preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The aggregate amount of interest that accrued in ~~2012~~2014 for the participating directors was $~~$138,129~~178,000, at a rate of ~~3.3~~3.92 percent. The rate for ~~2013~~2015 is ~~2.9~~3.24 percent.

Both accounts may be paid in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from board service. Amounts in the deferred stock account are paid in shares of company stock.

~~Director~~2014 Compensation

~~In 2012, we provided the following compensation to directors who are not employees:~~

for Nonemployee Directors


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($) ¹	All Other Compensation and Payments ($) ²	Total ($) ³	Fees Earned or Paid in Cash ($)	Stock Awards ($) ¹	All Other Compensation and Payments ($)²		Total ($) ³
Mr. Alvarez	$106,000	$145,000	$0	$251,000	$103,000	$145,000	$0		$248,000
Dr. Baicker	$102,250	$145,000	$0	$247,250	$103,000	$145,000	$0		$248,000
Sir Winfried Bischoff	$112,000	$145,000	$0	$257,000
Sir Winfried Bischoff (retired)					$46,667	$60,417	$16,712	⁴	$123,796
Mr. Eskew	$121,000	$145,000	$1,500	$267,500	$121,000	$145,000	$5,250		$271,250
Mr. Fyrwald	$112,000	$145,000	$35,000	$292,000	$115,000	$145,000	$30,000		$290,000
Dr. Gilman	$118,000	$145,000	$14,500	$277,500
Dr. Gilman (retired)					$49,167	$60,417	$28,576		$138,160
Mr. Hoover	$106,000	$145,000	$30,000	$281,000	$109,000	$145,000	$30,000		$284,000
Ms. Horn	$119,500	$145,000	$5,250	$269,750	$112,000	$145,000	$4,700		$261,700
Dr. Kaelin	$60,083	$84,583	$11,200	$155,867	$113,000	$145,000	$17,100		$275,100
Ms. Marram	$134,500	$145,000	$30,000	$309,500	$142,000	$145,000	$30,000		$317,000
Mr. Oberhelman	$106,000	$145,000	$33,750	$284,750	$103,000	$145,000	$30,000		$278,000
Dr. Prendergast	$103,000	$145,000	$0	$248,000	$103,000	$145,000	$0		$248,000
Dr. Runge					$113,500	$145,000	$0		$258,500
Ms. Seifert	$103,000	$145,000	$13,650	$261,650	$103,000	$145,000	$13,881		$261,881
Mr. Tai					$113,500	$145,000	$30,000		$288,500

Each nonemployee director received an award of stock valued at $145,000 ~~(3,083~~(approximately 2,155 shares), except Sir Winfried Bischoff and Dr. ~~Kaelin,~~Gilman, who retired from the board in May and received ~~shares proportionately~~a pro-rated award for a partial year of service. This stock award and all prior stock awards are fully ~~vested in that they are not subject to forfeiture;~~vested; however, the shares are not issued until the director ends his or her service on the ~~board,~~Board, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the ~~“Directors’ Deferral Plan Shares”~~“Stock Units Not Distributable Within 60 Days” column. Aggregate outstanding stock options as of December 31, 2012 are shown in the table below. Nonemployee directors received no stock options in 2012. The company discontinued granting stock options to nonemployee directors in 2005. A discussion of methodology used in calculating the award values can be found above under the heading "Lilly Directors' Deferral Plan."

Name Outstanding Stock Options (Exercisable) Weighted Average Exercise Price
Sir Winfried Bischoff 5,600 $65.48
Dr. Gilman 5,600 $65.48
Ms. Horn 5,600 $65.48
Ms. Marram 5,600 $65.48
Dr. Prendergast 5,600 $65.48
Ms. Seifert 5,600 $65.48

This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. ("Foundation") under its matching gift program, which is generally available to U.S. employees as well as the outside directors. Under this program, the ~~foundation~~Foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The ~~foundation~~Foundation matched these donations via payments made directly to the recipient charity.The amounts for Mr. Fyrwald and Mr. Oberhelman include matching contributions for donations made at the end of 2011 (Mr. Fyrwald – $15,000; Mr. Oberhelman – $5,000), for which the matching contribution was not paid until 2012.


³	Directors do not participate in a company pension plan or non-equity incentive plan.

~~Highlights of the Company’s Corporate Governance Guidelines~~⁴For Sir Winfried Bischoff, this column includes $16,712 for expenses for his spouse to travel to and participate in board functions that included spouse participation.

The following summary provides highlights of the company’s guidelines established by the board of directors. A complete copy of the corporate governance guidelines is available online at http://investor.lilly.com/governance.cfm or upon request to the company’s corporate secretary.

~~I. Role of the Board~~

~~The directors are elected by the shareholders to oversee the actions and results of the company’s management. Their responsibilities include:~~

~~providing general oversight of the business~~

~~approving corporate strategy~~

~~approving major management initiatives~~

~~providing oversight of legal and ethical conduct~~

~~overseeing the company’s management of significant business risks~~

~~selecting, compensating, and evaluating directors~~

~~evaluating board processes and performance~~

~~selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives~~

~~ensuring that an effective succession plan is in place for all senior executives.~~

~~II. Composition of the Board~~

~~Mix of Independent Directors and Officer-Directors~~

There should always be a substantial majority (75 percent or more) of independent directors. The chief executive officer should be a board member. Other officers may, from time to time, be board members, but no officer other than the chief executive officer should expect to be elected to the board by virtue of his or her position in the company.

~~Selection of~~2015 Director ~~Candidates~~

The board selects candidates for board membership and establishes the criteria to be used in identifying potential candidates. The board delegates the screening process to the directors and corporate governance committee.Compensation

For ~~more information on~~2015, the following changes have been made to director ~~nomination process, including~~compensation, representing the ~~current selection criteria, see “Directors~~first increase in director pay since 2011:

Annual retainer increased to $110,000

Annual committee retainer of $3,000 adopted for Compensation, Directors and Corporate Governance, Finance, and Public Policy and Compliance Committee ~~Matters” below.~~members (including the chairs)

Annual committee retainers for Audit and Science and Technology Committee members (including the chairs) increased to $6,000 (a $3,000 increase).

Director Independence ~~Determinations~~

The ~~board~~Board annually determines the independence of directors based on a review by the ~~directors~~Directors and

~~corporate governance committee.~~Corporate Governance Committee. No director is considered independent unless the ~~board~~Board has determined that he or she has no material relationship with the company, either directly or as a partner, significant shareholder, or officer of an organization that has a material relationship with the company. Material

relationships can include commercial, industrial,banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the

materiality of any such relationship, the ~~board~~Board has adopted categorical independence standards consistent with the New York Stock Exchange (NYSE) listing standards, except that the “look-back period” for determining whether a director’s prior relationship(s) with the company impairs independence is extended from three to four years.

~~Specifically, a~~The company's process for determining director independence is ~~not considered independent if (i)~~set forth in our Standards for Director Independence which can be found on our website at http://www.lilly.com/about/corporate-governance/Pages/guidelines.aspx along with our Corporate Governance Guidelines.

On the ~~director or an immediate family member is a current partner~~recommendation of the ~~company’s independent auditor (currently Ernst & Young LLP); (ii)~~Directors and Corporate Governance Committee, the director is a current employee of such firm; (iii) the director has an immediate family member who is a current employee of such firm and who participates in the firm’s audit, assurance, or tax compliance (but not tax planning) practice; or (iv) the director or an immediate family member was within the last four years (but is no longer) a partner or employee of such firm and personally worked on our audit within that time.

~~In addition, a director is not considered independent if any of the following relationships existed within the previous four years:~~

A director who is an employee of the company, or whose immediate family member is an executive officer of the company. Temporary service by an independent director as interim chairman or chief executive officer will not disqualify the director from being independent following completion of that service.

A director who receives any direct compensation from the company other than the director’s normal director compensation, or whose immediate family member receives more than $120,000 per year in direct compensation from the company other than for service as a nonexecutive employee.

A director who is employed (or whose immediate family member is currently employed as an executive officer) by another company where any Lilly executive officer serves on the compensation committee of that company’s board.

A director who is currently employed by, who is a 10 percent shareholder of, or whose immediate family member is currently employed as an executive officer of a company that makes payments to or receives payments from Lilly for property or services that exceed the greater of $1 million or 2 percent of that company’s consolidated gross revenue in a single fiscal year.

A director who is a current executive officer of a nonprofit organization that receives grants or contributions from the company exceeding the greater of $1 million or 2 percent of that organization’s consolidated gross revenue in a single fiscal year.

