<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE
14-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
NATIONWIDE FINANCIAL SERVICES, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------
(5) Total fee paid:
------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
----------------------------------------------------
<PAGE> 2
Nationwide Logo
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
March 31, 1998
Dear Nationwide Financial Services, Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of the stockholders of
Nationwide Financial Services, Inc. (the "Company") on May 13, 1998. The meeting
will begin at 1:30 p.m. at the office of the Company at One Nationwide Plaza,
Columbus, Ohio.
The official Notice of Meeting, Proxy Statement and form of proxy are included
with this letter. The matters listed in the Notice of Meeting are described in
detail in the Proxy Statement.
The vote of every stockholder is important. Please sign, date and promptly mail
your proxy. The Board of Directors and management look forward to greeting those
stockholders who are able to attend.
Sincerely,
/S/ Dimon R. McFerson
Dimon R. McFerson
Chairman and Chief Executive
Officer--
Nationwide Insurance Enterprise
<PAGE> 3
Nationwide Logo
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 31, 1998
To The Stockholders Of Nationwide Financial Services, Inc.:
The Annual Meeting of stockholders of Nationwide Financial Services, Inc.
(the "Company") will be held at 1:30 p.m. on May 13, 1998, at One Nationwide
Plaza, Columbus, Ohio for the following purposes:
(1) To elect the Class I Directors to serve until the expiration of
their terms and until their successors are elected; and
(2) To transact such other business as may properly come before the
Annual Meeting.
For further information on the individuals nominated as directors you are
urged to read the Proxy Statement.
By Order of the Board of
Directors,
Dennis W. Click
Vice President and Secretary
<PAGE> 4
Nationwide Logo
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
PROXY STATEMENT
GENERAL
This Proxy Statement (the "Proxy Statement") is being furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
of Nationwide Financial Services, Inc. (the "Company") for the Annual Meeting of
Stockholders of the Company to be held on May 13, 1998, at 1:30 p.m. (the
"Annual Meeting"). Only stockholders of record at the close of business on March
16, 1998, are entitled to notice of and to vote at the Annual Meeting. The
Annual Meeting will be held at the office of the Company at One Nationwide
Plaza, Columbus, Ohio.
Returning your completed proxy will not prevent you from voting in person
at the meeting should you be present and wish to do so. A stockholder may revoke
a proxy, prior to the vote being taken at the meeting, by giving written notice
to the Secretary of the Company, by a duly executed proxy bearing a later date
or by voting in person at the meeting.
A copy of the Company's Annual Report for the fiscal year ended December
31, 1997, is being mailed to the stockholders together with the Proxy Statement
on March 31, 1998.
SOLICITATION
The cost of the solicitation of the proxies will be borne by the Company.
In addition to solicitation by mail, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone, or by other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made by
the Company with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries, and the Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
VOTING
The Company has two classes of common stock entitled to vote upon matters
submitted to a vote at the Annual Meeting. The Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), is entitled to one vote per share.
The Class B Common Stock, par value $.01 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), is entitled to
ten votes per share. Proposals submitted to a vote of stockholders will be voted
on by the holders of Class A Common Stock and Class B Common Stock voting
together as a single class.
Under the Company's Bylaws and Section 216 of the Delaware Corporation Law,
a majority of the shares of Common Stock, present in person or represented by
proxy, including abstentions and broker non-votes, constitutes a quorum for the
purposes of the Annual Meeting. Directors are elected by a plurality of the
votes cast
1
<PAGE> 5
at the Annual Meeting. In the election of directors, stockholders may cast votes
for, or withhold votes from, any nominee; votes that are withheld will not be
included in the vote and will not affect the outcome.
At the close of business on March 16, 1998, the Company had outstanding
23,783,136 shares of Class A Common Stock and 104,745,000 shares of Class B
Common Stock. As of such date, Nationwide Corporation owned all of the
outstanding shares of Class B Common Stock, which represents approximately 98.1%
of the combined voting control of the Company. Therefore, Nationwide Corporation
controls the corporate actions that require stockholder approval, including,
among other things, the election of the directors. Nationwide Corporation has
advised the Company that it intends to vote its shares in favor of Messrs.
Brocksmith, Holloway, Patterson and Prothro.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following tables set forth certain information regarding beneficial
ownership of (i) each person who is known by the Company to be the beneficial
owner of more than five percent of either class of Common Stock, (ii) each
director and nominee for director, (iii) each of the Named Executive Officers
(as defined herein) and (iv) all of the directors and executive officers of the
Company as a group. The Class B Common Stock is convertible into Class A Common
Stock at any time by the holder on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted. Each share of Class B
Common Stock has ten votes for each share of Class A Common Stock.
CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- ------------------------------- ----------------
<S> <C> <C>
Neuberger & Berman, LLC(1).......................... 1,459,000 6.13%
605 Third Street New York, NY 10158
Morgan Stanley, Dean Witter......................... 1,230,300 5.17%
Discover & Co.(2) 1585 Broadway New York, NY 10036
Warburg Pincus Counselors, Inc.(3).................. 1,216,000 5.11%
466 Lexington Ave. New York, NY 10015
The Travelers Group(4).............................. 1,211,000 5.09%
1 Tower Square Hartford, CT 06183
</TABLE>
- ---------
(1) Based on a Schedule 13G dated February 10, 1998, Neuberger & Berman, LLC
reported sole voting power with respect to 167,900 shares, shared power to
vote or direct the vote for 1,274,800 shares, and shared dispositive power
with respect to 1,459,000 shares.
(2) Based on a Schedule 13G dated February 12, 1998, Morgan Stanley Dean Witter
Discover & Co. and certain of its subsidiaries reported shared voting power
with respect to 957,800 shares and shared dispositive power with respect to
1,230,300 shares.
(3) Based on Schedule 13F dated January 12, 1998, Warburg Pincus Counselors,
Inc. reported shared voting and dispositive power with respect to 1,216,000
shares.
(4) Based on Schedule 13F dated February 12, 1998, The Travelers Group and
certain of its subsidiaries reported shared voting and dispositive power
with respect to 1,211,000 shares.
2
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Dimon R. McFerson........................................... 73,437(3) --(1)
Joseph J. Gasper............................................ 29,876(3) --(1)
James G. Brocksmith, Jr.(2)................................. 9,197(3) --(1)
Charles L. Fuellgraf, Jr.................................... 9,443(3) --(1)
Henry S. Holloway(2)........................................ 4,443(3) --(1)
Lydia Micheaux Marshall..................................... 1,776(3) --(1)
Donald L. McWhorter......................................... 1,776(3) --(1)
David O. Miller............................................. 3,385(3) --(1)
James F. Patterson(2)....................................... 3,443(3) --(1)
Gerald D. Prothro(2)........................................ 1,776(3) --(1)
Arden L. Shisler............................................ 4,443(3) --(1)
James E. Brock.............................................. 18,465(3) --(1)
Richard A. Karas............................................ 19,044(3) --(1)
Harvey S. Galloway, Jr...................................... 11,405(3) --(1)
Directors and Executive Officers as a Group (Total of 31)... 291,612(4) --(1)
</TABLE>
- ---------
(1) Less than one percent.
(2) Indicates the nominees for Class I directors
(3) Total includes options that may be exercised within 60 days for the
following persons: McFerson--13,333 shares, Gasper--10,000 shares,
Fuellgraf--667 shares, Holloway--667 shares, Miller--667 shares,
Patterson--667 shares, Shisler--667 shares, Brock--2,500 shares,
Karas--3,333 shares and Galloway--2,500 shares.
(4) Total includes options that may be exercised within 60 days. The aggregate
number of options exercisable within 60 days is 64,167.
CLASS B COMMON STOCK(1)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
Nationwide Corporation...................................... 104,745,000 100%
One Nationwide Plaza Columbus, Ohio 43215
</TABLE>
- ---------
(1) As of March 16, 1998, Nationwide Corporation was the beneficial owner of
100% of the Class B Common Stock, which, because of its ten to one voting
control, represents approximately 98.1% of the combined voting control of
the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eleven directors,
divided into three classes. The initial term of the Class I Directors (the
"Class I Directors") will expire at the Annual Meeting to be held in 1998, the
initial term of the Class II Directors (the "Class II Directors") will expire at
the annual meeting of stockholders in 1999 and the initial term of the Class III
Directors (the "Class III Directors") will expire at the annual meeting of
stockholders in 2000. Messrs. Brocksmith, Holloway, Patterson and Prothro are
Class I
3
<PAGE> 7
Directors, Messrs. Fuellgraf, McFerson, McWhorter and Shisler are Class II
Directors and Messrs. Gasper and Miller and Ms. Marshall are Class III
Directors. At each annual meeting of stockholders, directors will be elected for
a three-year term to succeed the directors whose terms are then to expire.
The names of the nominees for the Class I Directors and the Class II
Directors and the Class III Directors who will continue in office after the
Annual Meeting until the expiration of their terms, together with certain
information regarding them, are as follows:
NOMINEES FOR CLASS I DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
James G. Brocksmith, Jr................................ 57 April 1997 I 2001(1)
Henry S. Holloway...................................... 65 November 1996 I 2001(1)
James F. Patterson..................................... 56 November 1996 I 2001(1)
Gerald D. Prothro...................................... 55 February 1997 I 2001(1)
</TABLE>
- ---------
(1) The date is if elected at the Annual Meeting in 1998.
