce, with Stephen M. Morain, Senior Vice President, Secretary and General Counsel, serving as an ex-officio member. The Executive Committee may exercise all powers of the Board of Directors during intervals between meetings of the Board, except for matters reserved to the Board by the Iowa Business Corporation Act, and except for removal or replacement of the Chairman or Chief Executive Officer.

 

The Audit Committee consists of Class A directors Chicoine, Hanson and Larson, with Mr. Larson serving as chair. The Audit Committee must include only Class A directors who are independent of management and free from any relationships that would interfere with the exercise of independent judgment. The Board of Directors has determined that all members of the Audit Committee meet such standards, and further that all members are “financially literate” and have “accounting or related financial management expertise,” as required by the NYSE Listed Company Manual. Further, the Board of Directors has determined that all members are “audit committee financial experts,” as that term is defined in SEC regulations.

 

The Audit Committee hires FBL’s Independent Registered Public Accounting Firm and reviews the professional services to be provided by the firm and its independence from our management. The Audit Committee also reviews the scope of the audit by the Independent Registered Public Accounting Firm and its fees, our annual and quarterly financial statements and related filings with the Securities and Exchange Commission, system of internal accounting controls and other matters involving the accounting, auditing and financial reporting practices and procedures of the Company as it may find appropriate or as may be brought to its attention, and meets quarterly with members of the internal audit staff. The Audit Committee is required to review with the Independent Registered Public Accounting Firm and management any material transaction or series of similar transactions to which FBL was, within the past year, or is currently expected to be, a party, and with respect to which a director, executive officer, or holder of more than five percent of any class of voting stock of the Company is a party. Additionally, if the Audit Committee determines that any transaction or proposed transaction between FBL and Farm Bureau Mutual may be unfair to FBL, the Board is required to submit the matter to a coordinating committee for resolution. The Board of Directors approved an Audit Committee Charter in 2001 and approves revisions to the charter as needed. A copy of the revised Audit Committee Charter is available on our website, www.fblfinancial.com, or upon written request.

 

The Finance Committee is designated by the Chairman of the Board and composed of directors Hanson, Kouplen, Mehrer and Priestley, with Mr. Hanson as chair. The Finance Committee reviews capital adequacy

and all budgets proposed by management and makes recommendations regarding them to the Board of Directors, and oversees the company’s risk management process.

 

The Management Development and Compensation Committee is composed of Class A directors Gill, Larson, Robak and Walker, with Mr. Walker serving as chair. The Committee’s basic responsibilities are to assure that the executive officers of the Company and its wholly-owned affiliates are compensated effectively in a manner consistent with the shareholders’ interests and consistent with the compensation strategy of the Company, internal equity considerations, competitive practice, and the requirements of the appropriate regulatory bodies, to oversee hiring, promotion and development of executive talent within the Company, including management succession planning and review, and to administer any benefit plans involving the Company’s equity securities. The committee has full responsibility for determining the compensation of the Chief Executive Officer, in conjunction with the Board’s review of the Chief Executive Officer’s performance. The committee has adopted a Management Development and Compensation Committee Charter which can be found on our website, www.fblfinancial.com, or can be received upon written request.

 

The responsibilities of the Class A Directors Nominating and Corporate Governance Committee include to assist the Board (i) in identifying qualified individuals to become Class A Board members, consistent with criteria approved by the Board, (ii) in determining the composition of the Board of Directors and its committees, (iii) in monitoring a process to assess board effectiveness and (iv) in developing and implementing the Company’s corporate governance guidelines. Current members are Gill, Mehrer, Robak and Walker, with Mr. Gill as chair. The committee’s charter and the corporate governance guidelines are available at our website, www.fblfinancial.com, or by written request. The committee identifies potential Board candidates from its own network of business and industry contacts, and from recommendations from other directors, Class B shareholders and management. The committee will consider nominations made by Class A shareholders, as explained in question 16 at the beginning of this Proxy Statement. In 2006 director John Creer resigned. The committee established a search process to locate his successor. Kim Robak was recommended to the committee by executives of the Nebraska Farm Bureau Federation, one of our Class B shareholders. The committee will review candidates’ qualifications to determine if they possess several of the following characteristics: business and financial acumen, knowledge of the insurance and financial services industries, knowledge of agriculture and agricultural businesses, and prior experience as a director. The committee also reviews the candidate’s independence from the Company and its management, based on responses to written questions, background checks and personal interviews. The Class A Directors Nominating and Corporate Governance Committee also takes the lead in preparing and conducting annual assessments of Board and Board Committee performance, and makes recommendations to the Board for improvements in the Board’s operations. It also periodically reviews matters involving the Company’s corporate governance, including director education, the size of the Board and the corporate governance guidelines, and recommends appropriate changes to the Board.

 

The Class B Directors Nominating Committee reviews nominations for election to the Board as Class B directors pursuant to the Class B Shareholders Agreement, and nominates candidates to fill vacancies among the Class B directors. The Committee members are the five Class B directors, who meet with the presidents of the other eleven state Farm Bureau organizations which are Class B shareholders, to determine nominees for election. In addition to the Board committees, we have established several operational committees the activities of which are reported to the Board. These include an Investment Committee which consists of Mr. Noyce and five additional executive officers, and an Advisory Committee composed of certain executives of Farm Bureau affiliated property-casualty insurance companies in the Farm Bureau Life market territory. The Board may establish other committees in its discretion.

