Principal Financial cuts employees’ pay

Principal Financial Group Inc. said Friday it is cutting pay for workers, management and its board of directors and taking other steps to control costs.

The insurance, retirement and financial services company said pay would be cut from 2 percent to 10 percent depending on pay level.

The company also is leaving vacant positions unfilled and suspending several corporate amenities including tuition reimbursement, anniversary gifts and employee recognition programs, spokeswoman Susan Houser said.

“Due to continued deteriorating conditions in the economy and markets, the Principal announced internally several cost-cutting measures to reduce expenses and better align revenues and expenses,” she said in a statement. “These actions are designed to help offset decreased revenues caused by the markets’ unprecedented impact on our asset-based businesses.”

The actions are effective immediately and will result in savings throughout 2009, Houser said. The benefits will be restored when conditions improve.

Principal shares were down 11 percent or 88 cents to $6.90 in afternoon trading Friday. They have traded between $5.41 and $59.53 in the past 52 weeks.

The pay cuts come two days after Moody’s Investors Service cut the company’s ratings saying Principal likely will face greater pressure on liquidity and earnings as the economic downturn affects its business.

The Moody’s downgrade comes as insurance companies suffer from losses in their investment portfolios, the result of the falling stock market.

Moody’s downgraded the insurance financial strength rating of the company’s main life insurance subsidiary to “Aa3” from “Aa2.” Moody’s also lowered the senior debt rating on the holding company to “A3” from “A2.” All ratings are considered investment grade.

Moody’s said it could downgrade the ratings further if liquidity worsens over the next six months or if investment losses exceed $1 billion in 2009.

Fitch Ratings downgraded the insurer financial strength ratings of Principal’s primary life insurance units to “AA-” from “AA” last month. Fitch also lowered the senior debt rating on the holding company to “A-” from “A.” All ratings are considered investment grade.

The downgrades are not unique to Principal. Many financial services companies have seen similar action and life insurers in particular have negative outlooks.

Houser said the company has strong capital and liquidity positions, pointing to Moody’s statement that credited good operating liquidity and regulatory capital levels. The company continues to deliver solid operating earnings resulting from its diversified business, she said.

The company reduced its work force by about 3 percent in December, laying off 550 workers, including 300 in Des Moines, where the corporate headquarters are located. Another 60 insurance division workers lost their jobs earlier this month.

Principal reported last month a loss after paying preferred dividends of $7.5 million for the fourth quarter, hurt in large part by $188.9 million in investment and loan losses.