The Compensation Committee of the Board of Directors of Prudential Financial is composed solely of Directors who are not, and have never been, officers or employees of Prudential Financial or any of its affiliates.

The Role of the Committee

The role of the Compensation Committee with respect to compensation matters is, on behalf of the Board of Directors, to oversee and take actions with respect to the promotion and compensation of senior management and the human resources policies of Prudential Financial, including its salary and benefits policies.

We are supported in our work by the head of the Human Resources Department and her staff, and we use an independent executive compensation consulting firm for advice on matters of CEO compensation.

Compensation Philosophy and Strategy

Our compensation philosophy is to provide an attractive and market-based total compensation program tied to performance. Our goal is for Prudential Financial to have a competitive advantage in recruiting and retaining employees through its high quality compensation practices, which are evolving to be consistent with those of a public company. Equally important, we view compensation practices as a means for communicating our goals and standards of performance and motivating employees.

Prudential Financial competes in several different businesses, most of which are involved in helping individuals manage financial risk and secure their financial futures. These businesses draw their key people from different segments of the marketplace. Thus, below top corporate management, our compensation programs are designed to be competitive and motivational within the different marketplaces in which we compete for talent, while being subject to centralized design, approval and control.

Overall, the same principles that govern the compensation of all our salaried associates apply to the compensation of Prudential Financial's executives. Within this framework, the Committee believes:

1.

All associates should have base salaries and employee benefits that are market competitive and that permit us to hire and retain high-caliber associates at all levels. In determining market competitiveness, we regularly review the compensation of our executives against that of designated competitors and generally set compensation to be between the median and top quartile of the competition, depending on the experience and performance of the individual.

2.

A significant portion of the annual compensation of executives and key associates should vary with annual business performance and each individual's contribution to that performance.

3.

In addition to rewards for annual results, executives should be rewarded for achieving long-term results. In the past these rewards have been measured against goals we set. Consistent with our transformation to a public company, in the future rewards will be aligned increasingly with shareholder interests.

4.

A significant portion of executives' compensation, including that of major business unit leaders and their staffs, should be tied to measures of performance of the business as a whole.

5.

Special benefits and perquisites for management should be minimized and based on business necessity.

6.

Over time, the interests of executives should be linked with those of shareholders through the risks and rewards of the ownership of Prudential Financial stock.

Program Elements and 2001 Results

Prudential Financial's current compensation program for its executives, including our Chairman and Chief Executive Officer ("CEO"), consists of three main elements: base salaries, annual incentives and long-term incentives. Mr. Ryan makes compensation recommendations annually to the Committee for executive and senior vice presidents, which we review and discuss with him. We approve those at the senior vice president level, while approving, reporting and obtaining ratification from the full Board for the CEO and for those at the executive vice president level.

Base Salaries

Base salaries for our executives are determined taking into consideration the relative importance of the position, the competitive marketplace and the individual's performance and contribution. Salaries are reviewed annually, and increases are granted when warranted. Reflecting practices in the financial community, most of our focus is on annual and longer-term incentives. Thus, it is common for an executive to have his or her salary increased only infrequently and then mostly related to job changes.

Annual Incentives

Annual incentives are paid under our Annual Incentive Plan, which covers approximately 11,000 of our officers, managerial and professional associates, including our executives and the CEO. We have established several different bonus pools under the Annual Incentive Plan. The annual incentives for our senior executives, including our CEO, are paid through the senior executive pool. Other pools are established for our different business groups and our corporate staff functions. Each participant in a pool is assigned a basic funding amount for the pool. The sum of participants' basic funding amounts forms the target bonus pool for those participants. Each target bonus pool amount is then modified to reflect the performance of the covered group for the year. To modify the target bonus pool amount, a multiplier factor that can range from 0 to 4.0 is assigned to each pool. For the senior executive pool and most employees in the corporate functions, that multiplier is determined by assessments of financial, non-financial and strategic objectives set for the year for the Company as a whole. Generally, 25% of the multiplier for the other pools will be attributable to the performance of the Company as a whole and 75% by the performance of the specific business group. For the senior executive pool, the multiplier that we recommended and the Board approved for 2001 was 1.5625. That multiplier represented a decrease from the 1.8225 awarded for the preceding year due to performance relative to the goals set for each year. As part of the annual compensation review process, either the Board or we approve the allocation of the resultant pool to participants at the senior executive level.

Long-Term Incentives

Long-term incentives have been in the form of cash performance units since the Prudential Long-Term Performance Unit Plan (the "PUP") was first introduced in 1995. New grants are made annually to selected vice presidents and other executives at the senior vice president level and above. Each grant covers a three year performance period. Hence, at any point in time there are three overlapping performance unit cycles outstanding. For the 2001 to 2003 cycle, there were 510 participants at the time of grant. The Board or we approve the grant levelfor our senior executives as part of the annual compensation process.

At the start of each plan cycle, we allocate performance units from a pool to participants, based on our evaluation of the importance of each position, each individual's performance and market considerations. We set Company-wide performance goals at the start of each cycle for determining the value of the performance unit pool at the end of the cycle. The payment value of each performance unit is determined by dividing the total value of the performance-adjusted pool by the number of performance units in the pool.

If Prudential Financial's cumulative performance during each three year performance period meets the performance goals we set at the start of each cycle, each performance unit will equal its target value. We also set minimum performance standards, at which each performance unit will be worth 50% of its target value. For performance below that threshold, performance units have no value. If cumulative performance is above the targets we set, performance units have a value above target. There is no maximum performance unit value. The Committee may adjust the final unit value by up to +/-15% to take into consideration unforeseen events when the Plan was established.