 

The following table shows how many shares of Class A common stock were beneficially owned by each director, director nominee and the named executive officers, as of February 28, 2007. The table excludes retired CEO William Oddy and retired officer and director Jerry Downin, and includes our new CFO, James P. Brannen. The totals in the table include ownership by five additional executives. The percentage of FBL Class A common shares beneficially owned by any director or any officer does not exceed 1%, and by all directors and officers as a group, does not exceed 3%.

 

 

 

 

The following table provides information about our Class A common stock that may be issued upon the exercise of options, warrants and rights, or granted as restricted stock, under our existing equity compensation plans, as of December 31, 2006. These plans include a stock compensation plan, a deferred compensation plan for executives and a deferred compensation plan for directors. Details regarding these plans can be found in Notes 1 and 9 to the consolidated financial statements.

 

 

Section 16(a) of the Securities Exchange Act requires the officers and directors of a public company, and persons who own more than ten percent of a registered class of a public company’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership with the Securities and Exchange Commission. Based solely on our review of the copies of such reports received by us, or upon written representations received from certain reporting persons, we believe that during 2006 our officers, directors and ten-percent shareholders complied with all section 16(a) filing requirements applicable to them, except that by administrative error, the report of an option grant to Mr. Noyce in January 2006 was delayed, and reports of Mr. Trost’s monthly payroll deduction investments into the FBL Direct Stock Purchase Plan from October 2004 to October 2006 were not filed until November 2006.

 

Most of our executive and other officers devote all of their time to the affairs of the Company. Services performed for affiliates are charged to the affiliates on the basis of a time allocation and the affiliates are required to reimburse the Company for the cost of services. As explained in the section “Certain Relationships and Related Party Transactions — Management and Marketing Agreements,” we receive management fees for managing certain affiliates. One officer, Mr. Lang, is employed by Farm Bureau Management Corporation, a wholly owned subsidiary of the Iowa Farm Bureau Federation, and with the exception of option grants, he is compensated by Farm Bureau Management Corporation which is subsequently reimbursed by us for an allocated portion of his compensation.

 

The current executive officers of the Company are as follows:

 

 

The following describes the business experience, principal occupation and employment during the last five years of the executive officers:

 

Biographical information for Messrs. Lang and Noyce is found above under “Election of Directors.”

 

James P. Brannen, CPA, became Chief Financial Officer and Chief Administrative Officer of FBL and its major operating subsidiaries January 1, 2007, and was additionally named Treasurer of all companies in February 2007. He had been Vice President, Finance of FBL and of its major operating subsidiaries since January 2002, after serving as Vice President, Controller beginning in January 2000. He is a director of non-profit enterprises Children & Families of Iowa, and the Iowa Chapter of the American Parkinson’s Disease Association. Mr. Brannen has been employed by FBL and its affiliates since 1991.

 

Douglas W. Gumm has been Vice President, Information Technology since January 2000. He had served as Information Systems Vice President since joining FBL on January 1, 1999. Mr. Gumm had been employed by Principal Financial Group in its Information Services division since 1975, his last five years serving as Director of Information Systems — Technical Services.

 

Stephen M. Morain is Senior Vice President, Secretary and General Counsel, and an ex-officio member of the Executive Committee. He also serves as General Counsel and Assistant Secretary of the Iowa Farm Bureau Federation; General Counsel, Secretary and director of Farm Bureau Management Corporation, and Senior Vice President and General Counsel of FBL’s major operating subsidiaries and of Farm Bureau Mutual. Mr. Morain is also chairman and a director of Edge Technologies, Inc. He is chairman of the Iowa Life & Health Insurance Guaranty Association, and a member of the life and health guaranty funds in Colorado and Wyoming. He is a trustee and treasurer of Des Moines University and a director and vice president of the Des Moines Public Library Foundation. Mr. Morain has been employed by the Company and its affiliates since 1977.

 

John M. Paule is Executive Vice President of EquiTrust Life Insurance Company, a position he has held since 2003. Mr. Paule joined FBL in 1997 as Vice President — Information Technology and was promoted to Vice President — Corporate Administration in 1998, before being named Chief Marketing Officer in 2000, a title he held until January 2007. Mr. Paule had been employed by IBM Corporation from 1978 until he joined FBL in 1997. During his last five years with IBM he was its manager of the North American general business insurance segment and its senior state executive in Iowa. Mr. Paule is on the Board of Directors of privately held MSI System Integrators, Inc. and the West Des Moines Development Corporation. He is past president of the Board of Directors of the West Des Moines Community School District, the West Des Moines Chamber of Commerce and the West Des Moines Rotary Club.

 

JoAnn W. Rumelhart, FSA, MAAA, has been Executive Vice President — Farm Bureau Life Insurance Company since 2000. She was Vice President — Life Operations of FBL and its major operating subsidiaries

from 1994. She began working for FBL in 1978, and served as Vice President — Client Services from 1991. Ms. Rumelhart is a member of the Executive Development Committee Task Force for LIMRA International, and a member of the Dean’s Advisory Council for Iowa State University’s College of Liberal Arts and Sciences. She is also a member of the board of directors of the Make-A-Wish Foundation of Iowa.