~~Members of board committees must meet all applicable independence tests of the NYSE, Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS).~~

~~The directors and corporate governance committee~~Board determined that all 13 nonemployee directors ~~listed below~~ are independent, and that the members of each committee also meet ~~the~~our independence ~~standards referenced above.~~standards. The directors and corporate governance committee recommended this conclusion to the board and explained the basis for its decision, and this conclusion was adopted by the board. This committee and the boardBoard determined that none of the 13 nonemployee directors has had during the last four years (i) any of the relationships ~~listed~~referenced above or (ii) any other material relationship with the company that would compromise

his or her independence. ~~In reaching this~~conclusion, the committee reviewed directors’ responses to a questionnaire asking about their relationships with the company and other potential conflicts of interest, as well as information provided by management related to transactions, relationships, or arrangements between the company and the directors or parties related to the directors. The table ~~below~~that follows includes a description of categories or types of transactions, relationships, or arrangements ~~considered by~~ the ~~board~~Board considered in reaching its determinations.



Director	Organization	Type of Organization	Relationship to Organization	Primary Type of Transaction / Relationship / Arrangement	2014 Aggregate Magnitude of Organization's Revenue
K. Baicker	Harvard University	Educational Institution	Employee	Research grants	Less than 0.1 percent
J. E. Fyrwald	Univar, Inc.	For-profit Corporation	Executive Officer	Purchases of products	Less than 0.1 percent
W. G. Kaelin, Jr.	Harvard University	Educational Institution	Employee	Research grants	Less than 0.1 percent
	Brigham and Women's Hospital	Health Care Institution	Employee	Research grants	Less than 1 percent
	Dana-Farber Cancer Institute	Health Care Institution	Employee	Research grants	Less than 1 percent
F. G. Prendergast	Mayo Clinic and Mayo Medical School	Health Care and Educational Institution	Employee	Research grants	Less than 0.1 percent
F. G. Prendergast	Mayo Foundation	Charitable Organization	Employee of affiliated Mayo Clinic and Mayo Medical School	Contributions	Less than 0.1 percent
M. S. Runge	University of North Carolina Medical School	Educational Institution	Executive Officer	Research grants	Less than 0.1 percent

All of ~~these~~the transactions described above were entered into at arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms. ~~None~~Aggregate payments to each of the relevant organizations, in each of the last four fiscal years, did not exceed the greater of $1 million or 2 percent of that organization's consolidated gross revenues in a single fiscal year for the relevant four-year period. No director had any direct business relationships with the company or received any direct personal benefit from any of these transactions, ~~exceeded the thresholds described above~~relationships, or ~~otherwise compromises the independence~~arrangements.

Committees of the ~~named directors.~~Board of Directors



~~Name~~	~~Independent~~	~~Transactions/Relationships/Arrangements~~
~~Mr. Alvarez~~	~~Yes~~	~~None~~
~~Dr. Baicker~~	~~Yes~~	~~Payments to Harvard University totaling approximately $3.1 million (less than 0.1 percent of Harvard's total revenue), primarily for medical research~~
~~Sir Winfried Bischoff~~	~~Yes~~	~~None~~
~~Mr. Eskew~~	~~Yes~~	~~None~~
~~Mr. Fyrwald~~	~~Yes~~	~~Purchases of products and services from Ecolab totaling approximately $0.7 million (less than 0.1 percent of Ecolab's total revenue)~~ ~~Purchases of products from Univar, Inc. totaling $1.9 million (less than 0.1 percent of Univar's total revenue)~~
~~Dr. Gilman~~	~~Yes~~	~~None~~
~~Mr. Hoover~~	~~Yes~~	~~None~~
~~Ms. Horn~~	~~Yes~~	~~None~~
~~Dr. Kaelin~~	~~Yes~~	~~Payments to Harvard University totaling approximately $3.1 million (less than 0.1 percent of Harvard's total revenue), primarily for medical research~~ ~~Payments to Brigham and Women's Hospital totaling approximately $0.7 million (less than 0.1 percent of Brigham's total revenue), primarily for medical research~~ ~~Payments to Dana-Farber Cancer Institute totaling approximately $1.7 million (less than 0.1 percent of Dana-Farber's total revenue), primarily for medical research~~
~~Ms. Marram~~	~~Yes~~	~~None~~
~~Mr. Oberhelman~~	~~Yes~~	~~None~~
~~Dr. Prendergast~~	~~Yes~~	~~Payments to the Mayo Clinic and the Mayo Foundation totaling approximately $4.4 million (less than 0.1 percent of Mayo's total revenue), primarily for medical research~~
~~Ms. Seifert~~	~~Yes~~	~~None~~

The duties and membership of the six Board-appointed committees are described below. All committee members are independent as defined in the NYSE listing requirements, and the members of the Audit and Compensation Committees each meet the additional independence requirements applicable to them as members of those committees.

~~Director Tenure~~Committee membership and selection of committee chairs are recommended to the Board by the Directors and Corporate Governance Committee after consulting the chairman of the Board and after considering the backgrounds, skills, and desires of the Board members. The Board has no set policy for rotation of committee members or chairs but annually reviews committee memberships and chair positions, seeking the best blend of continuity and fresh perspectives.

~~Subject~~

The chair of each committee determines the frequency and agenda of committee meetings. The Audit, Compensation, and Public Policy and Compliance Committees meet alone in executive session on a regular basis; all other committees meet in executive session as needed.

All six committee charters are available online at http://investor.lilly.com/governance.cfm, or upon request to the company's corporate secretary.

Audit Committee

Assists the Board of Directors in fulfilling its oversight responsibilities by monitoring:

The integrity of financial information which will be provided to the shareholders and others;

The systems of internal controls and disclosure controls which management has established;

The performance of internal and independent audit functions; and

The company's compliance with legal and regulatory requirements.

The committee has sole authority to appoint or replace the independent auditor, subject to shareholder ratification.

The Board of Directors has determined that Mr. Eskew, Mr. Oberhelman, and Mr. Tai are Audit Committee financial experts, as defined in the SEC rules.

Compensation Committee

•Oversees the company’s global compensation philosophy and policies;

•Establishes the compensation of our chief executive officer and other executive officers;

Acts as the oversight committee with respect to the company’s ~~charter documents,~~deferred compensation plans, management stock plans, and other management incentive compensation programs; and

Reviews succession plans for the ~~following are~~CEO and other senior leadership positions.

None of the ~~board’s expectations~~Compensation Committee members:

•Has ever been an officer or employee of the company

Is or has been a participant in a related-person transaction with the company (see “Review and Approval of Transactions with Related Persons” for ~~director tenure:~~a description of our policy on related-person transactions).

~~A company officer-director, including the chief~~

None of our Board members or Compensation Committee members is an executive officer of another entity at which one of our executive officers serves on the Board of Directors or Compensation Committee of the Board.

Directors and Corporate Governance Committee

Recommends to the Board candidates for membership on the Board and Board committees and for lead director; and

Oversees matters of corporate governance, including Board performance, director independence and compensation, and the corporate governance guidelines.

Finance Committee

Reviews and makes recommendations to the Board regarding financial matters, including:

Capital structure and strategies;

Dividends;

Stock repurchases;

Capital expenditures;

Investments, financings and borrowings;

Financial risk management; and

Significant business-development opportunities.

Public Policy and Compliance Committee

Oversees the processes by which the company conducts its business so that the company will ~~resign from~~do so in a manner that complies with laws and regulations and reflects the ~~board~~highest standards of integrity; and

Reviews and makes recommendations regarding policies, practices, and procedures of the company that relate to public policy and social, political, and economic issues.

Science and Technology Committee

Reviews and makes recommendations regarding the company’s strategic research goals and objectives;

Reviews new developments, technologies, and trends in pharmaceutical research and development;

Reviews the progress of the company's new product pipeline;

Reviews the scientific aspects of significant business development opportunities; and

Oversees matters of scientific and medical integrity and risk management.

Membership and Meetings of the Board and Its Committees

In 2014, each director attended at least 80 percent of the ~~time~~total number of meetings of the Board and the committees on which he or she ~~retires or otherwise ceases~~serves. In addition, all Board members are expected to ~~be an active employee of the company.~~

~~Nonemployee directors will retire from the board not later than~~attend the annual meeting of shareholders, and all the directors attended in 2014. Current committee membership and the number of meetings of the Board and each committee in 2014 are shown in the table below.



Name	Board	Audit	Compensation	Directors and Corporate Governance	Finance	Public Policy and Compliance	Science and Technology
Mr. Alvarez	Member		Member				Member
Dr. Baicker	Member	Member				Member
Mr. Eskew	Member	Chair		Member	Member
Mr. Fyrwald	Member					Chair	Member
Mr. Hoover	Member				Chair	Member
Ms. Horn	Member		Chair	Member
Dr. Kaelin	Member				Member		Chair
Dr. Lechleiter	Chair
Ms. Marram	Lead Director		Member	Chair
Mr. Oberhelman	Member	Member			Member
Dr. Prendergast	Member					Member	Member
Dr. Runge	Member					Member	Member
Ms. Seifert	Member	Member	Member
Mr. Tai	Member	Member			Member
Number of 2014 Meetings	9	11	7	4	11	6	7

Board Oversight of Compliance and Risk Management

The Board, together with the Audit and Public Policy and Compliance Committees, oversees the processes by which the company conducts its business to ensure the company operates in a manner that complies with laws and regulations and reflects the highest standards of integrity.

