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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

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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 14, 2008, 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 14, 2008 can vote at this meeting or any adjournments that may take place. At the meeting we will ask you to:

 

1.  Elect a Board of Directors;

 

2.  Amend the 2006 Class A common stock compensation plan;

 

3.  Approve terms to be used in performance based compensation plans;

 

4.  Ratify the appointment of our Independent Registered Public Accounting Firm for 2008; and

 

5.  Attend to other business that may properly come before the meeting.

 

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

 

At the meeting we will also report on FBL’s 2007 business results and other matters of interest to shareholders.

 

Enclosed with the mailing of this Proxy Statement is the 2007 Annual Report to Shareholders, which includes the 2007 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 31, 2008.

 

By Order of the Board of Directors

 

 

Richard J. Kypta

Secretary

 

March 31, 2008

 

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 2007, 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 named Outstanding CPA in Business and Industry by the Iowa Society of CPA’s in 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: 65

 

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 Corporate Governance Committee.

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

Class A Director since 2004 Age: 55

 

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 President of the Boys & Girls Club of Park County, Wyoming. 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: 66

 

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: 55

 

Edward W. Mehrer is currently a member of the board of directors, and the audit and compensation committees of NovaStar Financial. 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: 69

 

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. He is chair of the CEO/CFO Certification Committee. Mr. Noyce has been employed by the Company and its affiliates since 1985. He was elected to the board of EquiTrust Mutual Finds In November 2007, and also serves on an advisory committee to FB BanCorp. He was named Outstanding CPA in Business and Industry by the Iowa Society of CPA’s and inducted into the American Institute of CPA’s Business and Industry Hall of Fame, both in 2007. 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: 52

 

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: 52

 

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

Class A Director since 1996 Age: 69

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, a director of Western Agricultural Insurance Company (Western Ag), and a director and chair of EquiTrust Mutual Funds. 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 was named a member of the Iowa Board of Regents in April 2007. 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: 56

 

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 Salina, 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: 58

 

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 board of Farm Bureau Life from 1989 to 2007, and on the board of Farm Bureau Mutual since 1989. Mr. Hill farms 1,000 acres of row crops and has a 200 sow farrow-to-finish hog operation near Milo, Iowa.

Member: Executive, Finance and Class B Nominating Committees

Class B Director 2002 to 2004, and since 2007 Age: 52

 

Keith R. Olsen was elected as a Class B Director in May 2007. 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.

Member: Finance and Class B Nominating Committees

Class B Director 2002 to 2004, and since 2007 Age: 63

 

Kevin G. Rogers was elected as a Class B Director in February 2008. He is the President of the Arizona Farm Bureau Federation. He also serves on the board of the American Farm Bureau Federation and the National Cotton Council, and is on the USDA’s Air Quality Task Force. Mr. Rogers is also a director of Farm Bureau Life and Farm Bureau Mutual, and President and a director of Western Ag. His family farms 7,000 acres in the Phoenix metropolitan area and produces cotton, alfalfa, wheat, barley and corn.

Member: Class B Nominating Committee

Class B Director since 2008 Age: 47

 

The Management Development and Compensation Committee engaged its consultant, Mercer, to review the appropriateness of existing director compensation arrangements. Based on a survey of peer group companies and information derived from the National Association of Corporate Directors, Mercer presented its report and recommendations in November 2007. Mercer’s report noted that directors’ compensation relative to the peer group was below the 25^th percentile, both for cash compensation and for equity compensation. The committee adopted a portion of the report and recommended, and the board of directors approved, changes in the board’s compensation structure. The changes went into effect January 1, 2008. The following table illustrates cash compensation payable to the directors before and after this change.

 

 

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. See Proposal Number Two at page 47 which if adopted would remove the automatic grant of stock options. If adopted, the intention of the board is to replace the stock option grants with annual grants of restricted stock initially valued at $45,000 each. 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 their Class A or Class B annual retainer by the later of year end 2009 or within five years of the date they joined the board.

2007 Director Compensation Table

 

 

 

 

The Board of Directors met six times during 2007, 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. 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 2007.