CLASS II DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
Charles L. Fuellgraf, Jr............................... 66 November 1996 II 1999
Dimon R. McFerson...................................... 61 November 1996 II 1999
Donald L. McWhorter.................................... 62 February 1997 II 1999
Arden L. Shisler....................................... 56 November 1996 II 1999
</TABLE>
CLASS III DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
Joseph J. Gasper....................................... 54 November 1996 III 2000
Lydia Micheaux Marshall................................ 49 February 1997 III 2000
David O. Miller........................................ 59 November 1996 III 2000
</TABLE>
DIMON R. MCFERSON has been Chief Executive Officer of the Nationwide
Insurance Enterprise since December 1992. He has been Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise of the Company since December
1996 and a director of the Company since November 1996. Mr. McFerson has been a
director of Nationwide Life Insurance Company and Nationwide Mutual Insurance
Company since April 1988 and Chairman and Chief Executive Officer--Nationwide
Insurance Enterprise of Nationwide Life Insurance Company and Nationwide Mutual
Insurance Company since April 1996. Previously he was elected Chief Executive
Officer of Nationwide Life Insurance Company in December 1992, and President and
Chief Executive Officer--Nationwide Insurance Enterprise of Nationwide Life
Insurance Company in December 1993. He was President and General Manager of
Nationwide Mutual Insurance Company from April 1988 to April 1991; President and
Chief Operating Officer of Nationwide Mutual Insurance from April 1991 to
December 1992; and President and Chief Executive Officer of Nationwide Mutual
Insurance from December 1992 to April 1996. Mr. McFerson has been with the
Nationwide Insurance Enterprise for 18 years.
JOSEPH J. GASPER has been President and Chief Operating Officer of the
Company since December 1996 and a director of the Company since November 1996.
Mr. Gasper has been President and Chief Operating Officer of Nationwide Life
Insurance Company and director since April 1996. Previously, he was Executive
Vice President--Property/Casualty Operations of Nationwide Mutual Insurance
Company from April 1995 to April 1996. He was Senior Vice
President--Property/Casualty Operations of Nationwide Mutual Insurance Company
4
<PAGE> 8
from September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous
positions within the Nationwide Insurance Enterprise. Mr. Gasper has been with
the Nationwide Insurance Enterprise for 31 years.
JAMES G. BROCKSMITH, JR. has been a director of the Company since April
1997. Mr. Brocksmith retired from KPMG Peat Marwick LLP in January 1997, where
he was the Chief Operating Officer and Deputy Chairman. Mr. Brocksmith was
employed at KPMG Peat Marwick LLP for 32 years.
CHARLES L. FUELLGRAF, JR. has been a director of the Company since November
1996. Mr. Fuellgraf has been Chief Executive Officer of Fuellgraf Electric
Company, an electrical contractor, of Butler, Pennsylvania and Nashville,
Tennessee since 1986. He serves on the board of directors of several companies
of the Nationwide Insurance Enterprise.
HENRY S. HOLLOWAY has been a director of the Company since November 1996.
Mr. Holloway has been a farm owner and operator in Darlington, Maryland since
1959. He is Chairman of the Board of Nationwide Life Insurance Company,
Nationwide Life and Annuity Insurance Company and Nationwide Corporation and
serves on the board of directors of several companies of the Nationwide
Insurance Enterprise. He is also a director of the National Cooperative Business
Association and the Forest Hill State Bank.
LYDIA MICHEAUX MARSHALL has been a director of the Company since February
1997. Ms. Marshall has been a partner of Rockport Capital Incorporated since
September 1997. Previously, she was Executive Vice President, Marketing of the
Student Loan Marketing Association ("Sallie Mae"), in Washington D.C., from
November 1993 to September 1997. Previously, she was Senior Vice President,
Marketing of Sallie Mae from January 1991 to November 1993. Prior to that time,
Ms. Marshall held several positions with Sallie Mae and Citicorp. She is Chair
of the Board of CARE (Cooperative for American Relief Everywhere).
DONALD L. MCWHORTER has been a director of the Company since February 1997.
Mr. McWhorter retired from Banc One Corporation in April 1995, after serving as
President and Chief Operating Officer of Banc One Corporation since April 1992.
Previously, he was Chairman and Chief Executive Officer of Banc One Ohio from
July 1989 to April 1992. Prior to that time, Mr. McWhorter held several
positions with Banc One Corporation.
DAVID O. MILLER has been a director of the Company since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the President
of the Owen Potato Farm Inc. and is a partner of M&M Enterprises in Licking
County, Ohio. He is Chairman of the Board of the Wausau Insurance Companies and
serves on the board of directors of several companies of the Nationwide
Insurance Enterprise. He is also a director of the National Cooperative Business
Association.
JAMES F. PATTERSON has been a director of the Company since November 1996.
Mr. Patterson has operated the Patterson Fruit Farm in Chesterland, Ohio since
1964 and has been the President of Patterson Farms, Inc. since December 1991. He
is Chairman of the Board of Nationwide Mutual Fire Insurance Company. He serves
on the board of directors of several companies of the Nationwide Insurance
Enterprise. He is also a trustee of The Ohio State University and serves on the
board of directors of the University Hospitals Health System in Cleveland, Ohio
and Geauga Hospital, Inc. in Chardon, Ohio.
GERALD D. PROTHRO has been a director of the Company since February 1997.
Mr. Prothro has announced his retirement from International Business Machines
effective April 30, 1998. Mr. Prothro has been Vice President, Corporate
Strategy since January 1998 of International Business Machines Corporation.
Previously, he was the Vice President and Chief Information Officer of
International Business Machines Corporation since April 1994. Prior to that, he
was Vice President, Information and Telecommunications Systems of International
Business Machines Corporation from June 1992 to April 1994. Mr. Prothro has also
held several positions with International Business Machines Corporation. He is a
director of National Technological University and a member of the Review and
Priority Board of Lehigh University/Iacocca Institute. He is also a trustee of
Howard University.
ARDEN L. SHISLER has been a director of the Company since November 1996.
Mr. Shisler has been President and Chief Executive Officer of K & B Transport,
Inc., a trucking firm in Dalton, Ohio since January 1992. Previously, he was
Chief Operating Officer of K & B Transport, Inc. from April 1986 to January
1992. Prior to that time, Mr. Shisler held several positions with K & B
Transport, Inc. He is Chairman of the Board of
5
<PAGE> 9
Nationwide Mutual Insurance Company and serves on the board of directors of
several companies of the Nationwide Insurance Enterprise. He is also a director
of the National Cooperative Business Association.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The full Board of Directors met eight times during 1997. During 1997, the
Board of Directors had a standing Audit Committee (the "Audit Committee"),
Compensation Committee (the "Company Compensation Committee") and Executive
Committee (the "Executive Committee"). The Board of Directors does not have a
standing nominating committee.
AUDIT COMMITTEE
The Audit Committee currently consists of three directors, none of whom is
an officer or employee of the Company. Ms. Marshall and Messrs. McWhorter and
Prothro are the members of such committee. The Audit Committee recommends to the
Board of Directors the selection of independent certified public accountants to
audit annually the books and records of the Company, reviews the activities and
the reports of the independent certified public accountants, and reports the
results of such review to the Board of Directors. The Audit Committee also
considers the adequacy of the Company's internal controls and internal auditing
methods and procedures. The Audit Committee met twice in 1997.
COMPANY COMPENSATION COMMITTEE
The Company Compensation Committee currently consisting of four directors,
none of whom is an officer or employee of the Company, which, as authorized by
the Board of Directors, makes determinations with respect to non-cash
compensation to officers, directors and employees of the Company, including
grants, options and awards under the LTEP (hereinafter defined). Messrs.
Brocksmith, Fuellgraf, McWhorter and Miller are the members of such committee.
The Company Compensation Committee met once in 1997.
EXECUTIVE COMMITTEE
The Executive Committee currently consisting of six directors, which, to
the extent authorized by the Board of Directors, in the interim between meetings
of the Board of Directors, may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the Company.
Messrs. Fuellgraf, Holloway, McFerson, Miller, Patterson and Shisler are the
members of such committee. The committee did not meet during 1997.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or its
affiliates receive an annual retainer of $50,000. Pursuant to the Nationwide
Financial Services, Inc. Stock Retainer Plan for Non-Employee Directors, the
annual retainer will be paid (i) $25,000 in cash and (ii) in shares of Class A
Common Stock having an aggregate market value of $25,000 as of the date of
payment. In addition, the Company reimburses directors for reasonable travel
expenses incurred in attending meetings of the Board of Directors and committees
thereof.
In addition, some directors of the Company who are not employees of the
Company or its affiliates may also receive compensation for service on the
boards of directors of Nationwide Life Insurance Company and Nationwide Life and
Annuity Insurance Company. For the fiscal year ended December 31, 1997, Messrs.
Fuellgraf, Holloway, Miller, Patterson and Shisler received $16,905, $19,266,
$21,605, $17,256 and $19,090 respectively, for service to such companies.