The company also has an enterprise risk management program overseen by its chief ethics and compliance officer/senior vice president of enterprise risk management, who reports directly to the CEO. Enterprise risks are identified and prioritized by management, and the top priorities are assigned to a Board committee or full Board for oversight. Company management is charged with managing risk through robust internal processes and controls. The enterprise risk management program as a whole is reviewed annually at a joint meeting of the Audit and Public Policy and Compliance Committees, and enterprise risks are also addressed in periodic business unit reviews and at the annual board and senior management strategy session.

Code of Ethics

The board approves the company's code of ethics, which is set out in:

The Red Book: a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our Board of Directors. The Red Book is reviewed and approved annually by the Board.

Code of Ethical Conduct for Lilly Financial Management: a supplemental code for our CEO and all members of financial management, in recognition of their unique responsibilities to ensure proper accounting, financial reporting, internal controls, and financial stewardship.

Both documents are available online at: http://www.lilly.com/about/business-practices/ethics-compliance, or upon request to the company's corporate secretary.

Highlights of the Company’s Corporate Governance

The company is committed to good corporate governance, which promotes the long-term interest of shareholders and other company stakeholders, builds confidence in our company leadership, and strengthens accountability for the Board and company management. The board has adopted corporate governance guidelines that set forth basic principles of corporate governance by which the company operates. The section that follows outlines a few key elements of the guidelines and other governance matters. Investors can learn more by reviewing the full corporate governance guidelines document, which is available online at http://investor.lilly.com/governance.cfm or upon request to the company’s corporate secretary.

Role of the Board

The directors are elected by the shareholders to oversee the actions and results of the company’s management. The Board exercises oversight over a broad range of areas, but the Board's key responsibilities include:

Providing general oversight of the business;

Approving corporate strategy;

Approving major management initiatives;

Selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives;

Ensuring that an effective succession plan is in place for all senior executives;

Overseeing the company’s ethics and compliance program and management of significant business risks; and

Nominating, compensating, and evaluating directors.

Board Composition and Requirements

Mix of Independent Directors and Officer-Directors

There should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a Board member.

Voting for Directors

In an uncontested election, directors are elected by a majority of votes cast. An incumbent nominee who fails to receive a majority of the votes cast will tender his or her resignation. The Board, on recommendation of the Directors and Corporate Governance Committee, will decide whether to accept the resignation. The company will promptly disclose the Board's decision, including, if applicable, the reasons why the Board rejected the resignation.

Director Tenure and Retirement Policy

The Directors ~~may stand for reelection even though the board’s retirement policy would prevent them from completing a full three-year term.~~

~~A nonemployee director who retires or changes~~

~~principal job responsibilities will offer to resign from the board. The directors~~ and ~~corporate governance committee will assess the situation and recommend to the board whether to accept the resignation.~~

~~The directors and corporate governance committee,~~Corporate Governance Committee, with input from all ~~board~~Board members, also considers the contributions of the individual directors at least every three years when considering whether to ~~recommend nominating~~nominate the director to a new three-year term.

Other Board Service

No ~~new~~ director may serve on more than three other public company ~~boards,~~boards. The Directors and ~~no incumbent director~~Corporate Governance Committee may approve exceptions if it determines that the additional service will not impair the director's effectiveness on the Lilly Board.

Board Confidentiality Policy

The Board has adopted a Confidentiality Policy, applicable to all current and future members of the Board.

1222

~~accept new positions on public company boards that would result~~The Policy prohibits a director from sharing confidential information obtained in service on more than three other public company boards. The directors and corporate governance committee or the chair of that committee may approve exceptions to this limit upon a determination that such additional service will not impair the director’s effectiveness on the board.

~~Voting for Directors~~

In an uncontested election, directors are elected by a majority of the votes cast. Under the bylaws, any incumbent nominee for director who fails to receive a majority of the votes cast shall promptly tender his or her ~~resignation following certification~~role as director with any outside party except under limited circumstances where the director is seeking legal advice or is required to disclose information by order of ~~the shareholder vote.~~law. The ~~directors and corporate governance committee will consider the resignation offer and recommend to the board whether to accept it. The board will act~~Confidentiality Policy can be viewed on the ~~committee’s recommendation within 90 days following certification of the shareholder vote. Board action on the matter will require the approval of a majority of the independent directors.~~company's website here: http://www.lilly.com/about/corporate-governance/Pages/corporate-governance.aspx.

The company will disclose the board’s decision on a Form 8-K within four business days after the decision, including a full explanation of the process by which the decision was reached and, if applicable, the reasons why the board rejected the director’s resignation. If the resignation is accepted, the directors and corporate governance committee will recommend to the board whether to fill the vacancy or reduce the size of the board.

~~Any director who tenders his or her resignation under this provision will not participate in the directors and corporate governance committee or board deliberations regarding the resignation offer.~~

~~III. Director Compensation and Equity Ownership~~

~~The directors and corporate governance committee annually reviews board compensation and recommends any changes to the board.~~

Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion of director compensation is in the form of Lilly stock. Directors are required to hold Lilly stock, directly or through company plans, valued at not less than five times their annual cash retainer; new directors are allowed five years to reach this ownership level.

~~IV. Key Board Responsibilities~~

~~Selection~~Leadership Structure; Oversight of Chairman, CEO, and ~~Chief Executive Officer; Succession Planning~~Senior Management

Leadership Structure

The ~~board~~Board currently ~~combines~~believes that combining the role of chairman of the board ~~with~~and the ~~role of chief executive officer,~~CEO, coupled with a strong lead director position, ~~to further strengthen~~is the ~~governance structure. The board believes this provides an~~most efficient and effective leadership model for the ~~company. Combining the chairman and CEO roles~~

~~fosters~~company, fostering clear accountability, effective decision-making, and alignment on corporate strategy. ~~To assure effective independent oversight,~~The Board periodically reviews its leadership structure and developments in the ~~board~~area of corporate governance in order to ensure that the company's approach continues to strike the appropriate balance for the company and our stakeholders.

Board Independence

The Board has ~~adopted~~put in place a number of governance practices to ensure effective independent oversight, including:

~~a strong, independent, clearly-defined lead director role (see below for a full description of the role)~~

~~executive~~•Executive sessions of the independent directors: held after every regular board ~~meeting~~meeting.

~~annual~~

Annual performance ~~evaluations~~evaluation of the chairman and CEO: conducted by the independent ~~directors.~~directors, the results of which are reviewed with the chief executive officer and considered by Compensation Committee in establishing the CEO’s compensation for the next year.

~~However, no single leadership model is right for all companies and at all times. Depending on the circumstances, other leadership models, such as a separate~~•A strong, independent, clearly defined lead director: The lead director's responsibilities include:


◦	Leading the Board’s processes for selecting and evaluating the CEO;


◦	Presiding at all meetings of the Board at which the chairman is not present;


◦	Serving as a liaison between the chairman and the independent directors;


◦	If requested by major shareholders, ensures that she is available for consultation and direct communication;


◦	Approving meeting agendas and schedules and generally approving information sent to the Board;


◦	Conducting executive sessions of the independent directors; and


◦	Overseeing the independent directors' annual performance evaluation of the chairman and CEO.

The lead director also has authority to call meetings of the ~~board, might be appropriate. Accordingly,~~independent directors and to retain advisers for the ~~board periodically reviews its leadership structure.~~independent directors.

The lead director ~~recommends~~is appointed annually by the Board. Currently Ms. Marram is the lead director.

Director access to management and independent advisors: Independent directors have direct access to members of management whenever they deem it necessary; and the ~~board an appropriate process by which a new chairman~~company's executive officers attend part of each regularly scheduled Board meeting. The independent directors and all committees are also free to retain their own independent advisors, at company expense, whenever they feel it would be desirable to do so.

CEO Succession Planning

The Compensation Committee, Board and CEO ~~will be selected. The board has no required procedure~~annually review the company's succession plans for ~~executing this responsibility because it believes that the most appropriate process will depend on the circumstances surrounding each such decision.~~

~~A key responsibility of~~ the CEO and ~~the board is ensuring that an effective process is in place to provide continuity of~~other key senior leadership over the long term. Each year, succession-planning reviews culminate in a detailed review of top leadership talent by the compensation committee and a summary review by the independent directors as a whole.positions. During these reviews, the CEO and ~~the~~ independent directors discuss future candidates for the CEO and other senior leadership positions, succession timing, ~~for those positions,~~ and development plans for the highest-potential candidates. ~~During the year,~~The company ensures that the directors have multiple opportunities to interact with the company's top leadership talent in both formal and informal ~~settings.~~settings in order to allow them to most effectively assess the candidates' qualifications and capabilities.

The ~~CEO maintains in place at all times, and reviews with the~~ independent directors and the CEO maintain a confidential plan for the timely and efficient transfer of ~~his~~the CEO's responsibilities in the event of an emergency or his sudden departure, incapacitation, or death.