 

The committees of the Board of Directors and the number of meetings held by each committee in 2007 were:

 

 

The Executive Committee is composed of Lang (Chairman), Baccus, Chicoine, Hill and Noyce. 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, the 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. 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, Hill, Mehrer and Olsen, 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 enterprise 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 in (i) identifying qualified individuals to become Class A Board members, consistent with criteria approved by the Board, (ii) determining the composition of the Board of Directors and its committees, (iii) monitoring a process to assess board effectiveness and (iv) 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. 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 each executive officer named in the Summary Compensation Table, as of February 29, 2008. 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%.

 

 

 

 

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 2007 our officers, directors and ten-percent shareholders complied with all section 16(a) filing requirements applicable to them.

 

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 chairs the Asset/Liability Committees of the Life Insurance Companies, and the Corporate Compliance Committee. He is president of the board and chairman of the executive committee of non-profit enterprise Children & Families of Iowa. Mr. Brannen has been employed by FBL and its affiliates since 1991.

 

Richard J. Kypta is Executive Vice President — Farm Bureau Life, General Counsel & Secretary of FBL. He joined the company in August 2007 as Senior Vice President, General Counsel and Secretary, and assumed his current position March 1, 2008. He spent 13 years with Aviva USA Corporation where he held a number of senior management positions including as General Counsel and as Senior Vice President with responsibility for that company’s payout annuity business. He most recently served as Senior Vice President

and Chief Operating Officer. Prior to that, Kypta held a number of legal, finance, and operations positions within Aegon Insurance Group, including as General Counsel and Senior Vice President — Administration of the Advanced Products Division. He started his career with the public accounting firm of PricewaterhouseCoopers. Kypta holds a B.S. degree from Georgetown University, a M.S. degree from John Hopkins University and J.D. degree from the University of Maryland’s School of law. He is a certified public accountant, a member of the Maryland Bar Association, and a Fellow of the Life Management Institute.

 

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 is Chairman of the Agent Compensation and the EquiTrust Oversight Committees. 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. He also served on the board of directors for Des Moines General Hospital Foundation, Junior Achievement and Greater Des Moines Leadership Institute.

 

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.

 

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.

 

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 chairs the Investment Committee. 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 the chair of the Capital Adequacy and Expense Committees for the companies. He is also a member of the Asset/Liability, Benefits Administration and Acquisition Committees. He is a director of non-profit enterprise West Des Moines Public Library Friends Foundation, and past president of the Sertoma Club of Des Moines. Mr. Seibel has been employed by FBL and its affiliates since 1996.

 

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 1,967 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 19,781 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 two 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:

 

 

This report details our compensation program for our named executive officers. It describes incentive plans which are measured by various profitability factors. The officers and our employees are rewarded for delivering the profitable performance that our shareholders seek.

 

Reimbursement of compensation expenses by managed affiliates

 

We manage two 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 and Western Agricultural Insurance Company, and three smaller companies affiliated with them; 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 2007 total compensation expense: Mr. Noyce, 40%; Mr. Brannen, 27%; Mr. Trost, 100%; Ms. Rumelhart, 0%, Mr. Paule, 7%, and Mr. Morain, 34.3%.

Enterprise wide, the managed property-casualty companies reimbursed us for approximately 63.5% of our 2007 total compensation expenses, 55.3% of our 2007 annual cash incentives, and 36.1% of our 2007 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. 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 and in our annual management incentive plan.

 

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 surveyed companies and peer group companies in the insurance and financial services industries. Our target is to have overall executive compensation, and each of the elements of the compensation package, at approximately the blended average of survey data provided by the Compensation Committee’s consultant and median compensation payments by peer group companies 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. These elements are reviewed periodically and adjusted as necessary. As discussed in this analysis, in line with peer group surveys in the last several years we have specifically acted to reduce the amount of benefits and perquisites available to the named executive officers, put an increased percentage of their potential compensation at risk of performance by increasing target levels for our annual cash bonus plan, and reduced retirement benefits. We have also shifted half of executive long term incentives from stock options to performance based restricted stock.