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a deferred
compensation program applicable to non-employee members of their boards of
directors (the "Directors' Deferred Compensation Program"). Each director who
has been elected to the board of directors at least twice and has served for at
least three years on the board of directors of a participating company is
entitled to monthly payments, following termination of his or her service on the
board of directors, of a monthly amount equal to the monthly director's fee
being received by that director at the time of his or her retirement from the
board of directors. The number of monthly payments will equal the number of
months the individual served on the board of directors. Messrs. Fuellgraf,
Holloway, Miller, Patterson and
6
<PAGE> 10
Shisler, non-employee members of the Board of Directors of the Company, are also
non-employee members of the board of directors of Nationwide Life Insurance
Company.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The Company was incorporated in November of 1996. Pursuant to the Cost
Sharing Agreement (hereinafter defined), the salaries and benefits of certain
officers and employees of the Company and its subsidiaries, including the Named
Executive Officers (hereinafter defined), will be paid by Nationwide Mutual
Insurance Company and reimbursed in accordance with the terms of the Cost
Sharing Agreement. See "Certain Transactions."
The following table provides certain information concerning compensation
received by the Company's Chief Executive Officer and the four remaining most
highly paid executive officers (the "Named Executive Officers") as of the last
fiscal year, for the last two fiscal years ended December 31, 1997 and 1996
solely for services rendered to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
----------------------- -------
ANNUAL COMPENSATION UNDER-
-------------------------------- LYING
OTHER RESTRICTED SECURITIES
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $ $ $ $ # $ $
------------------ ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dimon R. McFerson:............. 1997 381,717 111,780(2) (4) 907,147(10) 40,000 207,000(5) 21,751(9)
Chairman and Chief Executive 1996 324,790 71,820(3) (4) 252,548(8) 14,482(6)
Officer--Nationwide Insurance
Enterprise(1)
Joseph J. Gasper:.............. 1997 358,066 97,250(2) (4) 396,563(10) 30,000 155,600(5) 18,155(9)
President and Chief 1996 232,959 48,425(3) (4) 169,763(8) 10,684(6)
Operating Officer(7)
Harvey S. Galloway, Jr.:....... 1997 258,520 70,200(2) (4) 150,494(10) 7,500 78,000(5) 14,243(9)
Senior Vice President-Chief 1996 247,520 57,057(3) (4) 148,200(8) 11,769(6)
Actuary--Life and Annuities
Richard A. Karas:.............. 1997 246,058 72,900(2) (4) 167,508(10) 10,000 81,000(5) 13,020(9)
Senior Vice President--Sales- 1996 216,905 52,437(3) (4) 115,362(8) 9,855(6)
Financial Services
James E. Brock:................ 1997 226,751 61,190(2) (4) 140,859(10) 7,500 68,100(5) 12,292(9)
Senior Vice 1996 217,520 50,127(3) (4) 130,100(8) 10,259(6)
President--Corporate
Development
</TABLE>
- ---------
(1) Figures in the table, other than Long Term Compensation Awards, represent
compensation received by Mr. McFerson solely for his services rendered to
the Company and its subsidiaries as allocated pursuant to a Cost Sharing
Agreement. See "Certain Transactions."
(2) Represents the amount received by the Named Executive Officers under the
MIP (hereinafter defined) in 1998 for the 1997 award year.
(3) Represents the amount received by the Named Executive Officers under the
MIP in 1997 for the 1996 award year.
(4) Aggregate perquisites and other personal benefits are less than the lower
of $50,000 or 10% of combined salary and bonus.
(5) Represents the amount received by the Named Executive Officers under the
EIP (hereinafter defined) in 1998 for the award period 1995 to 1997.
(6) Represents contributions made or credited by the Company in 1996 under the
Savings Plan (hereinafter defined) and the DC Supplemental Plan
(hereinafter defined). The following are the amounts for the Savings Plan
and the DC Supplemental Plan: McFerson $1,575 for the Savings Plan and
$12,907 for the DC Supplemental Plan; Gasper $3,465 for the Savings Plan
and $7,219 for the DC Supplemental Plan; Galloway $4,500 for the Savings
Plan and $7,269 for the DC Supplemental Plan; Karas $4,500 for the Savings
Plan and $5,355 for the DC Supplemental Plan; and Brock $4,500 for the
Savings Plan and $5,795 for the DC Supplemental Plan.
(7) Represents compensation received by Mr. Gasper solely for his services
rendered to the Company in 1996 as allocated pursuant to a Cost Sharing
Agreement. Prior to April 1996, Mr. Gasper was the Executive Vice
President--Property/Casualty Operations of Nationwide Mutual Insurance
Company and received compensation from Nationwide Mutual Insurance Company
and its property/ casualty insurance subsidiaries for services rendered to
such companies. Such compensation is not reflected in the table.
7
<PAGE> 11
(8) Represents the amount received by the Named Executive Officers under the
EIP in 1997 for the award period 1994 to 1996, and the SPIP (hereinafter
defined) in 1997 for the award period 1993 to 1996.
(9) Represents contributions made or credited by the Company in 1997 under the
Savings Plan and the DC Supplemental Plan. The following are the amounts
for the Savings Plan and the DC Supplemental Plan: McFerson $2,142 for the
Savings Plan and $19,609 for the DC Supplemental Plan; Gasper $4,760 for
the Savings Plan and $13,395 for the DC Supplemental Plan; Galloway $4,760
for the Savings Plan and $9,483 for the DC Supplemental Plan, Karas $4,760
for the Savings Plan and $8,260 for the DC Supplemental Plan; Brock $4,760
for the Savings Plan and $7,532 for the DC Supplemental Plan.
(10) The following are the number of shares and value of the restricted stock at
the end of the last fiscal year for: McFerson--38,602 shares, at a value of
$1,394,497; Gasper--16,875 shares, at a value of $609,609; Galloway--6,404
shares, at a value of $231,345; Karas--7,128 shares, at a value of $257,499
and Brock--5,994 shares, at a value of $216,533.
EXECUTIVE INCENTIVE PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Executive
Incentive Plan (the "EIP"). Under the EIP, annual payments are made to the Named
Executive Officers and certain other officers of the participating companies
based on the achievement of measures tied to the performance of the Nationwide
Mutual Insurance Company and its subsidiaries and affiliates (the "Nationwide
Insurance Enterprise") and the relevant operating company over the preceding
three years. Performance measures are based on profitability and growth
objectives which are established in advance by the Board of Directors of the
participating company. Under the EIP, the participant will be granted a target
incentive amount that represents a percentage (from 5% to 25% depending on the
participant's position within the participating company) of the participant's
base salary. The actual amount received by the participant will range from zero
to twice the target incentive amount, depending solely on the achievement of the
performance measures.
MANAGEMENT INCENTIVE PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Management
Incentive Plan (the "MIP"). Under the MIP, annual payments are made to the Named
Executive Officers and certain other management employees of the participating
companies based on the achievement of measures tied to the performance of the
Nationwide Insurance Enterprise, the relevant operating company, the relevant
business unit and the individual participant over the preceding year.
Performance measures are based on profitability, growth, expense management and
key strategic objectives which are established in advance. Under the MIP, the
participant will be granted a target incentive amount that represents a
percentage (from 5% to 15% depending on the participant's position within the
participating company) of the participant's base salary. The actual amount
received by the participant under the MIP will range from zero to twice the
target incentive amount, depending solely on the achievement of the performance
measures.
SUSTAINED PERFORMANCE INCENTIVE PLAN
Prior to 1997, Nationwide Mutual Insurance Company and certain of its
subsidiaries and affiliates, including Nationwide Life Insurance Company,
maintained the Sustained Performance Incentive Plan (the "SPIP"). Under the
SPIP, payments were made to the Named Executive Officers and other senior
officers of the participating companies in each odd-numbered calendar year based
on the achievement of measures tied to the performance of the Nationwide
Insurance Enterprise over the preceding four years. Performance measures were
based on profitability, growth and strategic objectives for the Nationwide
Insurance Enterprise which were established in advance by the Boards of
Directors of the participating companies. Under the SPIP, participants were
granted target incentive amounts that represented a percentage (10% to 20%
depending on the participant's position within the participating company) of the
sum of the participant's base salary for the last two years of the performance
cycle. The actual amount received by the participant ranged from zero to twice
the target incentive amount, depending solely on the achievement of the
performance measures.
Nationwide Mutual Insurance Company and the participating subsidiaries and
affiliates terminated the SPIP at the close of calendar year 1996. A payment
under the SPIP was made in 1997, covering performance measured for the period
from 1993 to 1996. Such payment was made in cash as provided in the SPIP. To
facilitate the termination of the SPIP, the performance measurement period for
1995 to 1998 was closed at the end of calendar
8
<PAGE> 12
year 1996. Payments made in 1997 for such performance measurement period were
made in shares of restricted stock of the Company under the Company's 1996
Long-Term Equity Compensation Plan. Messrs. McFerson, Gasper, Galloway, Karas
and Brock received 23,602, 6,875, 3,404, 3,128 and 2,994 shares of restricted
stock, respectively.
DEFERRED COMPENSATION PROGRAM
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a deferred
compensation program (the "Officers' Deferred Compensation Program") pursuant to
which officers of participating companies may elect to defer payment of amounts
otherwise payable to them. An eligible officer is permitted to enter into a
deferral agreement pursuant to which such officer may annually elect to defer a
portion of his or her salary or incentive compensation earned under the MIP or
EIP during the following year. Any such election is effective prospectively.
Amounts deferred under the Officers' Deferred Compensation Program will
generally be payable in annual installments beginning in January of the calendar
year following the calendar year in which the officer terminates employment.