 

Lou Ann Sandburg, CFA, FLMI, has been Vice President, Investments since January 1998. She joined the Company in 1980 as the portfolio manager of the EquiTrust Money Market Fund, and later assumed the management of the tax-exempt bonds and mortgage-backed securities portfolios. Ms. Sandburg was named Securities Vice President in 1993 and Investment Vice President, Securities, in 1994. She is a member of the board of directors of Berthel Fisher & Company. She is past president and a board member of the Iowa Society of Financial Analysts.

 

David T. Sebastian was named Vice President, Sales and Marketing January 1, 2007, after acting as Vice President, Sales since November 1, 2004. He has over 20 years of executive management consulting experience as an independent consultant, including several years of acting as a consultant to FBL. His projects included business strategy development, business planning and design, marketing and sales planning, and other executive level projects for a diverse group of clients, both private and public. He was Vice President, Planning, Development and Administration for NCS Pearson, a subsidiary of Pearson, PLC, from 2002 until 2004.

 

Donald J. Seibel, CPA, has been Vice President, Finance of FBL and its major operating subsidiaries since January 2007, after serving as Vice President, Accounting beginning in January 2002. He is a director of non-profit enterprise West Des Moines Public Library Friends Foundation, an officer of the Saint Francis of Assisi Knights of Columbus and past president of the Sertoma Club of Des Moines. Mr. Seibel has been employed by FBL and its affiliates since 1996.

 

Bruce A. Trost became Executive Vice President of the Company’s managed property-casualty operations in November 2004. Mr. Trost has been employed by companies associated with Farm Bureau interests throughout his career. He was Executive Vice President and CEO of Nodak Mutual Insurance Company, Fargo, ND, beginning in 2003 through 2004, and Vice President — Property Casualty Operations of the COUNTRY Companies, Bloomington, IL, from 1999 to 2003. He began working for COUNTRY in 1976, and from 1994 to 1999 he was Senior Vice President of United Farm Family Mutual Insurance Company, Indianapolis, IN.

 

Overview and Profitability

 

We sell individual life insurance and annuity products through an exclusive distribution channel and individual annuity products through independent agents and brokers. Our exclusive agency force consists of 2,011 Farm Bureau agents and managers operating in the Midwestern and Western sections of the United States. Our fast growing independent channel, which we began in 2003, consists of 18,849 independent agents and brokers operating throughout the United States. In addition to writing direct insurance business, we assume business through various coinsurance agreements. Several subsidiaries support various functional areas of our life insurance companies and other affiliates, by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage three Farm Bureau affiliated property-casualty companies for a fee but do not include their financial results in our consolidated financial results.

 

Our profitability is primarily a factor of the following:

 

 

 

Reimbursement of compensation expenses by managed affiliates

 

We manage three affiliated property-casualty companies whose operating and underwriting results and owners equity are separate from ours. We receive a management fee for our work in managing Farm Bureau Mutual Insurance Company, Western Agricultural Insurance Company and KFB Insurance Company and we are reimbursed for all compensation and other expenses required to provide the services to those companies. The compensation expenses of our executives and employees are allocated between us and our subsidiaries on the one hand, and the property-casualty companies on the other hand, based on time and responsibilities estimates and studies. For the named executive officers, the property-casualty companies are reimbursing us for the following percentage of their 2006 total compensation expense: Mr. Oddy, 42.5%; Mr. Noyce, 30%; Mr. Trost, 100%; Ms. Rumelhart, 0%, and Mr. Morain, 42.5%.

 

Enterprise wide, the managed property-casualty companies are reimbursing us for approximately 68% of our total compensation expenses, 44% of our annual cash incentives, and 44% of our long term incentives. As a result, the property-casualty companies are paying their proportionate share of our total salaries, cash incentives and long term incentives, as well as all other forms of compensation and benefits. These allocations and reimbursements should be considered in any analysis of FBL’s compensation costs, executive compensation costs, and costs and uses of equity incentives.

 

We value good relationships with the state and local Farm Bureau entities which sponsor and allow us and our property-casualty affiliates to do business in their geographic areas. Among other benefits, we believe that attention to the property-casualty business allows us to do a more effective job of cross selling life insurance products to property-casualty customers, and our cross sales are consistently above industry averages. We further emphasize this relationship by including various property-casualty goals in our annual company wide incentive plan.

 

In addition, several of our executives and employees provide certain services to the Iowa Farm Bureau Federation and its affiliates, and a portion of their compensation expense is also reimbursed based on allocation estimates. See, “Certain Relationships and Related Party Transactions.”

 

Executive Compensation Philosophy and Goals

 

We expect that the FBL Financial Group, Inc. compensation program will help us to attract and retain highly qualified and motivated employees at all levels, encourage and reward achievement of our annual and long term goals and operating plans, and encourage officers and employees to become shareholders with interests aligned with those of other shareholders, all in an effort to increase shareholder value.