 

Compensation Committee and its consultant

 

The Management Development and Compensation Committee (the “Compensation 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 Compensation Committee consists of four independent directors. See “Further Information Regarding the Board of Directors” for additional information regarding the Compensation Committee. Mercer has been retained by the Compensation Committee as a compensation consultant. In 2007, Mercer received, in addition to its fees for services to the Compensation Committee, an ongoing license fee for its compensation software which the company acquired in 1999. Mercer receives its instructions exclusively from the Chairman of the Compensation committee. On occasion, management provides information on the compensation and benefit programs and business context to Mercer. The CEO and CFO review drafts of Mercer’s reports (where not concerning CEO compensation) for accuracy with respect to company information. In 2007, the Compensation Committee asked Mercer to provide a comprehensive survey of our executive compensation versus the peer group and other published sources.

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. The Compensation Committee believes that 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, for each element and in total, compensation that can be compared to the blended average of survey data provided by the consultant and median compensation payments made by the companies we have selected as a peer group. Because the comparative compensation information from the survey information and the peer group is just one of the several analytic tools that are used in setting executive compensation, the Compensation Committee has discretion in determining the nature and extent of its use.

 

 — Survey Data

 

In 2007 the consultant provided analysis of market pay data from various published sources. These included the LOMA Executive Compensation Survey Report, 2006; Mercer’s US Benchmark Database, 2006; and from Watson Wyatt Data Services, the ECS Top Management Compensation 2006/2007; Report on Health, Annuity, & Life Insurance Positions, 2006/2007; and Report on Property & Casualty Insurance Positions, 2006/2007.

 

 — Peer Group

 

Our peer group for this measurement purpose was selected by the Compensation Committee with the assistance of Mercer after a survey and study in 2005, and revised after a further survey and study in 2007, to identify insurance and financial services companies with characteristics similar to us. These include industry classification, revenues, public company status, market capitalization, assets under management and level of complexity of the business, including some firms with both life and property-casualty operations in the group. Average revenues of these organizations in 2006 was $2.190 billion compared to $2.125 billion for FBL and the managed property-casualty companies; assets at year end 2006 averaged $14.181 billion compared to $13.702 billion by FBL and the managed property-casualty companies.

 

The peer group approved by the Board of Directors in May 2007 is as follows:

 

 

The 2007 study started from a list of 40 life, multi line and reinsurance companies with a market cap between $500 million and $2 billion. We then eliminated firms which were less than half or more than twice our size in all of the following metrics: assets, revenue and market capitalization. This left us a list of 27 companies. We eliminated 10 whose business was not similar to ours. Of the 17 remaining, we eliminated

six companies who had either too narrow a scope of business compared to us, or whose compensation information was not readily available. The peer group of 2005 had included AmerUs Group Co., subsequently acquired, and National Western Life. For 2007 we added Conseco, Delphi Financial Group and Torchmark.

 

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 information derived from our 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 blended average of survey data and 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 Compensation Committee looks for information from its consultant 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 blended average of the survey data and the median level of peer companies.

 

The following table illustrates by compensation element our purpose, and our rationale in using discretion when applicable.

 

 

 — 2007 Salary Survey Leads to Changes

 

In 2007 the consultant completed a comprehensive survey of our executive compensation versus the peer group and other published sources. Its conclusion was that our total compensation payments to the named executive officers have generally been matching our stated philosophy of targeting the median of the average of the survey information and the peer group, with two major exceptions. First, the base salaries and targeted total cash compensation of Mr. Noyce, CEO, and Mr. Brannen, CFO, were trailing the median significantly, i.e., by more than 20%. This occurred in large part because both are new to their positions in 2007 and their beginning salaries in the positions were set low. The Compensation Committee agreed and granted raises effective August 1, 2007 to both, increasing Mr. Noyce’s base salary from $600,000 to $675,000, and increasing Mr. Brannen’s base salary from $340,000 to $370,000. This also had the result of increasing their short term cash incentive payments, which are computed as a percentage of annual salary depending upon company performance. With the increases both officers were still below median base salary levels for comparable peer company positions. Second, while total compensation is at survey information and peer group median levels, the elements of compensation differ from the median of elements being measured against. The primary difference is that we have been paying benefits and perquisites at a rate higher than our peers, while not having as much compensation variable and at risk of performance criteria. The Compensation Committee has reacted to this point by adopting proposals to reduce the company’s retirement plan benefits, to delete executive car allowances and club memberships, and to increase the potential short term cash incentives and long term equity incentives for performance of our annual goals. This is further described in “Annual Cash Incentives”, “Benefits” and “Perquisites”, below.