Amounts deferred under the Officers' Deferred Compensation Program are credited
with interest. The interest rate is based on the fixed rate option in the
Savings Plan.
SAVINGS PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Nationwide
Insurance Enterprise Savings Plan (the "Savings Plan"), a qualified
profit-sharing plan including a qualified cash or deferred arrangement covering
eligible employees of participating companies within the Nationwide Insurance
Enterprise. Under the Savings Plan, participants who are not residents of Puerto
Rico may elect to contribute between 1% and 22% of their compensation to
accounts established on their behalf under the Savings Plan in the form of
voluntary salary reductions on a pretax basis and participants who are residents
of Puerto Rico may make contributions on an after-tax basis. The participating
companies are obligated to make matching employer contributions, for the benefit
of their participating employees, at the rate of 70% of the first 2% of
compensation deferred or contributed to the Savings Plan by each employee, and
40% of the next 4% of compensation deferred or contributed by each employee to
the Savings Plan. All amounts contributed to the Savings Plan are held in a
separate account for each participant and are invested in one or more funds made
available under the Savings Plan and selected by the participant. Normally, a
participant receives the value of his or her account upon termination of
employment, although a participant may withdraw all or a part of the amounts
credited to his or her accounts during employment under certain circumstances
including attainment of age 59 1/2, or receive a loan of a portion of his or her
account balance. Under the Savings Plan, a participant is immediately vested in
all amounts credited to his or her account as a result of salary deferrals (and
earnings on those deferrals) or after-tax contributions (and earnings on those
contributions), as applicable. A participant is vested in amounts attributable
to employer matching contributions (and earnings on those contributions) over a
period of five years.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain an unfunded,
nonqualified defined contribution supplemental benefit plan, the Nationwide
Insurance Enterprise Supplemental Defined Contribution Plan (the "DC
Supplemental Plan"), which provides benefits, equal to employer matching
contributions that would have been made under the Savings Plan for the
participants, in the absence of the IRC Section 401(a)(17) limitation on
compensation that can be considered and the IRC Section 402(g) limitation on
amounts that can be deferred under the Savings Plan reduced by actual employer
matching contributions made to the Savings Plan. Participants are limited to
those officers earning in excess of $160,000 annually. Benefits under the DC
Supplemental Plan vest at the same time as employer matching contributions vest
under the Savings Plan.
LONG-TERM EQUITY COMPENSATION PLAN
The Board of Directors of the Company has adopted the Nationwide Financial
Services, Inc. 1996 Long-Term Equity Compensation Plan (the "LTEP"). The purpose
of the LTEP is to benefit the stockholders of the
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<PAGE> 13
Company by encouraging high levels of performance by selected officers,
directors and employees of the Company and certain of its affiliates, attracting
and retaining the services of such individuals and aligning the interests of
such individuals with those of the stockholders.
The LTEP grants the Company Compensation Committee, which will administer
the LTEP, flexibility in creating the terms and restrictions deemed appropriate
for particular awards as facts and circumstances warrant. The LTEP is intended
to constitute a nonqualified, unfunded, unsecured plan for incentive and
deferred compensation and is not intended to be subject to any requirements of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
LTEP is intended to satisfy the requirements of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and awards under the LTEP which are
performance-based are intended to qualify as "performance-based compensation"
for purposes of Section 162(m) of the Internal Revenue Code ("IRC").
The LTEP provides for the grant of any or all of the following types of
awards: (i) stock options, including incentive stock options and non-qualified
stock options, for shares of Class A Common Stock; (ii) stock appreciation
rights ("SARs"), either in tandem with stock options or freestanding; (iii)
restricted stock; and (iv) performance awards. Any stock option granted in the
form of an incentive stock option must satisfy the applicable requirements of
Section 422 of the IRC. Awards may be made to the same person on more than one
occasion and may be granted singly, in combination or in tandem as determined by
the Company Compensation Committee.
The LTEP was effective as of December 11, 1996. No awards may be granted
under the LTEP after December 11, 2006, and the LTEP may be terminated by the
Board of Directors of the Company prior to such date. In the event of expiration
or earlier termination of the LTEP, the LTEP will remain in effect until such
time as all awards granted thereunder have been satisfied or have expired. No
new awards may be made under the LTEP after its expiration or termination.
LONG-TERM INCENTIVE PLANS ("LTIP")-AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-
PERFORMANCE OR STOCK PRICE-BASED PLANS
OTHER PERIOD --------------------------------------
UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT ($) ($) ($)
---- ---------------- --------- -------- -------
<S> <C> <C> <C> <C>
Dimon R. McFerson......................... 1997-1999 19,355 103,500 207,000
Joseph J. Gasper.......................... 1997-1999 14,977 77,800 155,600
Harvey S. Galloway, Jr.................... 1997-1999 13,000 39,000 78,000
Richard A. Karas.......................... 1997-1999 13,500 40,500 81,000
James E. Brock............................ 1997-1999 11,350 34,050 68,100
</TABLE>
The LTIP Table above reflects participation of each Named Executive
Officers in the EIP for the performance cycle of January 1, 1997 through
December 31, 1999. For Messrs. McFerson and Gasper, payment is based upon the
executive's base salary at the end of the three-year performance cycle, a
predetermined percentage of that salary, and the achievement of specified levels
of Return on Equity of the Company, and Trade Combined Ratio and Net Written
Premium Growth of the Nationwide Insurance Enterprise over the three-year
period. The threshold amount will be earned if approximately 94% of the targeted
Return on Equity of the Company and a minimal specified level of a combination
of the Trade Combined Ratio and Net Written Premium Growth of the Nationwide
Insurance Enterprise are achieved for the three-year period. The target amount
will be earned if 100% of the targeted Return on Equity of the Company and a
targeted specified level of a combination of the Trade Combined Ratio and Net
Written Premium Growth of the Nationwide Insurance Enterprise is achieved for
the three-year period. The maximum amount will be earned if approximately 119%
of the targeted Return on Equity of the Company and a maximum specified level of
a combination of the Trade Combined Ratio and Net Written Premium Growth of the
Enterprise are achieved for the three-year period. For Messrs. Brock, Karas and
Galloway, payment is based upon the same factors except that the performance
measurement criteria used is only the Return on Equity of the Company. Base
salary levels as of December 31, 1997, were used to
10
<PAGE> 14
calculate the estimated dollar value of the future payments. No payment will be
made if the minimal performance results are not achieved.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table shows, as to the Named Executive Officers in the
Summary Compensation Table, certain information concerning stock options granted
during the 1997 fiscal year under the LTEP.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE PRICE OR GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(1) FISCAL YEAR $/ SH DATE ($)(2)
---- --------------- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Dimon R. McFerson........ 40,000 16.5% 23.50 March 6, 2007 369,200
Joseph J. Gasper......... 30,000 12.4% 23.50 March 6, 2007 276,900
Harvey S. Galloway,
Jr..................... 7,500 3.1% 23.50 March 6, 2007 69,225
Richard A. Karas......... 10,000 4.1% 23.50 March 6, 2007 92,300
James E. Brock........... 7,500 3.1% 23.50 March 6, 2007 69,225
</TABLE>
- ---------
(1) One-third of the options granted become exercisable each year on the
anniversary of the grant date. Options may be accelerated upon a change of
control or certain other events of termination of employment.
(2) The estimated grant date present value dollar amounts in this column are the
result of calculations made using the Black-Scholes model, a theoretical
method for estimating the present value of stock options based on a complex
set of assumptions. The material assumptions and adjustments incorporated in
the Black-Scholes model used to estimate the value of these options include
the following:
- An exercise price on the options equal to the fair market value of the
underlying stock on the date of the grant, as listed in the table.
- The rate available at the time the grant was made on zero-coupon U.S.
Government issues with a remaining term equal to the expected life. The
risk-free rate was 6.54%.
- Dividend yield was 1.02% representing the estimated annualized dividend
paid on shares of Common Stock at the date of the grant.
- An option term before exercise of 5 years, which represents the typical
period that options are held prior to exercise.
- Volatility of the stock price of 36.4 percent, reflecting the daily stock
price volatility for the one-year period following the grant date.
- No adjustments were made for vesting requirements, non-transferability, or
risk of forfeiture.
OPTIONS/SARS EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during 1997
and unexercised options and SARs held as of fiscal year-end December 31, 1997,
under the LTEP.
11
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS AT
UNEXERCISED FY-END ($)
OPTIONS AT FY-END EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
---- ------------------------- --------------
<S> <C> <C>
Dimon R. McFerson........................................ 0/40,000 0/505,000
Joseph J. Gasper......................................... 0/30,000 0/378,750
Harvey S. Galloway, Jr................................... 0/7,500 0/94,688
Richard A. Karas......................................... 0/10,000 0/126,250
James E. Brock........................................... 0/7,500 0/94,688
</TABLE>
PENSION PLANS
RETIREMENT PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a qualified
defined-benefit plan, the Nationwide Insurance Enterprise Retirement Plan (the
"Retirement Plan"). In general, a participant's annual retirement benefit under
the Retirement Plan will be equal to the sum of (i) 1.25% of the participant's
Final Average Compensation times years of service (to a maximum of 35 years) and
(ii) 0.50% of the participant's Final Average Compensation in excess of Social
Security Covered Compensation times years of service (to a maximum of 35 years).