 

We have specific expectations regarding our named executive officers. We intend that our executive compensation program will effectively and appropriately compensate our executives and will guide their activities in response to targeted incentives we provide, both over the short and long term. We measure appropriateness of the compensation package by comparing it to payments made by peer group companies in

the insurance and financial services industries. Our target is to have all elements of executive compensation, and overall executive compensation, at approximately the median level of the peer group for comparable positions and normal performance.

 

We use a variety of compensation elements to reach these goals. These include base salary, annual cash performance based incentives, long term equity awards of options and performance based restricted stock, retirement, termination and change in control arrangements, general employee benefits, and executive benefits and perquisites.

 

The Management Development and Compensation Committee (the “compensation committee”, or “committee”) of the Board of Directors is in charge of all aspects of executive compensation, and oversees all general compensation programs of the company. The committee consists of four independent directors. See “Further Information Regarding the Board of Directors” for additional information regarding the committee.

 

What our compensation program is designed to reward

 

To create shareholder value, we want to reward performance that is measurable against targets established in our base salary program and in annual and long term incentive programs. Many of the targets are derived from the profitability factors listed above, see, “Overview and Profitability.” The targets act as drivers of company improvement and are proxies for company performance. Achievement of the targets will result in company growth and profitability and will support company objectives and promote shareholder interests. The combination of compensation elements used is meant to provide, in total, compensation that can be measured against the companies we have selected as a peer group.

 

 — Peer Group

 

Our peer group for this measurement purpose was revised after a survey and study in 2005 to identify insurance and financial services companies with characteristics similar to us, including industry classification, revenues, public company status, market capitalization, assets under management and level of complexity of the business, including both life and property-casualty operations in the group. GAAP revenues of these organizations in 2004 averaged $1.462 billion compared to $1.459 billion for FBL and the managed property-casualty companies; median assets at year end 2004 were $7.434 billion compared to $10.709 billion by FBL and the managed property-casualty companies.

 

The peer group approved by the Board of Directors in September 2005 is as follows:

 

*Allmerica Financial Corp.

*AmerUs Group

Harleysville Group

Horace Mann Educators Corp.

National Western Life Insurance Company

The Phoenix Companies

Protective Life Corporation

United Fire and Casualty Co.

Unitrin, Inc.

Universal American Financial Corp.

 

*Subsequently Allmerica Financial changed its name to Hanover Insurance Group in late 2005 upon disposal of its life insurance, annuity, trust and retirement plan products businesses; AmerUs was purchased by Aviva plc in 2006 and is no longer a stand alone publicly held company. Changes in the peer group will occur from time to time, with resulting adjustments by the committee.

 

The peer group was selected with the assistance of Mercer Human Resources Consulting, which has been retained by the compensation committee as an independent consultant. Mercer in prior years had been a consultant to the company. Its only continuing relationship to the company is to receive license fees from the company for its compensation management software.

 

The policy of the compensation committee is to request survey data of peer group companies, with recommendations from the CEO and from the committee’s consultant as to ranges of elements of compensation, cash and non cash, that will attempt to match median salary, annual cash incentives and long term compensation to approximately the median level of comparable positions and performance in the peer group companies.

 

Why we chose to pay each element of compensation

 

Our compensation decisions start from an examination of the competitive marketplace for insurance executive talent, based in large part upon our survey of peer group companies and other broad based published industry surveys, together with our review of company goals and objectives and review of tally sheets listing present total compensation available to our named executive officers. We find that the combination of base salaries, annual cash incentives and longer term equity grants, some level of benefits and perquisites, together with retirement and change of control benefits, is normal in our universe of insurance and financial services firms. Competitive base salaries assist in our ability to attract and retain executives. Performance based incentive elements, both annual cash and long term equity, encourage executives towards realization of company short and long term goals. We balance the elements so our executives (a) can achieve fair compensation, which we define as being at approximately the median level of comparable pay levels of the composite peer group, and (b) have the ability to achieve above market compensation for above average company performance of goals. The committee looks for information from its outside consultants to determine if any element of compensation needs adjustment, including material change, to continue within the company’s strategy of aiming to target executive compensation at approximately the median level of peer companies.

 

How we determine amounts under each element of compensation

 

 — The role of executive officers in the compensation process

 

The company’s executives make compensation assumptions every year in the process of preparing budgets for the following year. Then, management through the CEO makes specific recommendations to the compensation committee of company compensation, including compensation for the named executive officers, covering salary, bonus and long term incentives. Other elements of compensation are reviewed periodically. The recommendations start with salary ranges established for various positions based on survey and comparable company data, and include objective and subjective evaluations. The recommendations are measured against the peer group surveys and recommendations of the compensation committee’s independent consultants to stay within the company’s policy of aiming at the median peer group level for executive compensation. The committee makes its own determination of the CEO’s compensation, with the assistance of its consultant. Within the executive group the CEO attempts to achieve a level of internal pay equity among the executives, with the review of the committee. The process typically occurs in the late fall of the year, with compensation increases effective at the beginning of the calendar year.