 

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 other named executive officers, covering salary, annual cash incentives 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 peer group data, and include objective and subjective evaluations. The recommendations are

measured against the peer group surveys and recommendations of the Compensation Committee’s consultant to stay within the company’s policy of aiming at the blended average of the survey data and the median peer group level for executive compensation. The Compensation Committee makes its own determination of the CEO’s compensation, with the assistance of its consultant and the input and approval of the entire board, including the assistance of the lead director and the chairman of the board. Within the executive group the CEO attempts to achieve a level of internal pay equity among the executives, with the review of the Compensation Committee. The process typically occurs in the late fall of the year, with compensation increases effective at the beginning of the calendar year.

 

Following presentation of recommendations by the CEO, the Compensation Committee has an executive session with its consultant to discuss the proposal and potential alternatives. The chairman of the compensation committee communicates the results of executive sessions to the CEO when it’s appropriate.

 

— Base salaries

 

In addition to the CEO’s recommendations, the Compensation Committee requests recommendations of executive compensation ranges from its consultant. The recommendations are based upon surveys of compensation paid to peer group companies and other published and proprietary surveys. See, “2007 Salary Survey Leads to Changes”, above. In 2007 the consultant provided both analysis of pay data from proxy statements and other published data of the peer group, along with market pay data from various published sources. These included the LOMA Executive Compensation Survey Report, 2006; Mercer’s US Benchmark Database, 2006; and from Watson Wyatt Data Services, the ECS Top Management Compensation 2006/2007; Report on Health, Annuity, & Life Insurance Positions, 2006/2007; and Report on Property & Casualty Insurance Positions, 2006/2007. The Compensation Committee believes the combination of peer group and published data gives a more reliably accurate representation of the competitive market. The data is blended as part of the consultant’s recommendations for the named executive officer positions. The CEO’s compensation is greater than the other named executive officers because it is a market practice. This differentiation is also appropriate given the greater responsibility and impact of the CEO. 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 skills in handling short and long range operational and strategic issues. In addition, the Compensation Committee has established specific annual 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 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 and business planning, management succession planning and leadership development, enterprise risk management, operational and market share benchmarking, and communications and relations 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 2007, the annual goals were set in the following eight areas:

 

2007 Management Performance Plan

 

 

Although it is generally difficult to maximize all of the annual goals because of their counterbalance (that is, achieving an expense goal might make it more difficult to achieve a sales or production goal, and vice versa), 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 Compensation Committee has not used discretion to change the size of individual awards under the Management Performance Plan, although it has in certain years adjusted goals applicable to all awards when there was adequate reason to do so. This has required that unexpected intervening events have made a goal impossible to meet despite the best efforts of management and employees, or have made a goal too easy to meet. The current plan does not permit post-approval changes to positively affect the size of awards made to those persons subject to Section 162(m) tax deduction limitations.

 

The named executive officers had the following percentages of base salary available to be paid as annual incentive payments for achievement of the annual goals under the 2007 Management Performance Plan.

 

2007 Cash Incentives as a Percentage of Base Salary

 

 

 

In addition, 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, which rise 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. See Proposal Number Two — Approval of Amendments of 2006 Class A Common Stock Compensation Plan regarding a proposed change in this level.

In partial response to the consultant’s findings and as a way of increasing variable performance related compensation (see, 2007 Salary Survey Leads to Changes, above), the Compensation Committee has increased the cash incentive percentages of the named executive officers for performance in 2008. Mr. Noyce’s threshold, target and maximum are changed to 45%, 90% and 180%, and the threshold, target and maximum for Mr. Brannen, Mr. Trost, Ms. Rumelhart and Mr. Paule are each changed to 30%, 60% and 120%.

 

— Long Term Incentives; Options and Restricted Stock

 

The Compensation Committee has adopted a long term incentive (“LTI”) formula which bases equity incentive awards on the position and salary of supervisory and management personnel. Generally, the awards increase with the level of the position. For the named executive officers, the Compensation Committee in 2007 had assigned LTI targets as a percentage of base salary as follows: Mr. Noyce, 150%; Mr. Brannen, 100%; Mr. Trost, 100%; Ms. Rumelhart, 100%; Mr. Paule, 100%; Mr. Morain, 55%. However, the value ultimately realized from these awards will depend on a number of factors, including the company’s financial results and movements in its stock price.