Final Average Compensation, for the portion of the participant's benefit which
is attributable to service on or after January 1, 1996, is the average of the
highest five consecutive covered compensation amounts of the participant in the
participant's last 10 years of service. For the portion of a participant's
benefit attributable to service prior to January 1, 1996, Final Average
Compensation is the average of the highest three consecutive covered
compensation amounts of the participant in the participant's last 10 years of
service. Covered compensation, for purposes of determining Final Average
Compensation under either method, is calculated on a calendar-year basis and
includes compensation from any member of the Nationwide Insurance Enterprise.
With respect to Messrs. Gasper, Galloway, Karas and Brock, because each such
officer's compensation is allocated solely to the Company and its subsidiaries,
covered compensation includes the compensation listed under the headings Salary,
Bonus and LTIP Payouts shown in the Summary Compensation Table. Covered
compensation for Mr. McFerson includes the amount set forth under the headings
Salary, Bonus and LTIP shown in the Summary Compensation Table and additional
compensation amounts received for services rendered to other companies of the
Nationwide Insurance Enterprise. Social Security Covered Compensation means the
average of the Social Security wage bases in effect during the 35-year period
ending with the last day of the year the participant attains Social Security
retirement age. The portion of a participant's benefit attributable to years of
service credited prior to 1996 is also subject to post-retirement increases
following the commencement of benefits or the participant's attainment of age
65, whichever is later.
A participant becomes fully vested after the completion of five years of
vesting service. The Retirement Plan generally provides for payments to or on
behalf of each vested participant upon such participant's retirement on his or
her normal retirement date or later, although provision is made for payment of
early retirement benefits on a reduced basis commencing at age 55 for those
participants with 15 or more years of vesting service or at age 62 for those
with 5 or more years of vesting service. The normal retirement date under the
Retirement Plan is the later of the date the participant attains age 65 or
completes five years of vesting service. Death benefits are payable to a
participant's spouse or, under certain circumstances, the named beneficiary, of
a participant who dies with a vested benefit under the Retirement Plan or while
an employee. The Retirement Plan also provides for the funding of retiree
medical benefits under Section 401(h) of the IRC.
12
<PAGE> 16
EXCESS AND SUPPLEMENTAL PLANS
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain an unfunded,
nonqualified defined-benefit excess benefit plan, the Nationwide Insurance
Enterprise Excess Benefit Plan (the "Excess Plan") and an unfunded, nonqualified
defined-benefit supplemental benefit plan pursuant to which certain participants
may receive a supplemental retirement benefit, the Nationwide Insurance
Enterprise Supplemental Retirement Plan (the "Supplemental Plan"). Any
participant whose benefits are limited under the Retirement Plan by reason of
limitations under Section 415 of the IRC on the maximum benefit that may be paid
under the Retirement Plan will receive, under the Excess Plan, that portion of
the benefit that he or she would have been entitled to receive under the
Retirement Plan in the absence of such limitations. Officers who earn in excess
of $160,000 annually, have at least 5 years of vesting service and whose
benefits under the Retirement Plan are limited by reason of certain other
limitations under the IRC, may receive benefits under the Supplemental Plan.
Benefits under the Supplemental Plan will be the sum of (i) 1.25% of the
participant's Final Average Compensation times years of service (up to a maximum
of 40 years) and (ii) 0.75% of the participant's Final Average Compensation in
excess of Social Security Covered Compensation times years of service (up to a
maximum of 40 years) reduced by benefits accrued under the Retirement Plan and
the Excess Plan. The benefits under the Excess and Supplemental Plans vest at
the same time as benefits vest under the Retirement Plan.
The chart below indicates the estimated maximum annual retirement benefits
that a hypothetical participant would be entitled to receive under the
Retirement Plan including payments made under the Excess and Supplemental Plans
as a result of limitations imposed by the IRC, computed on a straight-life
annuity basis, if retirement occurred at age 65 and the number of credited years
of service and Final Average Compensation equaled the amounts indicated. For
purposes of the chart, it is assumed that the Final Average Compensation is the
same whether measured over the three-year averaging period that applies to
service accumulated prior to 1996 or the five-year period that applies to
service accumulated after 1995. In actual operation, the total benefit received
under the Retirement Plan (including payments made under the Excess and
Supplemental Plans) would be the total of the benefit determined based on years
of service earned under each method.
YEARS OF SERVICE
<TABLE>
<CAPTION>
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 30,615 $ 40,820 $ 51,025 $ 61,229 $ 71,434
150,000 41,703 55,604 69,506 83,407 97,308
175,000 49,203 65,604 82,006 98,407 114,808
200,000 56,703 75,604 94,506 113,407 132,308
225,000 64,203 85,604 107,006 128,407 149,808
250,000 71,703 95,604 119,506 143,407 167,308
300,000 86,703 115,604 144,506 173,407 202,308
400,000 116,703 155,604 194,506 233,407 272,308
450,000 131,703 175,604 219,506 263,407 307,308
500,000 146,703 195,604 244,506 293,407 342,308
600,000 176,703 235,604 294,506 353,407 412,308
700,000 206,703 275,604 344,506 413,407 482,308
750,000 221,703 295,604 369,506 443,407 517,308
</TABLE>
All Named Executive Officers have a portion of their benefit calculated
based on the post-1995 definition of Final Average Compensation. As of December
31, 1995, the number of credited years of service under the Retirement Plan for
Messrs. McFerson, Gasper, Galloway, Karas and Brock was 23 years, 29.5 years,
31.5 years and 26.5 years, respectively. Mr. McFerson's credited years of
service include, pursuant to an agreement with Nationwide Mutual Insurance
Company, 8.17 years in excess of those actually earned through employment by
13
<PAGE> 17
the Nationwide Insurance Enterprise. The benefit attributable to those
additional years will be paid by Nationwide Mutual Insurance Company (not the
Retirement Plan) and is reduced by the benefit payable under the retirement plan
of Mr. McFerson's previous employer. Each of the Named Executive Officers earned
additional years of service in 1996 and 1997, and their benefit for such years
and all future years will be calculated under the new definition of Final
Average Compensation. Covered compensation paid by the Company for the fiscal
year ended December 31, 1997, for Messrs. McFerson, Gasper, Galloway, Karas and
Brock was $563,927, $601,448, $466,778, $430,680 and $407,766, respectively.
COMPENSATION COMMITTEE JOINT REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
On March 6, 1997, the Company began an initial public offering of shares of
Class A Common Stock, in which approximately twenty percent of the Company
became publicly traded. Nationwide Mutual Insurance Company through a
wholly-owned subsidiary, owns approximately eighty percent of the outstanding
shares of the Company. Because Nationwide Life Insurance Company is the
principal operating subsidiary of the Company, the Nationwide Life Insurance
Company Compensation Committee (the "Nationwide Life Compensation Committee")
established all components of 1997 compensation for the Company's executive
officers, with the exception of incentive grants made by the Company
Compensation Committee under the LTEP.
Mr. Dimon R. McFerson, the Company's Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise, serves also in the same capacity for
Nationwide Life Insurance Company. Pursuant to a Cost Sharing Agreement,
compensation for Mr. McFerson is allocated among the companies in the Nationwide
Insurance Enterprise for whom services are performed. The amounts are paid by
Nationwide Mutual Insurance Company and reimbursed by the other companies in
accordance with the terms of the Cost Sharing Agreement. The 1997 compensation
for Mr. McFerson reported in the compensation tables and discussed in this
report is the amount allocated to the Company and its subsidiaries under the
Cost Sharing Agreement and is solely for services rendered to the Company and
its subsidiaries. Compensation for the other executives named in the
compensation tables was not allocated and is their aggregate 1997 compensation
for services rendered to the Company and its subsidiaries.
The Nationwide Life Compensation Committee and the Company Compensation
Committee are both comprised solely of non-employee directors.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Nationwide Life Compensation Committee and the Company Compensation
Committee (collectively referred to herein as the "Compensation Committees")
believe that the compensation program for the Company's executive officers
should support the Company and the Nationwide Insurance Enterprise vision and
business strategies. In addition, compensation should be determined within a
competitive framework based on overall financial results, business unit results,
teamwork, and individual contributions that help build value for the Company's
stockholders. The primary objectives of the compensation program are to:
- Provide a direct link between pay and performance;
- Allocate a larger percentage of executive compensation to pay that is
at-risk in order to positively influence behavior and support
accountability;
- Attract, retain and motivate top-caliber employees required for new
business directions;
- Offer total compensation opportunities that are fully competitive with
the appropriate external markets in design and pay level; and
- Emphasize the need to focus on stockholder value, in addition to
providing competitive value to customers.
As part of the overall compensation philosophy, the Compensation Committees
have determined that total compensation and each of the elements that comprise
total compensation (base salary, annual incentives, long-
14
<PAGE> 18
term incentives) should be targeted at the 50th percentile of the market. The
Compensation Committees believe that differences in individual performance
should result in significantly different levels of compensation. Therefore,
individual pay delivered may be higher or lower than the 50th percentile of the
market, depending on individual performance.
Competitive market data is provided to the Compensation Committees by
independent compensation consultants. This data compares the Company's and the
Nationwide Insurance Enterprise's compensation practices to various groups of
comparator companies. These comparator companies compete with the Company and
with the Nationwide Insurance Enterprise for customers, capital, and employees,
and are comparable to the Company or Nationwide Insurance Enterprise in size,
scope, and business focus. This group includes both multi-line insurers and
diversified financial organizations.