 

 — Base salaries

 

In addition to the CEO’s recommendations, the policy of the compensation committee is to request recommendations of executive compensation ranges from its outside consultant, Mercer Human Resources Consulting. The recommendations are based upon surveys of compensation paid to peer group companies. The objective is to sync up both current compensation and incentive compensation to the median level of payments experienced by the peer group. In the current compensation portion, the midpoint of the base salary ranges are targeted at the peer company median amounts paid to comparable positions, as is overall cash compensation. To determine recommendations of a specific salary within a range, the compensation committee considers management input regarding the officer’s length of service in the position, experience, and management skills in handling short and long range operational and strategic issues. In addition, the compensation committee has established specific goals, the “CEO’s balanced scorecard”, which assist in determining compensation within the CEO’s salary range. In turn, the CEO uses the same or similar goals with various of his direct reports, with the goal progress being important in determining individual compensation within the executive’s salary range. Current goals in the CEO’s balanced scorecard are in the areas of strategic planning, management

succession, risk mitigation, operational and market share benchmarking and communications with stakeholders. Annual reviews of the performance of the other named executive officers are performed by the CEO, and by the compensation committee in regard to performance of the CEO.

 

 — Annual Cash Incentives

 

The compensation committee believes that a significant portion of annual cash compensation for the executive officers should be at risk and tied to the Company’s operational and financial results. Our annual management performance plan establishes five to eight business goals with a balance between expense control, production targets aimed at revenue growth and profitability. The goals are identical to those utilized in determining annual cash incentives to all employees.

 

For 2006, the annual goals were set in the following eight areas:

 

2006 Management Performance Plan

 

 

Although it is generally difficult to maximize all of the annual goals because of their counterbalance (that is, achieving one goal might mean making some sacrifices on other goals), they are designed to align with factors that will allow for the overall success of the company on both a short and long term basis.

 

The named executive officers had the following percentages of base salary under the 2006 Management Performance Plan available to be paid as annual incentive payments for achievement of the annual goals.

 

2006 Cash Incentives as a Percentage of Base Salary*

 

 

 

As part of the compensation committee’s desire to make short term incentives more at risk to the executives, the range of payments between a threshold level and a maximum level are broader for this group and for the FBL management team, as compared to all other employees. The target percentage represents an

amount available if a goal is met at a 100% level. These officers realize no payment unless a threshold level of achievement is attained, a payment of 50% of target when the performance threshold is met, rising proportionately to a payment of 200% of the target if the goal is met at a maximum level. Other employees realize payments of 75% of target at the threshold, up to 150% of target at the maximum. Currently the compensation committee has a policy of limiting maximum annual cash incentives to any individual to not more than $1,000,000 per year.

 

 — Long Term Incentives; Options and Restricted Stock

 

The Class A Common Stock Compensation Plan provides for the grant of stock options (nonqualified and incentive stock options) and shares of restricted stock, among other forms of equity. The plan is administered by the compensation committee which consists solely of independent directors. The committee has adopted a formula which covers supervisory and management personnel, and bases annual awards on their position and salary. Generally, the awards increase with the level of the position. The compensation committee remains of the view that option grants are an effective and important tool in both the compensation of management and in tying the goals and interests of management more closely to the goals and interests of the shareholders. In addition, the board of directors has adopted stock ownership guidelines for itself and for the executive officers; see “Stock Ownership Guidelines”, below.

 

We have tied long term goals to equity compensation, both through issuance of stock options without specific performance targets, and through issuance of performance based restricted stock. Prior to 2004 the company only utilized stock options for this purpose, with the number of shares in the grants determined by dividing the scheduled dollar value for each particular executive’s award by the closing stock price on the date of grant. Starting in 2004 we substituted grants of performance based restricted stock for a portion of the option awards to the eleven person management team of executive officers. This change, based on recommendations of the committee’s consultants, was designed to create more long-term incentives for this key group. Performance measures to date have included earnings per share and return on equity targets. These targets have been selected because of their importance to the creation of long term shareholder value and the financial health of the company, and their importance to rating agencies and analysts who follow the company.

 

The earnings per share and return on equity goals disclosed below represent expectations of the Company at particular points in time and may not necessarily represent management’s current view of potential operating results in future periods. In addition, they are not comparable to earnings per share as used in the company’s guidance releases or as presented in its audited consolidated financial statements, both of which follow GAAP, or to return on equity computations outside of the formula used in the award agreements. Rather, the definitions of earnings per share and return on equity in the restricted stock agreements vary from GAAP by attempting to focus on core operations which are more within the control of management. For instance, the 2006 grant agreements contained the following definition of “Restricted Stock Agreement Earnings Per Share (RSAEPS)”:

 

RSAEPS means earnings per common share, as reported in the FBL Consolidated Statement of Income, net of realized/unrealized gains or losses on investments, net unrealized gains or losses on derivatives, and other changes in accounting principles that impact the 2006, 2007 and 2008 Consolidated Statements of Income that are not now contemplated in determining the RSAEPS.

 

Additionally, the 2006 grant agreements contained the following definition of “Restricted Stock Agreement Return on Equity (RSAROE)”:

 

RSAROE means the percentage return on equity, as computed by dividing operating income (net income as found in the FBL Consolidated Statement of Income for the year ended December 31, 2008, adjusted to eliminate the impact of realized/unrealized gains or losses on investments, net unrealized gains or losses on derivatives, and other changes in accounting principles that impact operating income that are not now contemplated in determining the RSAROE) by the average of total stockholders’ equity at the end of each of the five calendar quarters ending December 31, 2008.