~~Evaluation~~Board Education and Annual Performance Assessment

The company engages in a comprehensive orientation process for incoming new directors. Directors also receive ongoing continuing educational sessions on areas of ~~Chief Executive Officer~~particular relevance or importance to our company and we hold periodic mandatory training sessions for the Audit Committee.

~~The lead director is responsible for leading~~

Additionally, the ~~independent directors in executive session to assess the performance~~Directors and Corporate Governance Committee conducts an annual assessment of the ~~chief executive officer at least annually. The results of this assessment are reviewed with the chief executive officer~~Board's performance, Board committee performance, and ~~considered by the compensation committee in establishing the chief executive officer’s compensation for the next year.~~all Board processes based on input from all directors.

~~Corporate Strategy~~Conflicts of Interest and Transactions with Related Persons

~~Once each year, the board devotes an extended meeting with senior management to discuss the strategic issues and opportunities facing the company, allowing the~~

board an opportunity to provide direction for the corporate strategic plan. These strategy sessions also provide the board an opportunity to interact extensively with the company’s senior leadership team.

~~Throughout the year, significant corporate strategy decisions are brought to the board in a timely way for its consideration.~~

~~Code of Ethics~~

~~The board approves the company’s code of ethics. This code is set out in:~~

~~The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors~~

~~Code of Ethical Conduct for Lilly Financial Management~~, a supplemental code for our chief executive officer and all members of financial management that recognizes the unique responsibilities of those individuals in assuring proper accounting, financial reporting, internal controls, and financial stewardship.

~~Both documents are available online at http://www.lilly.com/about/business-practices/ethics-compliance, or upon request to the company’s corporate secretary.~~

~~The audit committee and public policy and compliance committee assist in the board’s oversight of compliance programs with respect to matters covered in the code of ethics.~~

~~Risk Oversight~~

The company has an enterprise risk management program overseen by its chief ethics and compliance officer and senior vice president of enterprise risk management, who reports directly to the CEO and is a member of the company’s top leadership committee. Enterprise risks are identified and prioritized by management, and the top prioritized risks are assigned to a board committee or the full board for oversight. For example, strategic risks are typically overseen by the full board; financial risks are overseen by the audit or finance committee; compliance and reputational risks are typically overseen by the public policy and compliance committee; and scientific risks are overseen by the science and technology committee. Management periodically reports on each such risk to the relevant committee or the board. The enterprise risk management program as a whole is reviewed annually at a joint meeting of the audit and public policy and compliance committees, and enterprise risks are also addressed at the annual board strategy session. Additional review or reporting on enterprise risks is conducted as needed or as requested by the board or relevant committee. Also, the compensation committee periodically reviews the most important enterprise risks to ensure that compensation programs do not

~~encourage excessive risk-taking. The board’s role in the oversight of risk had no effect on the board’s leadership structure.~~

~~V. Functioning of the Board~~

~~Executive Sessions of Directors~~

~~The independent directors meet alone in executive session and in private session with the CEO at every regularly scheduled board meeting.~~

~~Lead Director~~

The board annually appoints a lead director from among the independent directors. Currently the lead director is Ms. Marram. The board has no set policy for rotation of the lead director role but believes that periodic rotation is appropriate. The lead director:

~~leads the board’s processes for selecting and evaluating the CEO~~

presides at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors unless the directors decide that, due to the subject matter of the session, another independent director should preside

~~serves as a liaison between the chairman and the independent directors~~

~~approves meeting agendas and schedules and generally approves information sent to the board;~~

~~has the authority to call meetings of the independent directors~~

~~has the authority to retain advisers to the independent directors.~~

~~Conflicts~~Public Policy and Compliance Committee

Oversees the processes by which the company conducts its business so that the company will do so in a manner that complies with laws and regulations and reflects the highest standards of ~~Interest~~integrity; and

~~Occasionally a director’s business or personal relationships may give rise to an interest that conflicts, or appears to conflict, with the interests~~Reviews and makes recommendations regarding policies, practices, and procedures of the ~~company. Directors must disclose~~company that relate to ~~the company all relationships that create a conflict or an appearance of a conflict. The board, after consultation with counsel, takes appropriate steps to identify actual or apparent conflicts~~public policy and ~~ensure that all directors voting on an issue are disinterested. A director will be excused from discussions on the issue, as appropriate.~~social, political, and economic issues.

~~Review~~Science and ~~Approval of Transactions with Related Persons~~Technology Committee

~~The board has adopted a written policy~~

Reviews and ~~written procedures for review, approval,~~makes recommendations regarding the company’s strategic research goals and ~~monitoring of transactions involving~~objectives;

Reviews new developments, technologies, and trends in pharmaceutical research and development;

Reviews the ~~company and related persons (directors and executive officers, their immediate family members, or shareholders of 5 percent or greater~~progress of the ~~company’s outstanding stock). The policy covers any related-person transaction that meets~~company's new product pipeline;

Reviews the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).scientific aspects of significant business development opportunities; and

Oversees matters of scientific and medical integrity and risk management.

1420

~~Policy~~: ~~Related-person transactions must be approved by the board or by a committee~~Membership and Meetings of the ~~board consisting solely~~Board and Its Committees

In 2014, each director attended at least 80 percent of ~~independent~~the total number of meetings of the Board and the committees on which he or she serves. In addition, all Board members are expected to attend the annual meeting of shareholders, and all the directors ~~whowill approve~~attended in 2014. Current committee membership and the ~~transaction only if they determine that it is~~number of meetings of the Board and each committee in 2014 are shown in the ~~best interests~~table below.



Name	Board	Audit	Compensation	Directors and Corporate Governance	Finance	Public Policy and Compliance	Science and Technology
Mr. Alvarez	Member		Member				Member
Dr. Baicker	Member	Member				Member
Mr. Eskew	Member	Chair		Member	Member
Mr. Fyrwald	Member					Chair	Member
Mr. Hoover	Member				Chair	Member
Ms. Horn	Member		Chair	Member
Dr. Kaelin	Member				Member		Chair
Dr. Lechleiter	Chair
Ms. Marram	Lead Director		Member	Chair
Mr. Oberhelman	Member	Member			Member
Dr. Prendergast	Member					Member	Member
Dr. Runge	Member					Member	Member
Ms. Seifert	Member	Member	Member
Mr. Tai	Member	Member			Member
Number of 2014 Meetings	9	11	7	4	11	6	7

Board Oversight of Compliance and Risk Management

The Board, together with the ~~company. In considering~~Audit and Public Policy and Compliance Committees, oversees the~~transaction,~~ processes by which the ~~board or committee will consider all relevant factors, including:~~

company conducts its business to ensure the ~~company’s business rationale for entering into~~company operates in a manner that complies with laws and regulations and reflects the ~~transaction;~~

~~the alternatives to entering into a related-person transaction;~~

~~whether the transaction is on terms comparable to those available to third parties, or in the case~~highest standards of ~~employment relationships, to employees generally;~~

~~the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and~~

~~the overall fairness of the transaction to the company.~~integrity.

Code of Ethics

The board approves the ~~transaction to ensure that there are no changed circumstances that would render it advisable to amend or terminate the transaction.~~company's code of ethics, which is set out in:

~~Procedures~~The Red Book: a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our Board of Directors. The Red Book is reviewed and approved annually by the Board.

Both documents are available online at: http://www.lilly.com/about/business-practices/ethics-compliance, or ~~the affected director or executive officer will bring the matter~~upon request to the ~~attention~~company's corporate secretary.

Highlights of the ~~chairman,~~Company’s Corporate Governance

The company is committed to good corporate governance, which promotes the ~~lead director,~~long-term interest of shareholders and other company stakeholders, builds confidence in our company leadership, and strengthens accountability for the ~~chair~~Board and company management. The board has adopted corporate governance guidelines that set forth basic principles of corporate governance by which the company operates. The section that follows outlines a few key elements of the ~~directors~~guidelines and other governance matters. Investors can learn more by reviewing the full corporate governance ~~committee,~~guidelines document, which is available online at http://investor.lilly.com/governance.cfm or upon request to the company’s corporate secretary.

~~The chairman and the lead director shall jointly determine (or, if either is involved in the transaction, the other shall determine in consultation with the chair~~

Role of the ~~directors and corporate governance committee) whether the matter should be considered by the board or by one of its existing committees consisting only of independent directors.~~Board

~~If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.~~

~~The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.~~

~~The board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.~~

The directors ~~and corporate governance committee has approved the following related-party transactions.~~

~~Dr. John Bamforth, senior director, chief marketing officer, Lilly Bio-Medicines, is the spouse of Dr. Susan Mahony, senior vice president and president, Lilly Oncology, and has been employed~~are elected by the ~~company for over 20 years. In 2012, he was paid approximately $362,000 in cash compensation,~~shareholders to oversee the actions and ~~he received grants under~~results of the company’s ~~performance-based equity~~

~~program valued at approximately $49,000 based upon~~management. The Board exercises oversight over a broad range of areas, but the fair value computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). Similarly, Mr. Myles O’Neill, senior vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, senior vice president, global quality, and has been employed by the company for over 10 years. His cash compensation in 2012 was approximately $684,000 and his equity grants were valued at approximately $141,000. Both Dr. Bamforth and Mr. O’Neill participate in the company’s benefit programs generally available to U.S. employees, and their compensation was established in accordance with the company’s compensation practices applicable to employees with equivalent qualifications andBoard's key responsibilities ~~and holding similar positions.~~include:

~~Orientation~~Providing general oversight of ~~New Directors; Director Education~~the business;

~~A comprehensive orientation process~~Approving corporate strategy;

Approving major management initiatives;

Selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives;

Ensuring that an effective succession plan is in place for ~~new~~all senior executives;

Overseeing the company’s ethics and compliance program and management of significant business risks; and

Nominating, compensating, and evaluating directors.