The performance units that were paid in February 2002 were granted under the 1999 PUP. Each performance unit had a target value of $780. The performance period covered was 1999 through 2001. We set performance goals at the start of the period to achieve "cumulative operating earnings" and "cumulative operating margin" goals, as such terms are defined in the PUP.

Due largely to unexpected events affecting the financial markets in the latter part of 2001, despite above Plan achievements in the prior two years, cumulative performance for the 1999-2001 period in relation to our goals produced a performance unit pool that was 21.3% below target. Taking into account Prudential Financial's initiatives to position the Company for improved performance in the future, the Committee made a positive adjustment of 15% in performance unit value for a final value of $706 per unit.

CEO Compensation

At the CEO level, we compare our total compensation program against CEO compensation opportunities in the group of companies that comprise the peer group Financial Services Composite Index shown on our stock performance graph on page 19. Because our compensation program did not have stock options, and will not have stock options for officers until later in 2002, we have reduced the market reference data that we take into consideration when setting his long-term incentive target grant value by 25% to recognize the current absence of market risk in our program.

Mr. Ryan's base salary is $1,000,000. It has remained unchanged since he was hired as our CEO in 1994.

With respect to annual incentives, for 2001, Mr. Ryan's basic funding amount was $2,200,000. This amount was then multiplied by the 1.5625 multiplier factor to arrive at the calculated amount. We then evaluated Mr. Ryan's performance for 2001 taking into account financial results and non-financial and strategic factors, such as transitioning to a public company and positioning the Company for future growth. We approved a performance bonus of $3,500,000, which was ratified by the Board.

Under our long-term incentive plan, Mr. Ryan was allocated 5,129 units at the start of the 1999-2001 cycle, resulting in a target performance unit payment for the cycle of $4,000,620. At the ending value of $706 per unit, the amount earned by Mr. Ryan was $3,621,074.

Base salary, annual incentive and long-term incentive payments for Mr. Ryan and other top executive officers are shown on the Summary Compensation Table on page 15.

Transition to New Program in 2002

During 2002, Prudential Financial will continue to transition its compensation program to one appropriate for a publicly-traded corporation. This involves two major changes: one is to use stock and stock options as part of total compensation; the other is to use performance measures for incentive compensation more typical of a public company. Both of these changes are intended to better align the financial interests of management and employees with those of our new shareholders.

The planning for this transition has been underway for several years under the oversight of this Committee. Our stock option plan was approved by our full Board on January 9, 2001, and, to the extent required under the New Jersey Demutualization Law, by the New Jersey Commissioner of Banking and Insurance on October 15, 2001.

The transition started with a one-time "founders' grant" of stock options made to a substantial and broad number of employees and agents of Prudential Financial and its subsidiaries globally, excluding officers of Prudential Financial, Prudential Insurance and their equivalents in other subsidiaries. Under this grant, called the Associates Grant, options for 240 shares were awarded on the IPO date to each eligible full-time associate and half that number to each eligible part-time employee. The exercise price of the options was generally set at $27.50 a share, which was identical to our IPO price. Options were granted to approximately 51,000 employees and agents, on approximately 12,000,000 shares, under the Associates Grant. This grant will help align the interests of a broad population of the Company's employees globally with those of our shareholders.

During 2002, the long-term elements of executive compensation will change as follows:

•

Performance Unit Plan. Performance targets under the PUP will be stated in terms of Prudential Financial's total shareholder return relative to the other companies comprising the peer group Financial Services Composite Index shown on page 19. Target grant amounts under the 2002 PUP will be generally half the prior year's grant.



•

Stock Option Plan. The remainder of long-term incentives, up to competitive levels, will be made up of stock options granted later in the year when first permitted by the Plan of Reorganization relating to Prudential Insurance's demutualization. In this regard, we plan to grant our first stock options to vice presidents of Prudential Financial and their equivalents on or after June 19, 2002, and to senior vice presidents and above, including our CEO, on or after December 18, 2002.

In addition, we have adopted stock ownership guidelines for our senior officers to encourage them to build their ownership position in our stock over time by direct market purchases, by making investments available through the Prudential Employee Savings Plan (the "PESP"), and by retaining shares they earn through our equity incentive and option plans. These guidelines are stated as stock value as a percent of base salary and are 200% for senior vice presidents, 300% for executive vice presidents and 500% for our CEO. The guidelines are meant to be achieved over five years.

Policy on Tax Deductibility of Executive Compensation

It is our policy to structure and administer our annual and long-term incentive plans and stock option grants for our CEO and other executive officers to maximize the tax deductibility of the payments as "performance" compensation under the Internal Revenue Code. In 2001, all such compensation was deductible; however, we reserve the right to provide benefits that may not be tax deductible, if we believe it is in the best interests of Prudential Financial and our shareholders to do so.

Closing Remarks

The Committee believes that the caliber and motivation of Prudential Financial's key employees and the quality of their leadership make a significant difference in the long-term performance of the Company. During 2002, we will introduce stock options and opportunities for direct stock ownership to align the interests of our executives and employees with those of our shareholders. This is an important part of our transition from a mutual company to a public company.

THE COMPENSATION COMMITTEE
Richard M. Thomson (Chairman)
James G. Cullen
Carolyne K. Davis
Glen H. Hiner
Constance J. Horner
Donald L. Staheli

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