 

For the 2004 grant, we determined a target level of equity incentive awards to the executives, then divided it by value, 50% in stock options and 50% in performance based restricted stock. The 2004 grant of restricted stock required 2006 earnings per share, as defined, from $2.29 to $2.49. The awards were subject to forfeiture in whole or part in early 2007 if the maximum goals for 2006 were not met. For the 2004 grants which vested in February 2007, 100% of the original award was earned by all participants, as the defined RSAEPS for 2006 was $2.58. This computation differs markedly from the company’s audited financial statements which indicated record net income for 2006 of $3.01 per share, and from the company’s commonly used non-GAAP measure of operating income, which was $2.78 per share, also a one year record.

 

For the 2005 equity grants, the committee divided equity incentive awards to the executives by value, 50% in stock options and 50% in performance based restricted stock, but adjusted how the restricted stock is earned by adding a return on equity component. The 2005 restricted stock grants are subject to forfeiture in whole or part if earnings per share and return on equity goals for 2007 are not met. The earnings per share, as defined, goals are from $2.40 to $2.74, and the return on equity, as defined, goals are from 9% to 10%. The goals are weighted 75% earnings per share and 25% return on equity.

 

In 2006 the restricted stock grants were extended to an additional executive group of 20 persons at a vice president level. For the 2006 equity grants, the committee again divided equity incentive awards to the group by value, 50% in stock options and 50% in performance based restricted stock, and further adjusted the formula for earning the restricted stock by making the earnings per share goal a multi year goal. The 2006 restricted stock grants are subject to forfeiture in whole or in part if the earnings per share goal for the three years ending December 31, 2008, and the return on equity goal for 2008, are not met, with the same weighting of 75% earnings per share and 25% return on equity. The earnings per share, as defined, goals for the three years ended December 31, 2008 are from $7.33 to $8.74, and the return on equity, as defined, goals for 2008 are from 9% to 11%.

 

The compensation committee has annually set the performance criteria at levels where expected performance would result in the executives earning 50% of the restricted shares. However, actual results could result in none, some, or all of the shares being earned. The executives will have voting rights during the period of restriction, and will receive accumulated dividends on the shares actually earned when the period of forfeiture lapses. We intend to continue this usage of performance based restricted stock in the future for this group. Currently the committee has a policy of limiting grants of restricted stock to not more than $1,000,000 grant date fair market value per year.

 

In order to further align management’s interests with the interest of shareowners and support good governance practices, at its December 2006 meeting the compensation committee adopted a clawback policy applicable to performance-based incentive awards to the executives. In the event the company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement as determined by the independent directors, each of the company’s executive officers may be required to reimburse the company for the excess value received from any incentive award made to him or her over the value actually earned based on the restated performance, regardless of the executive’s lack of misconduct. The policy also allows the company to seek recoupment of benefits from any employee whose misconduct was the cause of the restatement, along with legal recourse.

 

 — Benefits

 

FBL offers benefit plans such as retirement, 401(k), vacation, medical, life and disability insurance to executive officers on the same basis as offered to all employees. Additional benefits of this type available to the executives include: (1) A deferred compensation plan for the portion of the company match from the 401(k) plan which would be in excess of ERISA limitations. The amounts are accrued in an unfunded plan and bear interest at the rate credited on FBL’s flexible premium deferred annuity, currently 4.2%, payable upon termination of employment. (2) An executive disability policy which will provide benefits in case of covered disability up to full salary. (3) An executive life insurance program through which the executives are provided funds with which they may purchase a universal life policy in the amount of twice salary and bonus, less $50,000, paid up at age 65.

 

In its continuing reexamination of all facets of executive compensation, the committee has determined to freeze the executive life insurance program after 2006. This was done in part because this benefit was over and above what peer companies were offering. Executives will retain the face amount of universal life policies currently issued, and will receive payments in future years sufficient to maintain that amount. They will be eligible to receive additional group life insurance coverage under the company’s all employee plan to maintain insurance coverage for future compensation increases on the same basis as all other employees.

 

 — Perquisites

 

The Company provides executives with an automobile allowance, an executive disability policy, club initiation fees and dues, annual physicals, the availability of limited reimbursement for financial planning services and tax return assistance, and preferential use of company box seats at four sporting and entertainment venues. Surveys by the committee’s independent consultant indicate the level of perquisites is within an acceptable range of what is offered by the peer group companies.

 

 — Retirement and termination benefits

 

Like many companies we have reduced defined retirement benefits several times in the last 15 years. The reduction in defined benefit plan payments has been based on benchmarking studies of other companies within our industry and geographic location, and in part from recognition that the existence of a stock option plan and defined contribution plan (401(k) accounts) with a company match available, together with the company’s excess 401(k) plan, can replace a portion of a retirement plan that began before the company became publicly traded and which was designed for a non-public company. See further description of the company’s retirement plans at footnote 2 to the “Pension Plan” table, below.