Board Composition and Requirements

Mix of Independent Directors and Officer-Directors

There should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a Board member.

Voting for Directors

In ~~addition,~~an uncontested election, directors are elected by a majority of votes cast. An incumbent nominee who fails to receive ~~ongoing continuing education through educational sessions at meetings,~~a majority of the ~~annual strategy retreat,~~votes cast will tender his or her resignation. The Board, on recommendation of the Directors and ~~periodic communications between meetings. We hold periodic mandatory training sessions for~~Corporate Governance Committee, will decide whether to accept the ~~audit committee, to which other directors and executive officers are invited. We also afford directors~~resignation. The company will promptly disclose the ~~opportunity to attend external director education programs.~~Board's decision, including, if applicable, the reasons why the Board rejected the resignation.

Director ~~Access~~Tenure and Retirement Policy

The company has in place policies for director tenure and retirement, which include the limitation that non-employee directors must retire no later than the date of the annual meeting that follows their seventy-second birthday. The Directors and Corporate Governance Committee, with input from all Board members, also considers the contributions of the individual directors at least every three years when considering whether to ~~Management~~nominate the director to a new three-year term.

Other Board Service

No director may serve on more than three other public company boards. The Directors and ~~Independent Advisors~~Corporate Governance Committee may approve exceptions if it determines that the additional service will not impair the director's effectiveness on the Lilly Board.

Board Confidentiality Policy

The Board has adopted a Confidentiality Policy, applicable to all current and future members of the Board.

The Policy prohibits a director from sharing confidential information obtained in his or her role as director with any outside party except under limited circumstances where the director is seeking legal advice or is required to disclose information by order of law. The Confidentiality Policy can be viewed on the company's website here: http://www.lilly.com/about/corporate-governance/Pages/corporate-governance.aspx.

Leadership Structure; Oversight of Chairman, CEO, and Senior Management

Leadership Structure

The Board currently believes that combining the role of chairman of the board and the CEO, coupled with a strong lead director position, is the most efficient and effective leadership model for the company, fostering clear accountability, effective decision-making, and alignment on corporate strategy. The Board periodically reviews its leadership structure and developments in the area of corporate governance in order to ensure that the company's approach continues to strike the appropriate balance for the company and our stakeholders.

Board Independence

The Board has put in place a number of governance practices to ensure effective independent oversight, including:

•Executive sessions of the independent directors: held after every regular board meeting.

Annual performance evaluation of the chairman and CEO: conducted by the independent directors, the results of which are reviewed with the chief executive officer and considered by Compensation Committee in establishing the CEO’s compensation for the next year.

•A strong, independent, clearly defined lead director: The lead director's responsibilities include:


◦	Leading the Board’s processes for selecting and evaluating the CEO;


◦	Presiding at all meetings of the Board at which the chairman is not present;


◦	Serving as a liaison between the chairman and the independent directors;


◦	If requested by major shareholders, ensures that she is available for consultation and direct communication;


◦	Approving meeting agendas and schedules and generally approving information sent to the Board;


◦	Conducting executive sessions of the independent directors; and


◦	Overseeing the independent directors' annual performance evaluation of the chairman and CEO.

The lead director also has authority to call meetings of the independent directors and to retain advisers for the independent directors.

The lead director is appointed annually by the Board. Currently Ms. Marram is the lead director.

Director access to management and independent advisors: Independent directors have direct access to members of management whenever they deem it ~~necessary. The company’s~~necessary; and the company's executive officers attend ~~at least~~ part of each regularly scheduled ~~board~~Board meeting. The independent directors and all committees are also free to retain their own independent advisors, at company expense, whenever they feel it would be desirable to do so. ~~The audit, compensation, and directors and corporate governance committees have sole authority to retain independent advisors to their respective committees.~~

~~Assessment of Board Processes and Performance~~CEO Succession Planning

The Compensation Committee, Board and CEO annually review the company's succession plans for the CEO and other key senior leadership positions. During these reviews, the CEO and independent directors discuss future candidates for the CEO and ~~corporate governance committee annually assesses~~other senior leadership positions, succession timing, and development plans for the ~~performance of~~highest-potential candidates. The company ensures that the ~~board, its committees,~~directors have multiple opportunities to interact with the company's top leadership talent in both formal and ~~board processes based on inputs from all directors.~~informal settings in order to allow them to most effectively assess the candidates' qualifications and capabilities.

1523

~~Committees~~The independent directors and the CEO maintain a confidential plan for the timely and efficient transfer of the ~~Board~~CEO's responsibilities in the event of ~~Directors~~

~~Number, Structure, and Independence~~

~~The duties and membership of the six board-appointed committees are described below. Only independent directors may serve on the committees.~~an emergency or his sudden departure, incapacitation, or death.

~~Committee membership~~Board Education and ~~selection~~Annual Performance Assessment

The company engages in a comprehensive orientation process for incoming new directors. Directors also receive ongoing continuing educational sessions on areas of ~~committee chairs are recommended~~particular relevance or importance to our company and we hold periodic mandatory training sessions for the board by the directors and corporate governance committee after consulting the chairman of the board and after considering the backgrounds, skills, and desires of the board members. The board has no set policy for rotation of committee members or chairs but annually reviews committee memberships and chair positions, seeking the best blend of continuity and fresh perspectives.

~~Functioning of Committees~~

Each committee reviews and approves its own charter annually, and the directors and corporate governance committee reviews and approves all committee charters annually. The chair of each committee determines the frequency and agenda of committee meetings. The audit, compensation, and public policy and compliance committees meet alone in executive session on a regular basis; all other committees meet in executive session as needed.

~~All six committee charters are available online athttp://investor.lilly.com/governance.cfm, or upon request to the company's corporate secretary.~~Audit Committee.

~~Audit Committee~~

~~The duties of~~Additionally, the ~~audit committee are described in “Audit Committee Matters” below.~~

~~Compensation Committee~~

~~The duties of the compensation committee are described in “Compensation Committee Matters” below.~~

Directors and Corporate Governance Committee

~~The duties~~ conducts an annual assessment of the ~~directors~~Board's performance, Board committee performance, and ~~corporate governance~~

~~committee are described in “Directors and Corporate Governance Committee Matters” below.~~all Board processes based on input from all directors.

~~Finance Committee~~Conflicts of Interest and Transactions with Related Persons

The finance committee reviews and makes recommendations regarding capital structure and strategies, including dividends, stock repurchases, capital expenditures, investments, financings and borrowings, financial risk management, and significant business-development projects.

~~Public Policy and Compliance~~Audit Committee

Assists the Board of Directors in fulfilling its oversight responsibilities by monitoring:

The ~~public policy~~integrity of financial information which will be provided to the shareholders and ~~compliance committee:~~others;

~~oversees the processes by~~The systems of internal controls and disclosure controls which ~~the company conducts its business so that the company will do so in a manner that complies with laws~~management has established;

The performance of internal and ~~regulations and reflects the highest standards of integrity;~~independent audit functions; and

~~reviews~~The company's compliance with legal and ~~makes recommendations regarding policies, practices,~~regulatory requirements.

The committee has sole authority to appoint or replace the independent auditor, subject to shareholder ratification.

The Board of Directors has determined that Mr. Eskew, Mr. Oberhelman, and ~~procedures~~Mr. Tai are Audit Committee financial experts, as defined in the SEC rules.

Compensation Committee

•Oversees the company’s global compensation philosophy and policies;

•Establishes the compensation of our chief executive officer and other executive officers;

Acts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive compensation programs; and

Reviews succession plans for the CEO and other senior leadership positions.

None of the Compensation Committee members:

•Has ever been an officer or employee of the company ~~that relate to public~~

Is or has been a participant in a related-person transaction with the company (see “Review and Approval of Transactions with Related Persons” for a description of our policy ~~and social, political, and economic issues.~~on related-person transactions).

~~Science and Technology~~None of our Board members or Compensation Committee

~~The science and technology committee:~~

~~reviews and makes recommendations regarding~~ members is an executive officer of another entity at which one of our executive officers serves on the ~~company’s strategic research goals and objectives;~~

~~reviews new developments, technologies, and trends in pharmaceutical research and development;~~

~~reviews the progress~~Board of Directors or Compensation Committee of the ~~company's new product pipeline; and~~

~~oversees matters of scientific and medical integrity and risk management.~~Board.