The companies chosen for the compensation comparator group are not
necessarily the same companies that comprise the peer group in the Performance
Graph below included in this Proxy Statement. The compensation comparator group
includes more companies than those in the peer group because it gives the
Compensation Committees a broader data base for comparison purposes.
ELEMENTS OF 1997 EXECUTIVE COMPENSATION
The key elements of the Company's executive compensation program are base
salary, annual incentives and long-term compensation. The following discussion
relates to the Company's executive officers other than Mr. McFerson whose
compensation is discussed separately in the Compensation of the Chief Executive
Officer.
BASE SALARIES
Base salaries offer security to executives and allow the Company to attract
competent executive talent and maintain a stable management team. They also
allow executives to be rewarded for individual performance, and encourage the
development of executives. Pay for individual performance rewards executives for
achieving goals that may not be immediately evident in common financial
measurements.
Base salaries for executive officers are initially determined by evaluating
executives' levels of responsibility, prior experience, breadth of knowledge,
internal equity, and external pay practices.
In determining increases to base salaries for 1997, the Nationwide Life
Compensation Committee considered relevant external market data, as described
above in Compensation Philosophy and Objectives. However, increases to base
salaries were driven primarily by individual performance that was evaluated
based on levels of individual contribution to the Company and the Nationwide
Insurance Enterprise. When evaluating individual performance, the Nationwide
Life Compensation Committee considered, among other things, the executive's
efforts in promoting Company and Nationwide Insurance Enterprise values;
continuing educational and management training; improving product quality;
developing relationships with customers, suppliers, and employees; and
demonstrating leadership abilities among coworkers. No specific formula was used
in evaluating individual performance, and the weighting given to each factor
with respect to each executive officer was within the individual discretion and
judgment of each member of the Nationwide Life Compensation Committee. Base
salaries for the executive officers were increased in 1997 by an average of
8.9%, a rate comparable to the median base salary increases provided at
comparator companies. Executive officer salaries were established at a level
that is consistent with the goals stated in Compensation Philosophy and
Objectives.
ANNUAL INCENTIVE COMPENSATION
The MIP promotes the pay-for-performance philosophy of the Compensation
Committees by providing executives with direct financial rewards in the form of
annual cash incentives. Awards for 1997 were based on the performance of Return
on Equity and Premium Growth of the Company, and Return on Equity, Revenue
Growth and Expense Management of the Nationwide Insurance Enterprise.
Each year, the Nationwide Life Compensation Committee establishes specific
performance measures for the MIP. Participants are provided a target incentive
opportunity that represents a percentage of their base salary. In 1997,
individual targets ranged from six to fifteen percent of base salary. Individual
payouts under the MIP may
15
<PAGE> 19
range from zero to 200 percent of the individual's target incentive amount,
depending on the achievement of the performance measures. For 1997, the
excellent results achieved for the Return on Equity and the Premium Growth of
the Company; and the Return on Equity, the Revenue Growth and the Expense
Management of the Nationwide Insurance Enterprise resulted in a payout of 167
percent of target for Mr. Gasper. For 1997, the excellent results achieved for
the Return on Equity and the Premium Growth of the Company resulted in payouts
of 180 percent of target for Mr. Galloway, Mr. Karas and Mr. Brock. These
amounts are reflected in the Bonus column in the Summary Compensation Table.
LONG-TERM INCENTIVE COMPENSATION
In keeping with the philosophy of the Compensation Committees to provide a
total compensation package that favors at-risk components of pay, long-term
incentives comprise a significant portion of an executive's total compensation
package. When determining long-term incentive award sizes, the Compensation
Committees consider the executives' levels of responsibility, position within
the Company or Nationwide Insurance Enterprise, prior experience, historical
award data, various performance criteria, and compensation practices at
comparator companies.
The Compensation Committees utilize the two long-term incentive plans
described below. While each plan has a different objective, the plans work
together in order to achieve a balance among operational and strategic goals,
market pay orientation, and alignment of executive interests with that of
stockholders.
EXECUTIVE INCENTIVE PLAN
Under the EIP, participants receive cash awards based on the achievement of
measures tied to the performance of the Company and the Nationwide Insurance
Enterprise over a three-year period. New performance cycles start annually. The
EIP participants are granted a target incentive amount that represents a
percentage (from 5% to 25%) of their base salary. Individual payouts may range
from zero to 200 percent of the individual's target incentive amount, depending
solely on the achievement of the performance measures.
The EIP award paid for 1997 was based on the three-year period from 1995 to
1997. Performance was measured by the Return on Equity of the Company, and the
Trade Combined Ratio and the Net Written Premium Growth of the Nationwide
Insurance Enterprise. For 1995-1997, the outstanding results achieved for the
Return on Equity of the Company and the Trade Combined Ratio and the Net Written
Premium Growth of the Nationwide Insurance Enterprise resulted in a payout of
200 percent of target for Mr. Gasper, and 200 percent of target for Mr.
Galloway, Mr. Karas and Mr. Brock. The amounts are reflected in the LTIP payout
column in the Summary Compensation Table.
Award opportunities under the EIP, which were approved by the Nationwide
Life Compensation Committee for the 1997-1999 period, are reflected in the LTIP
Award Table. The executive officers received target incentive amounts
representing 15% to 25% of base salary. The performance measures are the same as
those measured for the 1995-1997 period. These opportunities were determined
consistent with the plan design described above, and the goals stated in
Compensation Philosophy and Objectives.
LONG-TERM EQUITY COMPENSATION PLAN
The LTEP authorizes grants of stock options, stock appreciation rights,
restricted stock, and performance awards. The objectives of the LTEP are to
encourage high levels of performance by selected officers, directors and
employees of the Company and certain of its affiliates, to attract and retain
the services of such individuals, and to align the interests of such individuals
with those of the stockholders.
During March 1997, the Company Compensation Committee made grants to
executive officers and others under the LTEP. Award sizes were determined based
on competitive equity grant practices using the median practices at comparator
companies and the individual's impact on the Company's performance and were
determined consistent with the goals stated in Compensation Philosophy and
Objectives. One-half of the grant was awarded in restricted stock with vesting
contingent upon continued service with the Company or the Nationwide Insurance
Enterprise over a three-year period. The other half was awarded in non-qualified
stock options that have an exercise price equal to the fair market value of the
Common Stock on the date of the option
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<PAGE> 20
grant. Such options become exercisable in equal installments over a three-year
term, and expire ten years after the date of grant. The LTEP awards were split
equally between restricted stock and options in order to enhance the stock
ownership of the Company's top executives at the time of the initial public
offering.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Dimon R. McFerson serves as the Company's Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise, as well as in the same capacity for
Nationwide Life Insurance Company. Except for grants made under the LTEP in
March 1997 by the Company Compensation Committee, all components of Mr.
McFerson's compensation for 1997 were established by the Nationwide Life
Compensation Committee.
As discussed above in the Introduction, a portion of Mr. McFerson's annual
compensation is allocated to the Company for services rendered to the Company,
based on the time Mr. McFerson devotes to his responsibilities with the Company.
The compensation reported for Mr. McFerson in the compensation tables and
discussed in this report represents amounts paid for Mr. McFerson's services as
Chairman and Chief Executive Officer--Nationwide Insurance Enterprise of the
Company and its subsidiaries.
Mr. McFerson's 1997 compensation was determined pursuant to the same
philosophy and objectives described earlier in this report and used for all
executive officers. In determining the compensation of Mr. McFerson for 1997,
the Nationwide Life Compensation Committee reviewed the strong Company and
Nationwide Insurance Enterprise financial results for 1996, Mr. McFerson's
superior leadership of the Nationwide Insurance Enterprise since 1992, his
extensive experience in the industry, and his successful efforts in the
Company's initial public offering. The portion of Mr. McFerson's base salary
compensation allocated to the Company totaled $381,717 in 1997, an increase of
17.5 percent over 1996. This increase reflects both an adjustment in Mr.
McFerson's annual base salary rate, and an increase in the cost allocation. In
1997, Mr. McFerson's annual base salary rate was increased by 5.3 percent. This
increase positioned Mr. McFerson's base salary compensation at approximately the
50th percentile of the comparator companies.
The portion of Mr. McFerson's annual incentive award allocated to the
Company earned in 1997 under the MIP was $111,780. This award was 29.3 percent
of his allocated base salary compensation, and reflected 180 percent of his
target incentive. This payment was determined by the level of achievement of
specified financial, operational and strategic goals as assessed by the
Nationwide Life Insurance Company Board of Directors in their annual performance
evaluation of Mr. McFerson.
With regard to long-term incentive compensation, the portion of Mr.
McFerson's EIP award allocated to the Company was $207,000, reflecting
performance over the 1995--1997 period. This award was 54.2 percent of his
allocated base salary compensation, and reflected 200 percent of his target
incentive. This payment was determined by the outstanding results achieved for
the Return on Equity of the Company and the Trade Combined Ratio and the Net
Written Premium of the Nationwide Insurance Enterprise.