 

 — Change in Control Agreements

 

In establishing change-in-control agreements with executives in 2002, we deliberately determined to use a version of agreement that was “plain vanilla” and similar to that of many other companies. We believe establishing a base line agreement for compensation in a change of control event was appropriate as we continued to announce that we were seeking acquisitions as a part of our growth strategy. The change in control agreements have a double trigger before payments are required; i.e., the defined change in control must occur, and the executive must have a discernable change in working conditions. Apart from the change in control agreements, our stock compensation plan under which stock options are issued has provisions that upon a change in control unvested options will vest. Similarly, the form of restricted stock agreement presented to participants has provisions that upon a change in control unearned restricted stock will be free from forfeiture. In other words, a single trigger of change in control accelerates both the options and the restricted stock without a change in the executive’s working conditions.

 

We have entered into change in control agreements with each of the named executive officers, and with the other officers named in our “Executive Officers” list (except for Mr. Lang, whose employer is the Farm Bureau Management Corporation). The forms of agreements were filed with the SEC as exhibits to our Form 10-Q in August 2002.

 

In entering into these agreements, the Board determined that it is in the best interests of the Company and its stockholders to ensure that we will have the continued dedication of the executives notwithstanding the possibility, threat or occurrence of a termination of the Executive’s employment in certain circumstances, including following a change of control. Further, the Board stated that it “believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened termination of the Executive’s employment in such circumstances and to provide the Executive with compensation and benefits arrangements upon such a termination which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations who may seek to employ the Executive.”

 

Please see “Potential Payments Upon Termination or Change in Control — Payments Made Upon a Change in Control”, at page 36, for additional information regarding the change in control agreements.

 

The agreements are effective for three years after a change in control, at a multiple of salary and bonus of three times for Messrs. Oddy, Noyce, Morain, Paule, Trost and Brannen, and for Ms. Rumelhart, and for two years after a change of control, and a multiple of salary and bonus of two times, for Messrs. Gumm, Sebastian and Seibel, and Ms. Sandburg.

 

Timing of grants of equity awards

 

The compensation committee adopted a stock option policy at the time of the company’s initial public offering in 1996 which covers administrative matters, and at the same time instituted a practice of setting once a year grant dates at January 15 (or next weekday if January 15 falls on a weekend). That policy has been followed since that time. The company does not time its grants in coordination with the release of material non-public information, and executives receive their grants at the same time as other participants.

 

Annual equity awards are recommended by management to the committee in the fall of each year; the compensation committee reviews and approves or revises the recommendations at a meeting late in the year, typically in November or December. Management’s recommendations are formula driven and result in grants that can be computed by salary and salary grade of eligible individuals, who are all in the supervisory and management ranks of the company. The grant date is January 15 of the following year. The dollar value of the awards to the executives are then translated into the number of stock options resulting from dividing the dollar value of the award by the Black-Scholes value of the shares on the grant date . The committee also annually preapproves interim grants of options to new hires, and to persons receiving promotions, during the year. The hire date, or promotion date, automatically becomes the grant date of the option, the prorated value of which is derived from the formula adopted by the committee at the end of the prior year.

 

Similarly, the grants of performance based restricted stock in the last three years have followed the same schedule for recommendations, review and establishment of grant date. However, the actual performance terms of the restricted stock grants were not determined until after completion of the prior year’s financial statements in February. FAS 123(R) required the shares to be revalued at the closing stock price of the date the performance goals were established. Since the number of shares subject to the grants had been computed based on the January 15 closing stock price, the valuation of the shares at the closing stock price on the date of determination of terms resulted in the value of the shares varying from what the compensation committee had first determined. To avoid this situation in the future, annual restricted stock grants will not be computed or measured until all performance terms are determined by the compensation committee.

 

How each element of compensation, and our decisions about each element, fit into our compensation objectives

 

The compensation objectives described earlier include attracting and retaining executives who can aid in creating shareholder value, and effectively and appropriately compensating the executives and guiding their activities in response to targeted incentives, both short and long term. The amount of compensation, both in individual elements and in the aggregate, is targeted at the median levels of a peer group of insurance and financial services companies.

 

We utilize base salary as a building block towards these objectives, establishing a salary range for particular positions based on survey data and job responsibilities. Being competitive in base salary is a minimum requirement to obtain and retain skilled insurance executives in the Des Moines, Iowa area, because of the significant number of home offices of insurers located there.

 

Annual cash incentives keyed to short term objectives provide a second step in appropriate compensation. The performance targets, which are used to determine annual cash incentives for all employees, emphasize expense control, growth in company operations and profitability. “Pay for performance” for the named executive officers has been significantly enhanced in recent years by putting a larger part of their potential compensation at risk in the annual cash incentive program.

 

Long term objectives are enhanced by the use of equity grants in the form of stock options and performance based restricted stock. The stock options, which vest over five years, attain value in the hands of

the executives as increases in the company’s stock price exceed the option exercise price. This creates a direct correlation to shareholder value. The performance based restricted stock requires that the company meet earnings per share and return on equity targets over a three year time frame; both metrics are commonly used measures of performance and comparison by analysts and investors.

 

The compensation committee reviews all elements of compensation, including executive benefits and perquisites, from time to time. In 2006 it determined to freeze the universal life policies provided to the executives with the executives then eligible to receive additional group life insurance coverage under the company’s all employee plan to maintain insurance coverage for future compensation increases. This was done because the benefit provided was determined to be above life insurance programs provided by the peer group.