~~Membership and Meetings of the Board and Its Committees~~

In 2012, each director attended more than 85 percent of the total number of meetings of the board and the committees on which he or she serves. In addition, all board members are expected to attend the annual meeting of shareholders, and all the directors attended in 2012. Current committee membership and the number of meetings of the board and each committee in 2012 are shown in the table below.

1619

Name Board Audit Compensation Directors and
Corporate Governance Finance Public Policy and
Compliance Science and
Technology
Mr. Alvarez Member

Member Member Member
Dr. Baicker Member Member

Member
Sir Winfried Bischoff Member

Member Chair

Mr. Eskew Member Chair

Member

Mr. Fyrwald Member

Chair Member
Dr. Gilman Member

Member Chair
Mr. Hoover Member Member Member

Ms. Horn Member
Chair Member

Dr. Kaelin Member

Member
Member
Dr. Lechleiter Chair

Ms. Marram Lead Director
Member Chair

Mr. Oberhelman Member Member

Member

Dr. Prendergast Member

Member Member
Ms. Seifert Member Member Member

Number of 2012 Meetings 8 10 7 5 6 8 5

Directors and Corporate Governance Committee ~~Matters~~

~~Overview~~

~~The directors and corporate governance committee recommends~~Recommends to the ~~board~~Board candidates for membership on the ~~board~~Board and ~~board~~Board committees and for lead ~~director. The committee also oversees~~director; and

Oversees matters of corporate governance, including ~~board~~Board performance, director independence and compensation, and the corporate governance guidelines.

~~All committee members are independent as defined in~~

Finance Committee

Reviews and makes recommendations to the ~~NYSE listing requirements.~~

~~Director Qualifications~~

The board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of the board’s deliberations and decisions. Candidates shall have substantial experience with one or more publicly-traded national or multinational companies or shall have achieved a high level of distinction in their chosen fields.

Board membership should reflect diversity in its broadest sense, including persons diverse in geography, gender, and ethnicity. The board is particularly interested in maintaining a mix that includes the following backgrounds:

~~active or retired chief executive officers and senior executives, particularly those with experience in operations, finance, accounting, banking, marketing, and sales;~~

~~international business;~~

~~medicine and science;~~

~~government and public policy; and~~

~~health care system (public or private).~~

regarding financial matters, including:

~~Finally, board members should display the personal attributes necessary to be an effective director: unquestioned integrity; sound judgment; independence in fact~~Capital structure and ~~mindset; ability to operate collaboratively;~~strategies;

Dividends;

Stock repurchases;

Capital expenditures;

Investments, financings and ~~commitment to the company, its shareholders,~~borrowings;

Financial risk management; and ~~other constituencies.~~

Significant business-development opportunities.

Our board members represent a desirable mix of backgrounds, skills, and experiences, and they all share the personal attributes of effective directors described above. The board monitors the effectiveness of this approach via an annual internal board assessment as well as ongoing director succession planning discussions by the directors and corporate governance committee. Specific experiences and skills of our independent directors are included in ”Director Biographies” above.

~~Director Nomination Process~~

~~The board delegates the director screening process to the directors and corporate governance committee, which receives direct input from other board members.~~

~~Potential candidates are identified through recommendations from several sources, including:~~

~~incumbent directors;~~

~~management;~~

~~shareholders; and~~

~~independent executive search firms that may be retained by the committee to assist in locating and screening candidates meeting the board’s selection criteria.~~

~~The committee employs the same process for evaluating all candidates, including those submitted by shareholders. The committee initially evaluates a~~

candidate based on publicly available information and any additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection criteria and the committee’s initial evaluation is favorable, the committee, assisted by management or the search firm, gathers additional data on the candidate’s qualifications, availability, probable level of interest, and any potential conflicts of interest. If the committee’s subsequent evaluation continues to be favorable, the candidate is contacted by the chairman of the board and one or more of the independent directors for direct discussions to determine the mutual levels of interest in pursuing the candidacy. If these discussions are favorable, the committee makes a final recommendation to the board to nominate the candidate for election by the shareholders (or to select the candidate to fill a vacancy, as applicable).

~~Process for Submitting Recommendations and Nominations~~

A shareholder who wishes to recommend a director candidate for evaluation by the committee should forward the candidate’s name and information about the candidate’s qualifications to the chair of the directors and corporate governance committee, in care of the corporate secretary, at Lilly Corporate Center, Indianapolis, Indiana 46285. The candidate must meet the selection criteria described above and must be willing and expressly interested in serving on the board.

Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the 2014 annual meeting (i.e., to propose a candidate for election who is not otherwise nominated by the board through the recommendation process described above) must give the company written notice by November 25, 2013 and no earlier~~than~~

~~September~~22, 2013. The notice should be addressed to the corporate secretary at Lilly Corporate Center, Indianapolis, Indiana 46285. The notice must contain prescribed information about the candidate and about the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at http://investor.lilly.com/governance.cfm. The bylaws will also be provided by mail upon request to the corporate secretary.

~~Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements~~

In each of the past six years, we submitted management proposals to eliminate the company's classified board structure. The proposals did not pass because they failed to receive a “supermajority vote” of

80 percent of the outstanding shares, as required in the company's bylaws. In addition, in each of the past three years, we submitted management proposals to eliminate the supermajority voting requirements themselves. Those proposals also fell short of the required 80 percent vote.

Prior to 2012, these proposals received support ranging from 72 to 77 percent of the outstanding shares. In 2012, the vote was even lower, approximately 63 percent of the outstanding shares, driven in part by a 2012 NYSE rule revision prohibiting brokers from voting their clients' shares on corporate governance matters absent specific instructions from such clients. In preparation for 2013, we discussed these matters with our proxy solicitor and our major shareholders, including those who have supported and opposed these proposals in the past. We have concluded that the proposals would not be successful in 2013 and therefore we are not resubmitting them. We will continue to monitor this situation and engage in dialogue with our shareholders on these and other governance topics to ensure that Lilly continues to demonstrate strong corporate governance and accountability to shareholders.

~~Audit Committee Matters~~

~~Audit Committee Membership~~

All members of the audit committee are independent as defined in the SEC regulations and NYSE listing standards applicable to audit committee members. The board of directors has determined that Mr. Eskew, Mr. Hoover, and Mr. Oberhelman are audit committee financial experts, as defined in the rules of the SEC.

~~Audit Committee Report~~

The audit committee reviews the company’s financial reporting process on behalf of the board. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls and disclosure controls. In this context, the committee has met and held discussions with management and the independent auditor. Management represented to the committee that the company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles (GAAP), and the committee has reviewed and discussed the audited financial statements and related disclosures with management and the independent auditor, including a review of the significant management judgments underlying the financial statements and disclosures.

~~The independent auditor reports to the committee, which has sole authority to appoint and to replace the independent auditor.~~

The committee has discussed with the independent auditor matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended and as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T, including the quality, not just the acceptability, of the accounting principles, the

reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. In addition, the committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the PCAOB regarding communications with the audit committee concerning independence, and has discussed with the independent auditor the auditor’s independence from the company and its management. In concluding that the auditor is independent, the committee determined, among other things, that the nonaudit services provided by Ernst & Young LLP (as described below) were compatible with its independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the committee has adopted policies to~~avoid compromising the independence of the independent auditor, such as prior committee approval of nonaudit services and required audit partner rotation.~~

The committee discussed with the company’s internal and independent auditors the overall scope and plans for their respective audits, including internal control testing under Section 404 of the Sarbanes-Oxley Act. The committee periodically meets with the internal and independent auditors, with and without management present, and in private sessions with members of senior management (such as the chief financial officer and the chief accounting officer) to discuss the results of their examinations, their evaluations of the company’s internal controls, and the overall quality of the company’s financial reporting. The committee also periodically meets in executive session.

In reliance on the reviews and discussions referred to above, the committee recommended to the board (and the board subsequently approved the recommendation) that the audited financial statements be included in the company’s annual report on Form 10-K for the year ended December 31, 2012, for filing with the SEC. The committee has also appointed the company’s independent auditor, subject to shareholder ratification, for 2013.

Audit Committee

~~Michael L. Eskew, Chair~~

~~Katherine Baicker, Ph.D.~~

~~R. David Hoover~~

~~Douglas R. Oberhelman~~

~~Kathi P. Seifert~~Assists the Board of Directors in fulfilling its oversight responsibilities by monitoring:

~~Services Performed by~~The integrity of financial information which will be provided to the ~~Independent Auditor~~shareholders and others;

The systems of internal controls and disclosure controls which management has established;

The performance of internal and independent audit functions; and

The company's compliance with legal and regulatory requirements.

The committee ~~preapproves all services performed by~~has sole authority to appoint or replace the independent auditor, ~~in part~~subject to ~~assess~~

~~whether the provision of such services might impair the auditor’s independence. The committee’s policy and procedures are as follows:~~

The committee approves the annual audit services engagement and, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope, company structure, or other matters. Audit services include internal controls attestation work under Section 404 of the Sarbanes-Oxley Act. The committee may also preapprove other audit services, which are those services that only the independent auditor reasonably can provide.