Under the LTEP, the Company Compensation Committee granted Mr. McFerson
15,000 shares of restricted stock and 40,000 stock option shares. In making this
grant, the Company Compensation Committee took into account competitive levels
of long-term compensation for Chief Executive Officers of major diversified
insurance and financial services organizations with similar size and scope, as
well as Mr. McFerson's role in the initial public offering. In addition, the
Company Compensation Committee reflected the Company's desire to have top
officers build a significant personal level of stock ownership in the Company,
so as to better align their interests with those of other stockholders.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the IRC provides that executive compensation in excess of
$1 million will not be deductible for purposes of corporate income taxes unless
it is performance-based compensation and is paid pursuant to a plan meeting
certain requirements of the IRC. The Compensation Committees intend to continue
increased reliance on performance-based compensation programs. Such programs
will be designed to fulfill, in the best possible manner, future corporate
business objectives. To the extent consistent with this goal, the Compensation
Committees currently anticipate that such programs will also be designed to
satisfy the
17
<PAGE> 21
requirements of Section 162(m) of the IRC with respect to the deductibility of
compensation paid. However, the Compensation Committees may award compensation
that is not fully deductible if the Compensation Committees determine that such
award is consistent with their philosophy and in the best interests of the
Company and its stockholders.
NATIONWIDE FINANCIAL SERVICES COMPENSATION COMMITTEE
David O. Miller, Chairman
James G. Brocksmith, Jr.
Charles L. Fuellgraf, Jr.
Donald L. McWhorter
NATIONWIDE LIFE INSURANCE COMPANY COMPENSATION COMMITTEE
David O. Miller, Chairman
Willard J. Engel
Fred C. Finney
Charles L. Fuellgraf, Jr.
Henry S. Holloway
Nancy C. Thomas
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<PAGE> 22
PERFORMANCE GRAPH
The following graph shows a comparison of the Company's cumulative total
shareholder return since its initial public offering on March 6, 1997 with the
S&P 500 Composite Index and an index of peer companies selected by the Company.
Companies in the peer group are the following: American General Corporation;
Hartford Life, Inc.; The Equitable Companies; SunAmerica, Inc.; and Lincoln
National Corporation. Companies included in the peer group have business
operations similar to the Company, and are considered to be significant
competitors of the Company.
The graph plots the changes in the value of an initial $100 investment over
the indicated time periods, assuming reinvestment of all dividends. Returns of
the two indices have been weighted according to their respective aggregate
market capitalization at the beginning of each period shown on the graph.
<TABLE>
<CAPTION>
NATIONWIDE
FINANCIAL
Measurement Period SERVICES, PEER
(Fiscal Year Covered) INC. GROUP S & P 500
<S> <C> <C> <C>
3/6/97 100.00 100.00 100.00
3/31/97 109.57 90.51 94.81
6/30/97 114.09 110.37 111.36
9/30/97 119.13 124.72 119.71
12/31/97 154.64 139.93 123.14
</TABLE>
CERTAIN TRANSACTIONS
INTERCOMPANY AGREEMENT
The Company, Nationwide Mutual Insurance Company and Nationwide Corporation
entered into an Intercompany Agreement, certain provisions of which are
summarized below (the "Intercompany Agreement"). As used herein, "Nationwide
Mutual Insurance Company" means Nationwide Mutual Insurance Company collectively
with its subsidiaries and affiliates (other than the Company and its
subsidiaries).
NATIONWIDE MUTUAL INSURANCE COMPANY CONSENT TO CERTAIN EVENTS. The
Intercompany Agreement provides that until Nationwide Mutual Insurance Company
ceases to control at least 50% of the combined voting power of the outstanding
voting stock of the Company, the prior written consent of Nationwide Mutual
Insurance Company will be required for: (i) any consolidation or merger of the
Company or any of its subsidiaries with any person (other than with a
wholly-owned subsidiary); (ii) any sale, lease, exchange or other disposition or
acquisition of assets by the Company or any of its subsidiaries (other than
transactions to which the Company and its subsidiaries are the only parties), or
any series of related dispositions or acquisitions, involving consideration in
excess of $250 million; (iii) any change in the authorized capital stock of the
Company or the creation of any
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<PAGE> 23
additional class or series of capital stock of the Company; (iv) any issuance by
the Company or any subsidiary of the Company of any equity securities or rights,
warrants or options to purchase such equity securities, except (a) up to 2.6
million shares of Class A Common Stock pursuant to employee and director stock
option, profit-sharing and other benefit plans of the Company and its
subsidiaries and any options exercisable therefor, (b) shares of Class A Common
Stock issued upon the conversion of any Class B Common Stock, (c) the issuance
of shares of capital stock of a wholly-owned subsidiary of the Company to the
Company or another wholly-owned subsidiary of the Company and (d) in the public
offering of Class A Common Stock in March 1997; (v) the dissolution, liquidation
or winding up of the Company; (vi) the amendment of the Certificate of
Incorporation and certain provisions of the Bylaws affecting corporate
governance; (vii) the election, removal or filling of a vacancy in the office of
the Chairman or Chief Executive Officer or President of the Company; (viii) the
declaration of dividends on any class or series of capital stock of the Company,
except dividends not in excess of the most recent regular cash dividend or any
dividend per share not in excess of 15% of the then current per share market
price of the Class A Common Stock; (ix) capital expenditures or series of
related capital expenditures of the Company or any of its subsidiaries in excess
of $250 million during any period of 12 consecutive months; (x) the creation,
incurrence or guaranty by the Company or any of its subsidiaries of indebtedness
for borrowed money in excess of $100 million, except in connection with the
Capital Securities and the Senior Notes; and (xi) any change in the number of
directors on the Board of Directors of the Company, the determination of members
of the Board of Directors or any committee thereof and the filling of newly
created memberships and vacancies on the Board of Directors or any committee
thereof.
LICENSE TO USE NATIONWIDE NAME AND SERVICE MARKS. Pursuant to the
Intercompany Agreement, Nationwide Mutual Insurance Company granted to the
Company and certain of its subsidiaries a non-exclusive, nonassignable,
revocable license to use the "Nationwide" trade name and certain other service
marks specifically identified in the Intercompany Agreement (collectively, the
"Service Marks") solely for the purpose of identifying and advertising the
Company's long-term savings and retirement business and activities related to
such business.
EQUITY PURCHASE RIGHTS. The Company has agreed that, to the extent
permitted by the New York Stock Exchange (the "NYSE") and so long as Nationwide
Mutual Insurance Company controls at least 50% of the combined voting power of
the outstanding voting stock of the Company, Nationwide Corporation may purchase
its pro rata share (based on its then current percentage voting interest in the
Company) of any voting equity securities to be issued by the Company (excluding
any such securities offered pursuant to employee stock options or other benefit
plans, dividend reinvestment plans and other offerings other than for cash).
REGISTRATION RIGHTS. The Company has granted to Nationwide Corporation
certain demand and "piggyback" registration rights with respect to shares of
Common Stock owned by it. Nationwide Corporation has the right to request up to
two demand registrations in each calendar year, but not more than four in any
five-year period. Nationwide Corporation will also have the right, which it may
exercise at any time and from time to time, to include the shares of Common
Stock held by it in any registration of common equity securities of the Company,
initiated by the Company on its own behalf or on behalf of any other
stockholders of the Company. These rights are subject to certain "blackout"
provisions. Such registration rights are transferable by Nationwide Corporation.
NATIONWIDE MUTUAL INSURANCE COMPANY AGENTS. In the Intercompany Agreement,
Nationwide Mutual Insurance Company has agreed to allow the Company to
distribute its variable annuity, fixed annuity and individual universal,
variable and traditional life insurance products through Nationwide Mutual
Insurance Company insurance agents. Such right is exclusive to the Company,
subject to the limited right of certain other members of the Nationwide
Insurance Enterprise to sell such products through the agency force, for at
least five years following the Equity Offerings.
FEDERAL INCOME TAXES
The Company is included in the consolidated United States federal income
tax return for which Nationwide Mutual Insurance Company is the common parent
and the Company's tax liability will be included in the
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<PAGE> 24
consolidated federal income tax liability of Nationwide Mutual Insurance
Company. The Company also may be included in certain state and local tax returns
of Nationwide Mutual Insurance Company or its subsidiaries.
The Company is a party to an agreement, with Nationwide Mutual Insurance
Company and the other companies in the consolidated returns of Nationwide Mutual
Insurance Company, to determine the manner in which their respective tax
liabilities will be determined (the "Tax Sharing Agreement") with Nationwide
Mutual Insurance Company for 1996 and subsequent years, as long as the Company
is included in the consolidated federal income tax return for Nationwide Mutual
Insurance Company. It will also be effective for any year in which the Company
is included in a consolidated or combined state or local tax return. Under the
Tax Sharing Agreement, the Company will pay to Nationwide Mutual Insurance
Company amounts equal to the taxes that the Company would otherwise have to pay
if the Company were to file separate federal income, or a separate state or
local income or franchise, tax return (including any amounts determined to be
due as a result of a redetermination of the tax liability of the consolidated or
combined group of which Nationwide Mutual Insurance Company is the common parent
arising from any audit or otherwise). The Company will be responsible for all
taxes, including assessments, if any, for prior years with respect to all other
taxes payable by the Company or any of its subsidiaries, and for all other
federal, state and local taxes that may be imposed upon the Company and that are
not addressed in the Tax Sharing Agreement.