 

Retirement and termination benefits are also part of the executive’s compensation package, under the company’s defined benefit retirement plans and change in control agreements.

 

Stock ownership guidelines

 

The compensation committee believes that a fundamental goal of executive compensation is to encourage and create opportunities for long-term executive stock ownership which will tie the efforts of the executives to goals of increasing shareholder value. The compensation committee expects that over time, executive officers will establish ownership positions that are of significant value at a multiple of their annual salary.

 

To encourage ownership, the compensation committee in late 2004 established Executive Ownership Guidelines. The Guidelines require the CEO within five years of January 1, 2005 (or within five years of start date, if later) to own FBL common stock worth three times annual base salary, and within ten years to own FBL common stock worth five times annual base salary. The CFO, Executive Vice Presidents and Senior Vice Presidents are to own shares worth two times annual base pay in five years, and three times annual base pay in ten years, in FBL common stock. All other members of the executive group (25 additional persons) are required to own shares worth at least one time annual base pay in FBL common stock within five years.

 

After two years most of the officers have made significant progress towards the ownership guidelines. Four of 10 management team officers and three of 19 other executives were fully compliant at year end 2006.

 

If the guidelines are not met, the annual cash incentive of the particular officer, net of tax, could be required to be used to purchase FBL common stock for the account of the officer. If available, the required purchases will be made through the Executive Salary and Bonus Deferred Compensation Plan. The ownership guidelines do not recognize beneficial ownership of shares through performance based restricted stock grants until they are earned, or through grants of stock options until they are exercised, but will recognize as beneficial ownership the share equivalents in unit accounts in the deferred compensation plan and in the 401(k) plan.

 

The company has not established policies regarding hedging economic risks of company stock ownership by its executives and directors.

 

Tax and regulatory matters

 

 — Internal Revenue Code § 162(m)

 

Internal Revenue Code § 162(m) limits the deductibility of compensation paid to the CEO and the next four most highly paid executives of a public company to $1,000,000 per individual, subject to exceptions for performance based pay, among other items. All compensation paid to our named executive officers in 2006 will be deductible because we have not exceeded the § 162(m) limits. We take performance based pay exceptions into account in structuring executive compensation. We received shareholder approval at the 2004 annual meeting of the material terms used in performance based compensation to qualify for appropriate 162(m) treatment.

 

 — Nonqualified Deferred Compensation

 

The American Jobs Creation Act of 2004 changed the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, the company believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005. See page 34 for a more detailed discussion of the Company’s nonqualified deferred compensation arrangements.

 

 — Accounting for Stock-Based Compensation

 

The company began accounting for stock-based payments in accordance with the requirements of FASB Statement 123(R) January 1, 2006.

 

The Management Development and Compensation Committee of FBL Financial Group, Inc. has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

John Walker, Chair

Tim Gill

Paul Larson

Kim Robak

 

The following table summarizes total compensation paid to or earned by each of the named executive officers for the year ended December 31, 2006. Among other matters, the committee reviewed tally sheets representing total compensation, including equity and non-equity based compensation to the officers, in setting the total compensation arrangements for each of the officers.

 

No payments were made which would be reportable in the “Bonus” column, representing discretionary payments. Payments which in past years have been labeled as bonuses are now found in the “Non-Equity Incentive Plan Compensation” column, representing annual payments made pursuant to pre-existing company performance criteria.

 

Compared to total compensation, including the fair value of equity awards and the non-equity incentive plan compensation, base salary of the named executive officers represented from 20% (Mr. Oddy) to 36% (Mr. Morain) of the officers’ total compensation for 2006. There were no discretionary bonuses paid. These results are consistent with the company’s philosophy that a significant amount of compensation for the senior executives should be variable and at risk of performance. It also reflects that Mr. Oddy, as CEO, was awarded performance based incentive grants incrementally larger than those received by the other officers.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Plan and the Supplemental Retirement Plan determined using interest rate and mortality rate assumptions consistent with those used in the company’s financial statements.

 

 

 

 

The plan is a defined benefit plan which provides monthly income (or lump sum option) to retirees who have worked for at least 10 years and attained age 55. The amount provided is a percentage of high 36 consecutive month average salary and bonus calculated according to the following formula: for service prior to 1998, 2% per year for the first 10 years of service, plus 2.5% for each year in excess of 10 years

of service, up to 30 years of service; for service after 1997, 1.675% per year of service, plus 0.325% per year of service times the average salary less social security covered compensation. Unreduced early retirement benefits are provided when age plus years of service equal 85 on the benefit earned before 2002. Reduced early retirement benefits are generally provided with reductions of 3% per year before age 65. Mr. Oddy used the early retirement features of the plan when he retired effective March 1, 2007, and Mr. Morain is also eligible for early retirement.

 

The plan formula provides a monthly benefit for life with a guarantee of 120 monthly payments. There is an automatic annual cost of living adjustment not to exceed 4.0% on the benefit earned before 2002.

 

Years of service include all years in which an individual first exceeds 1,000 hours of service and any year thereafter in which the person exceeds 500 hours of service. The compensation covered by the plan is calculated based upon total salary and bonuses paid to the participant during the given year.