Audit-related services are assurance and related services that are reasonably related to the performance of the audit, and that are traditionally performed by the independent auditor. The committee believes that the provision of these services does not impair the independence of the auditor.

~~The committee believes that, in appropriate cases, the independent auditor can provide tax compliance services, tax planning, and tax advice without impairing the auditor’s independence.~~

The committee may approve other services to be provided by the independent auditor if (i) the services are permissible under SEC and PCAOB rules, (ii) the committee believes the provision of the services would not impair the independence of the auditor, and (iii) management believes that the auditor is the best choice to provide the services.

At the beginning of each audit year, management requests prior committee approval of the annual audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other engagements known at that time. Management will also present at that time an estimate of all fees for the upcoming audit year. As specific engagements are identified thereafter, they are brought forward to the committee for approval. To the extent approvals are required between regularly scheduled committee meetings, preapproval authority is delegated to the committee chair.shareholder ratification.

~~For each engagement, management provides~~The Board of Directors has determined that Mr. Eskew, Mr. Oberhelman, and Mr. Tai are Audit Committee financial experts, as defined in the committee with information about the services and fees, sufficiently detailed to allow the committee to make an informed judgment about the nature and scope of the services and the potential for the services to impair the independence of the auditor.SEC rules.

~~After the end of the audit year, management provides the committee with a summary of the actual fees incurred for the completed audit year.~~

~~Independent Auditor Fees~~

The following table shows the fees incurred for services rendered on a worldwide basis by the company’s independent auditor in 2012 and 2011. All such services were preapproved by the committee in accordance with the preapproval policy.

2012
(millions) 2011
(millions)
Audit Fees

$8.8 $8.8
• Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation

• Reviews of quarterly financial statements

• Other services normally provided by the auditor in connection with statutory and regulatory filings

Audit-Related Fees
$0.7 $1.5
• Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements

–
2012 and 2011: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions

Tax Fees

$2.2 $3.4
• 2012 and 2011: primarily related to consulting and compliance services

All Other Fees

$0.4 $0.5
• 2012 and 2011: primarily related to compliance services outside the U.S.

Total

$12.1 $14.2

Compensation Committee ~~Matters~~

~~Scope of Authority~~

~~The compensation committee oversees~~•Oversees the company’s global compensation philosophy and ~~policies, as well as establishes~~policies;

•Establishes the compensation of our chief executive ~~officers. The committee also acts~~officer and other executive officers;

Acts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive compensation ~~programs. The committee delegates authority to the appropriate company management~~programs; and

Reviews succession plans for day-to-day plan administration and interpretation, including selecting participants, determining award levels within plan parameters, and approving award documents. However, the committee may not delegate any authority for matters affecting the executive officers.

~~The Committee’s Processes and Procedures~~

~~The committee’s primary processes for establishing and overseeing executive compensation can be found in the “Compensation Discussion and Analysis” section and in the summary below.~~

~~The committee's key processes and procedures for setting and overseeing executive compensation include:~~

~~Meetings~~. The committee meets several times each year (7 times in 2012). Committee agendas are approved by the committee chair in consultation with the committee’s independent compensation consultant. The committee meets in executive session after each regular meeting.

~~Retention of independent consultant. The committee has retained Cimi B. Silverberg of Frederic W. Cook &~~

Co., Inc., as its independent compensation consultant to assist the committee. Ms. Silverberg reports directly to the committee. Neither she nor her firm is permitted to have any business or personal relationship with management or the members of the compensation committee. The consultant’s duties include the following:

~~reviewing committee agendas and supporting materials in advance of each meeting and raising questions with the company’s global compensation group and the committee chair as appropriate~~

~~reviewing the company’s total compensation philosophy, peer group, and target competitive positioning for reasonableness and appropriateness~~

~~reviewing the company’s executive compensation program and advising the committee of evolving best practices~~

~~providing independent analyses and recommendations to the committee on the CEO’s pay~~

~~reviewing draft “Compensation Discussion and Analysis” and related tables for the proxy statement~~

~~proactively advising the committee on best practices for board governance of executive compensation~~

~~undertaking special projects at the request of the committee chair.~~

~~The consultant interacts directly with members of company management only on matters under the committee’s oversight and with the knowledge and permission of the committee chair.~~

~~Role of executive officers and management. With the oversight of~~ the CEO and ~~the~~other senior ~~vice president of~~

human resources and diversity, the company’s global compensation group formulates recommendations on compensation philosophy, plan design, and the specific compensation recommendations for executive officers (other than the CEO, as noted below). The CEO gives the committee a performance assessment and compensation recommendation for each of the other executive officers. The committee considers those recommendations with the assistance of its consultant. The CEO and the senior vice president of human resources and diversity attend committee meetings but are not present for executive sessions or for any discussion of their own compensation. (Only nonemployee directors and the committee’s consultant attend executive sessions.)leadership positions.

~~The CEO does not participate in the formulation or discussion of his pay recommendations and has no prior knowledge of the recommendations that the consultant makes to the committee.~~

~~Risk assessment~~. With the help of its consultant, in 2012 the committee reviewed the company’s compensation policies and practices for employees, including executive officers. The committee concluded that the company’s compensation programs are not reasonably likely to have a material adverse effect on the company, after reviewing the business risks identified in the annual enterprise risk management assessment process. The committee noted several design features of the company’s cash and equity incentive programs that reduce the likelihood of inappropriate risk-taking:

~~independent compensation committee oversight~~

~~compensation committee engages independent compensation consultant~~

~~compensation committee has downward discretion to lower compensation plan payouts~~

~~threshold levels below target that provide for payouts and maximums that cap payouts~~

~~different measures and metrics used across multiple incentive plans; appropriate balance of cash/stock, fixed/variable pay, short-term/long-term incentive~~

~~compensation committee approval process for adjustments to financial results for compensation purposes~~

~~programs are self-funded; the cost of incentive program payouts is included when determining payout results~~

~~performance objectives are appropriately challenging yet achievable~~

~~target setting includes multiple inputs~~

~~appropriate levels of leverage exist within the programs~~

~~limited stock option usage~~

~~continuum of payout multiples for individual performance~~

~~review of top talent and retention plans~~

~~policy prohibiting hedging of company shares~~

~~negative compensation consequences for serious compliance violations and compensation recovery policy in place for executives~~

~~meaningful share ownership requirements for all members of senior management.~~

~~The committee concluded the company’s compensation programs do not encourage excessive risk among executive officers and instead encourage behaviors that support sustainable value creation.~~

~~Compensation Committee Interlocks and Insider Participation~~

None of the ~~compensation committee~~Compensation Committee members:

~~has~~•Has ever been an officer ~~of the company~~

~~has been an~~or employee of the company ~~since prior to 1980~~

isIs or ~~was~~has been a participant in a related-person transaction ~~in 2012~~with the company (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions).

None of our ~~board~~Board members or ~~compensation committee~~Compensation Committee members is an executive officer of another entity at which one of our executive officers serves on the ~~board~~Board of ~~directors.~~Directors or Compensation Committee of the Board.

Directors and Corporate Governance Committee

Recommends to the Board candidates for membership on the Board and Board committees and for lead director; and

Oversees matters of corporate governance, including Board performance, director independence and compensation, and the corporate governance guidelines.

Finance Committee

Reviews and makes recommendations to the Board regarding financial matters, including:

Capital structure and strategies;

Dividends;

Stock repurchases;

Capital expenditures;

Investments, financings and borrowings;

Financial risk management; and

Significant business-development opportunities.

Public Policy and Compliance Committee

Reviews and makes recommendations regarding policies, practices, and procedures of the company that relate to public policy and social, political, and economic issues.

Science and Technology Committee

Reviews and makes recommendations regarding the company’s strategic research goals and objectives;

Reviews new developments, technologies, and trends in pharmaceutical research and development;

Reviews the progress of the company's new product pipeline;

Reviews the scientific aspects of significant business development opportunities; and

Oversees matters of scientific and medical integrity and risk management.

Membership and Meetings of the Board and Its Committees

In 2014, each director attended at least 80 percent of the total number of meetings of the Board and the committees on which he or she serves. In addition, all Board members are expected to attend the annual meeting of shareholders, and all the directors attended in 2014. Current committee membership and the number of meetings of the Board and each committee in 2014 are shown in the table below.



Name	Board	Audit	Compensation	Directors and Corporate Governance	Finance	Public Policy and Compliance	Science and Technology
Mr. Alvarez	Member		Member				Member
Dr. Baicker	Member	Member				Member
Mr. Eskew	Member	Chair		Member	Member
Mr. Fyrwald	Member					Chair	Member
Mr. Hoover	Member				Chair	Member
Ms. Horn	Member		Chair	Member
Dr. Kaelin	Member				Member		Chair
Dr. Lechleiter	Chair
Ms. Marram	Lead Director		Member	Chair
Mr. Oberhelman	Member	Member			Member
Dr. Prendergast	Member					Member	Member
Dr. Runge	Member					Member	Member
Ms. Seifert	Member	Member	Member
Mr. Tai	Member	Member			Member
Number of 2014 Meetings	9	11	7	4	11	6	7

Board Oversight of Compliance and Risk Management

Code of Ethics

The board approves the company's code of ethics, which is set out in:

Both documents are available online at: http://www.lilly.com/about/business-practices/ethics-compliance, or upon request to the company's corporate secretary.