 

In partial response to the consultant’s findings and as a way of increasing long term equity variable performance related compensation (see, 2007 Salary Survey Leads to Changes above), the Compensation Committee has increased the LTI targets of the named executive officers for performance in 2008: Mr. Noyce’s LTI is changed to 170% and the LTI of Mr. Brannen, Mr. Trost, Ms. Rumelhart and Mr. Paule is changed to 110%.

 

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 LTI award by the closing stock price on the date of grant. Starting in 2004 we substituted grants of performance based restricted stock for half the value of the equity grants to the named executive officers and the rest of the ten person management team. This change 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 goals have been adjusted year by year to the current formula of both the earnings per share goal and the return on equity goal being measured for the aggregate of the ensuing three years. The Compensation Committee determined the longer focus of the goals was important to the officers achieving consistent results for 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 2007 grant agreements contained the following definition of “Restricted Stock Agreement Earnings Per Share (RSAEPS)”:

 

RSAEPS means basic 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 lawsuit settlements/judgments (as defined in the Accounting Policy for Determination of Operating Income in existence at February 20, 2007) for the years 2007, 2008 and 2009.

 

Additionally, the 2007 grant agreements contained the following definition of “Restricted Stock Agreement Return on Equity (RSAROE)”:

 

RSAROE means the aggregate of the percentage returns on common equity, as computed by dividing operating income (net income as found in the FBL Consolidated Statement of Income for each of the

years ended December 31, 2007, 2008 and 2009, adjusted to eliminate the impact of realized/unrealized gains or losses on investments, net unrealized gains or losses on derivatives, and lawsuit settlements/judgments [as defined in the Accounting Policy for Determination of Operating Income in existence at February 20, 2007]) by the average of total stockholders’ equity at the end of each of the five calendar quarters for each of the three years ended December 31, 2007, 2008, and 2009, respectively

 

 — Restricted Stock Performance Goals

 

Grant dated 02/2004: Goal, EPS for 2006*

 

 

 

Grant dated 02/2005: Goals, RSAEPS for 2007 (75%) and ROE for 2007 (25%)

 

 

Grant dated 02/2006: Goals, RSAEPS for 3 years ended 12/31/2008 (75%) and RSAROE for 2008 (25%)

 

 

Grant dated 02/2007: Goals, RSAEPS for 3 years ended 12/31/2009 (75%) and RSAROE for 3 years ended 12/31/2009 (25%)

 

 

Grant dated 02/2008: Goals, RSAEPS for 3 years ended 12/31/2010 (75%) and RSAROE for 3 years ended 12/31/2010 (25%)

 

 

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 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. The Compensation Committee has a policy of limiting grants of restricted stock to not more than $1,000,000 grant date fair market value per year. See, Proposal Number Three — Approval of Performance Terms for information regarding a revision of that policy to $3,000,000 per year.

 

The Compensation Committee remains of the view that equity grants of stock options and restricted stock 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.

 — Clawback Policy

 

In order to further align management’s interests with the interest of shareowners and support good governance practices, the Compensation Committee has 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 to recoup 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 4.05%, 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 Compensation Committee in 2006 determined to freeze the executive life insurance program after 2006. This was done in part because this cash value policy benefit was over and above what peer companies were offering. Executives retained the face amount of universal life policies previously issued, and will receive payments in future years sufficient to maintain that amount. They are eligible to receive additional group life insurance coverage under the company’s all employee plan to maintain insurance coverage equal to twice salary, less the accrued universal life benefit. Similarly, in 2007 the Compensation Committee determined that after 2007 no further accruals will be made under the 401(k) excess plan because this benefit was not commonly seen among the peer companies.

 

 — Perquisites

 

The Company has been providing executives with an automobile allowance, 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 suites, box seats or other tickets at a variety of sporting and entertainment venues. During 2007 management determined that the company tickets would be distributed first for business, charitable and employee welfare usages; and then by random selection for personal use by all interested employees. Based upon a 2007 survey by the Compensation Committee’s consultant indicating that the company’s benefits and perquisites remained generous compared to peer group companies, the Compensation Committee has determined to cease paying the automobile allowance and club dues after 2007. Rather, the company made adjustments in the percentage levels available for performance related no equity incentive plan payments. This gives the affected officers the opportunity to earn a bonus based on performance that could exceed the value of the former perquisites.