By virtue of its control of the Company and the terms of the Tax Sharing
Agreement, Nationwide Mutual Insurance Company effectively controls all of the
Company's tax decisions. Under the Tax Sharing Agreement, Nationwide Mutual
Insurance Company will have sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company, to file all returns
on behalf of the Company and to determine the amount of the Company's liability
to (or entitlement to payment from) Nationwide Mutual Insurance Company under
the Tax Sharing Agreement. This arrangement may result in conflicts of interest
between the Company and Nationwide Mutual Insurance Company. For example, under
the Tax Sharing Agreement, Nationwide Mutual Insurance Company may choose to
consent, compromise or settle any adjustment or deficiency proposed by the
relevant tax authority in a manner that may be beneficial to Nationwide Mutual
Insurance Company and detrimental to the Company. Under the Tax Sharing
Agreement, however, Nationwide Mutual Insurance Company is obligated to act in
good faith with regard to all persons included in the applicable returns.
The Tax Allocation Agreement may not be amended without the prior written
consent of the Company.
LEGAL SERVICES
The attorneys in the Office of General Counsel of Nationwide Mutual
Insurance Company also operate as the law firm of Druen, Dietrich, Reynolds &
Koogler. Pursuant to a partnership agreement, the firm limits its representation
to the members of the Nationwide Insurance Enterprise. The partnership was
formed to assure compliance with Ohio law that prohibits corporations from
practicing law. Through a retainer arrangement, an annual retainer fee is paid
by each member of the Nationwide Insurance Enterprise based upon an estimate of
time spent by each attorney working on legal matters related to the respective
member during the previous year. W. Sidney Druen, Senior Vice President and
General Counsel of the Company, is the senior partner in such firm, and all
attorneys and other employees of the firm are salaried employees of Nationwide
Mutual Insurance Company. The firm applies all of its retainer fees toward
office overhead under a rental and office expense agreement with Nationwide
Mutual Insurance Company. For the years ended December 31, 1997 and 1996, the
Company paid the firm $2.6 million and $2.0 million respectively, for legal
services rendered to the Company which amounts were immediately remitted to
Nationwide Mutual Insurance Company.
LEASE
Pursuant to an arrangement between Nationwide Mutual Insurance Company and
certain of its subsidiaries, the Company leases approximately 512,000 square
feet of office space at One Nationwide Plaza, Two Nationwide Plaza and Three
Nationwide Plaza, Columbus, Ohio, at a current market rate of $19.53 per square
foot, with limited exceptions. Under the arrangement, the Company determines the
amount of office space necessary to conduct its operations and leases such space
from Nationwide Mutual Insurance Company, subject to availability.
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<PAGE> 25
For the years ended December 31, 1997 and 1996, the Company made payments to
Nationwide Mutual Insurance Company and its subsidiaries totaling $9.1 million
and $10.0 million, respectively, under such arrangement.
MODIFIED COINSURANCE AGREEMENTS
Effective as of January 1, 1996, Nationwide Life Insurance Company entered
into a 100% modified coinsurance agreement with Employers Life Insurance Company
of Wausau. Under the agreement, Nationwide Life Insurance Company cedes to
Employers Life Insurance Company of Wausau, and Employers Life Insurance Company
assumes, Nationwide Life Insurance Company's nonvariable group and wholesale
life insurance business and group and franchise health insurance business and
any ceded or assumed reinsurance applicable to such group business. For the year
ended December 31, 1997, Nationwide Life Insurance Company ceded $199.8 million
of premium to Employers Life Insurance Company of Wausau.
Effective as of January 1, 1996, Nationwide Life Insurance Company also
entered into a 100% modified coinsurance agreement with Nationwide Mutual
Insurance Company. Under the agreement, Nationwide Life Insurance Company cedes
to Nationwide Mutual Insurance Company, and Nationwide Mutual Insurance Company
assumes, Nationwide Life Insurance Company's individual accident and health
insurance business and any ceded or assumed reinsurance applicable to such
business. For the year ended December 31, 1997, Nationwide Life Insurance
Company ceded $91.4 million of premium to Nationwide Mutual Insurance Company.
COST SHARING AGREEMENT
Pursuant to a Cost Sharing Agreement (the "Cost Sharing Agreement") among
Nationwide Mutual Insurance Company and certain of its direct and indirect
subsidiaries, including the Company, Nationwide Mutual Insurance Company
provides certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those subsidiaries.
Expenses covered by such agreement are subject to allocation among Nationwide
Mutual Insurance Company and such subsidiaries. Under such agreement, for the
years ended December 31, 1997 and 1996, the Company made payments to Nationwide
Mutual Insurance Company totaling $86 million and $101.6 million, respectively.
Under the Cost Sharing Agreement, expenses are allocated in accordance with NAIC
guidelines and are based on standard allocation techniques and procedures
acceptable under general cost accounting practices.
CASH MANAGEMENT AGREEMENTS
Nationwide Mutual Insurance Company has entered into separate Investment
Agency Agreements with California Cash Management Company ("CCMC") and
Nationwide Cash Management Company ("NCMC"), each an affiliate of the Company.
Pursuant to the terms of such agreements, CCMC and NCMC make, hold and
administer short-term investments (those maturing in one year or less) for
Nationwide Mutual Insurance Company and certain of its affiliates, including
Nationwide Life Insurance Company and certain of the Company's other
subsidiaries. Under each agreement, expenses of CCMC or NCMC, as the case may
be, are allocated pro rata among the participants based upon the participant's
ownership percentage of total assets held by CCMC or NCMC. For the years ended
December 31, 1997 and 1996, the Company paid CCMC and NCMC fees and expenses
totaling $46,350 and $112,600, respectively, under such agreements.
REPURCHASE AGREEMENT
Nationwide Life Insurance Company and certain of the Company's other
subsidiaries are parties to a Master Repurchase Agreement (the "Master
Repurchase Agreement") pursuant to which securities or other financial
instruments are transferred between parties against the transfer of funds by the
transferee for a period of time ending on a specific date or upon the demand of
the transferor.
22
<PAGE> 26
PROPOSALS BY STOCKHOLDERS FOR THE 1999 ANNUAL MEETING
The Company's Bylaws provide that in order to submit any business to or
nominate any person for election to the Board of Directors, a stockholder must
give written notice to the Secretary of the Company (containing certain
information specified in the Bylaws) not less than 60 days and not more than 90
days prior to the first anniversary date of the Company's Proxy Statement in
connection with the last annual meeting.
These requirements are separate and apart from and in addition to the
Securities and Exchange Commission's requirements that a stockholder must meet
in order to have a stockholder proposal included in the Company's Proxy
Statement under Rule 14a-8 of the Securities Exchange Act of 1934, as amended.
For purposes of the Company's 1999 Annual Meeting, any stockholder who wishes to
submit a proposal for inclusion in the Company's Proxy Statement must submit
such proposal to the Secretary of the Company on or before December 1, 1998.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG Peat Marwick LLP served as independent accountants for
1997. Representatives of the firm are expected to be present at the Annual
Meeting, with the opportunity to make a statement should they desire to do so,
and will be available to respond to appropriate questions from the stockholders.
OTHER MATTERS
The Board of Directors knows of no further business other than that
described herein that will be presented for consideration at the Annual Meeting.
If, however, other business shall properly come before the meeting, the persons
named in the enclosed form of proxy will vote the shares represented by such
proxy in accordance with the best judgment of the Company.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, BUT EXCLUDING EXHIBITS WILL BE MADE AVAILABLE WITHOUT CHARGE TO THE
STOCKHOLDERS UPON WRITTEN REQUEST TO JOHN F. DELALOYE, ASSISTANT SECRETARY, ONE
NATIONWIDE PLAZA, COLUMBUS, OHIO 43215.
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<PAGE> 27
PROXY
NATIONWIDE FINANCIAL SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1998
The undersigned hereby constitutes and appoints Joseph J. Gasper, Lydia
Micheaux Marshall and David O. Miller, each or any of them, proxies of the
undersigned, with full power of substitution, to vote all the shares of
Nationwide Financial Services, Inc. (the "Company") which the undersigned may
be entitled to vote at the Annual Meeting of Shareholders of the Company, to be
held at One Nationwide Plaza, Columbus, Ohio, on May 13, 1998, at 1:30 P.M.,
local time, and at any adjournment thereof, as follows:
(Continued, and to be marked, dated and signed on the reverse side)
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
ANNUAL MEETING
OF
NATIONWIDE FINANCIAL SERVICES, INC.
Wednesday, May 13, 1998
1:30 P.M.
One Nationwide Plaza
Columbus, Ohio 43215
AGENDA
- ELECTION OF DIRECTORS
- OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING
<PAGE> 28
___
| | Please mark your |
| X | votes as in this | 0945
|___| example. |____
A vote FOR is recommended by the Board of Directors.
FOR WITHHELD
1. Election of Election of Class I Directors--NOMINEES:
Directors James G. Brooksmith, Jr.
Henry S. Holloway
For, except vote withheld from James F. Patterson
the following nominee(s): Gerald D. Prothro
______________________________
This proxy will be voted as
specified, if a choice is not
specified, the proxy will be
voted FOR each director listed.
The undersigned hereby acknow-
ledges receipt of the notice of
Annual Meeting and the Proxy
Statement, each dated March 31,
1998.
This proxy should be dated and
signed by the stockholder
exactly as his or her name
appears herein and returned
promptly in the enclosed
envelope. Persons signing in
a fiduciary capacity should so
indicate.
_______________________________
_______________________________
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