 

— Retirement and termination benefits

 

A major project in 2007 was to revise our defined retirement benefit plan to bring it closer to what is available under plans of peer companies. Jim Brannen, CFO, led a cross-functional team of human resources and finance professionals and engaged PricewaterhouseCoopers to advise in the redesign. After the redesign was approved by Jim Noyce, CEO, Mr. Brannen presented it to the Compensation Committee. After review of the design changes with PricewaterhouseCoopers and an executive session with its consultant, the

Compensation Committee approved the changes to the retirement plan. Changes in the plan, effective at the beginning of 2008, will act to reduce our benefit expenses while still leaving our executives and employees with competitive retirement opportunities. The reduction in defined benefit plan payments has been based on benchmarking studies of other companies within our industry and geographic location. See further description of the company’s retirement plans, including the revisions, 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 in 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 40, for additional information regarding the change in control agreements.

 

The agreements are effective for three years after being triggered, at a multiple of salary and bonus of three times for Messrs. Noyce, Paule, Trost and Brannen, and for Ms. Rumelhart, and for two years after being triggered, and a multiple of salary and bonus of two times, for Messrs. Gumm, Kypta, 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 option 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 option grants in coordination with the release of material non-public information, and executives receive their option grants at the same time as other participants.

 

Annual equity awards are recommended by management to the Compensation 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. For the 10 person management group including the named executive officers, the value of the equity awards are equally divided between stock options and

performance based restricted stock. 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 stock option grant date is January 15 of the following year. The dollar value of the option awards 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 Compensation 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 Compensation Committee at the end of the prior year.

 

Similarly, the grants of performance based restricted stock follow the same schedule for recommendations and review. However, the grant date and actual performance terms of the restricted stock grants are not determined by the Compensation Committee until after release of the prior year’s financial statements in February.

 

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 grants require 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 our analysts and investors.

 

The Compensation Committee reviews all elements of compensation, including executive benefits and perquisites, from time to time. In 2007 it determined to delete the payment of car allowances and club dues, and deleted a deferred compensation program related to 401(k) company contributions in excess of IRS limits. The board of directors has also reduced benefits under the company’s retirement program so that it is more in line with industry and peer group practices. Retirement and termination benefits remain part of the executive’s compensation package, under the company’s revised defined benefit retirement plans and the 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 or promotion dates, 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 and Executive 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 (20 additional persons) are required to own shares worth at least one time annual base pay in FBL common stock within five years.

 

After three years most of the officers have made significant progress towards the ownership guidelines.

 

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 Compensation Committee’s consultant in its 2007 salary survey noted that the stock ownership guidelines of the company are lower on a percentage basis than those of a number of peer group companies. The committee reviews the stock ownership requirements from time to time.

 

The Compensation Committee has added to its 2008 agenda the question of if it should establish 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 2007 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 previously received shareholder approval of the material terms used in performance based compensation to qualify for appropriate 162(m) treatment, and are elsewhere in this proxy statement again asking for shareholder approval of the material terms for section 162(m) purposes. See, Proposal Number Three — Approval of Performance of Terms.

 

— Nonqualified Deferred Compensation

 

The American Jobs Creation Act of 2004 changed the tax rules applicable to nonqualified deferred compensation agreements. Since January 1, 2005, Companies have been required to operate nonqualified deferred compensation plans in compliance with §409A of the Internal Revenue Code and other applicable guidance including Notice 2005-1. The Company believes it has operated its plans in good faith compliance with the guidance. In April, 2006 the IRS released final regulations and in October, 2007 the IRS issued Revenue Procedure 2007-86 that granted transitional relief to comply with the final regulations until December 31, 2008. The Company has amended its plans to comply with the final regulations and believes it is operating the plans in compliance with them.

 

— 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 two years ended December 31, 2007. 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 26.5% (Mr. Noyce) to 38.3% (Mr. Brannen) of the named executive officers’ total compensation for 2007. 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. Noyce, as CEO, was awarded performance based incentive grants incrementally larger than those received by the other officers.

 

 

 

 

 

 

2007 All Other Compensation