Highlights of the Company’s Corporate Governance

Role of the Board

Providing general oversight of the business;

Approving corporate strategy;

Approving major management initiatives;

Selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives;

Ensuring that an effective succession plan is in place for all senior executives;

Overseeing the company’s ethics and compliance program and management of significant business risks; and

Nominating, compensating, and evaluating directors.

Board Composition and Requirements

Mix of Independent Directors and Officer-Directors

There should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a Board member.

Voting for Directors

Director Tenure and Retirement Policy

Other Board Service

No director may serve on more than three other public company boards. The Directors and Corporate Governance Committee may approve exceptions if it determines that the additional service will not impair the director's effectiveness on the Lilly Board.

Board Confidentiality Policy

The Board has adopted a Confidentiality Policy, applicable to all current and future members of the Board.

Leadership Structure; Oversight of Chairman, CEO, and Senior Management

Leadership Structure

Board Independence

The Board has put in place a number of governance practices to ensure effective independent oversight, including:

•Executive sessions of the independent directors: held after every regular board meeting.

•A strong, independent, clearly defined lead director: The lead director's responsibilities include:


◦	Leading the Board’s processes for selecting and evaluating the CEO;


◦	Presiding at all meetings of the Board at which the chairman is not present;


◦	Serving as a liaison between the chairman and the independent directors;


◦	If requested by major shareholders, ensures that she is available for consultation and direct communication;


◦	Approving meeting agendas and schedules and generally approving information sent to the Board;


◦	Conducting executive sessions of the independent directors; and


◦	Overseeing the independent directors' annual performance evaluation of the chairman and CEO.

The lead director also has authority to call meetings of the independent directors and to retain advisers for the independent directors.

The lead director is appointed annually by the Board. Currently Ms. Marram is the lead director.

Director access to management and independent advisors: Independent directors have direct access to members of management whenever they deem it necessary; and the company's executive officers attend part of each regularly scheduled Board meeting. The independent directors and all committees are also free to retain their own independent advisors, at company expense, whenever they feel it would be desirable to do so.

CEO Succession Planning

The Compensation Committee, Board and CEO annually review the company's succession plans for the CEO and other key senior leadership positions. During these reviews, the CEO and independent directors discuss future candidates for the CEO and other senior leadership positions, succession timing, and development plans for the highest-potential candidates. The company ensures that the directors have multiple opportunities to interact with the company's top leadership talent in both formal and informal settings in order to allow them to most effectively assess the candidates' qualifications and capabilities.

The independent directors and the CEO maintain a confidential plan for the timely and efficient transfer of the CEO's responsibilities in the event of an emergency or his sudden departure, incapacitation, or death.

Board Education and Annual Performance Assessment

The company engages in a comprehensive orientation process for incoming new directors. Directors also receive ongoing continuing educational sessions on areas of particular relevance or importance to our company and we hold periodic mandatory training sessions for the Audit Committee.

Additionally, the Directors and Corporate Governance Committee conducts an annual assessment of the Board's performance, Board committee performance, and all Board processes based on input from all directors.

Conflicts of Interest and Transactions with Related Persons

Conflicts of Interest

Directors must disclose to the company all relationships that create a conflict or an appearance of a conflict. The Board, after consultation with counsel, takes appropriate steps to identify actual or apparent conflicts and ensure that all directors voting on an issue are disinterested. A director may be excused from discussions on the issue, as appropriate.

Review and Approval of Transactions with Related Persons

The board has adopted a policy and procedures for review, approval, and monitoring of transactions involving the company and related persons (directors and executive officers, their immediate family members, or shareholders of 5 percent or greater of the company’s outstanding stock). The policy covers any related-person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).

Policy: Related-person transactions must be approved by the Board or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the company. In considering the transaction, the Board or committee will consider all relevant factors, including:

The company’s business rationale for entering into the transaction;

The alternatives to entering into a related-person transaction;

Whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally;

The potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and

The overall fairness of the transaction to the company.

The Board or relevant committee will periodically monitor the transaction to ensure there are no changed circumstances that would render it advisable to amend or terminate the transaction.

Procedures:

Management or the affected director or executive officer will bring the matter to the attention of the chairman, the lead director, the chair of the Directors and Corporate Governance Committee, or the secretary.

The chairman and the lead director shall jointly determine (or, if either is involved in the transaction, the other shall determine) whether the matter should be considered by the Board or by one of its existing committees.

If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.

The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.

The Board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.

The Directors and Corporate Governance Committee has approved the following employment relationships which are considered related-party transactions under the SEC rules.

We have three current employees who are relatives of executive officers. Dr. John Bamforth, vice president, chief marketing officer, Lilly Bio-Medicines, is the spouse of Dr. Susan Mahony, an executive officer. Myles O’Neill, senior vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, an executive officer. Finally, Andrew Lechleiter, associate brand manager, global marketing, is the son of Dr. Lechleiter. For 2014, these three employees received compensation, including cash compensation, and in the case of Dr. Bamforth and Mr. O'Neill, equity grants, of between $120,000 and $1.1 million.

All three individuals participate in the company’s benefit programs generally available to U.S. employees. Their compensation is consistent with the compensation paid to other employees at their levels and with the Company's overall compensation principles based on their years of experience, performance, and positions within the company.

Communication with the Board of Directors

You may send written communications to one or more members of the Board, addressed to:

Board of Directors

Eli Lilly and Company

c/o Corporate Secretary

Lilly Corporate Center

Indianapolis, IN 46285

Shareholder Engagement on Governance Issues

Each year, the company engages large shareholders and other key constituents to discuss key areas of interest or concern related to corporate governance, as well as any specific issues for the coming proxy season. In 2014, we spoke with a number of our largest investors. Issues discussed included shareholders' perspectives regarding a potential management proposal to eliminate the company's classified board and supermajority voting requirements and the company's overall approach towards executive compensation, among other topics. The overall tone from these conversations was positive and the investors with whom we spoke were generally supportive of our overall compensation and governance policies. We have shared the feedback we received from these conversations with our Compensation Committee and with our Directors and Corporate Governance Committee, and we are committed to continuing to engage with our investors to ensure their diverse perspectives are thoughtfully considered.

Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements

Between 2007 and 2012, each year we submitted management proposals to eliminate the company's classified board structure. The proposals did not pass because they failed to receive a “supermajority vote” of 80 percent of the outstanding shares, as required in the company's articles of incorporation. In addition, in 2010, 2011, 2012, we submitted management proposals to eliminate the supermajority voting requirements themselves. Those proposals also fell short of the required 80 percent vote.

Prior to 2012, these proposals received support ranging from 72 to 77 percent of the outstanding shares. In 2012, the vote was even lower, approximately 63 percent of the outstanding shares, driven in part by a 2012 NYSE rule revision prohibiting brokers from voting their clients' shares on corporate governance matters absent specific instructions from such clients. Based on our discussions with large shareholders as described above, we have decided not to resubmit those proposals in 2015 based on our assessment that the proposals

would not be successful. We will continue to monitor this situation and engage with our shareholders on these and other topics to ensure that we continue to demonstrate strong corporate governance and accountability to shareholders.

Shareholder proposals

If a shareholder wishes to have a proposal considered for inclusion in next year’s proxy statement, he or she must submit the proposal in writing so that we receive it by November 24, 2015. Proposals should be addressed to the company’s corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder wishing to propose any other business at the annual meeting must give the company written notice by November 24, 2015 and no earlier than September 25, 2015. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online at http://investor.lilly.com/governance.cfm or upon request to the company’s corporate secretary.

Shareholder Recommendations and Nominations for Director Candidates

A shareholder who wishes to recommend a director candidate for evaluation should forward the candidate's name and information about the candidate's qualifications to:

Chair of the Corporate Governance Committee

c/o Corporate Secretary

Lilly Corporate Center

Indianapolis, IN 46285

The candidate must meet the selection criteria described above and must be willing and expressly interested in serving on the Board.

Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the 2016 annual meeting (i.e., to propose a candidate for election who is not otherwise nominated by the Board through the recommendation process described above) must give the company written notice by November 23, 2015 and no earlier than September 24, 2015. The notice should be addressed to the corporate secretary at the address provided above. The notice must contain prescribed information about the candidate and about the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at http://investor.lilly.com/governance.cfm. The bylaws will also be provided by mail upon request to the corporate secretary.

We have not received any shareholder nominations for board candidates for the 2015 meeting.

Ownership of Company Stock

Common Stock Ownership by Directors and Executive Officers

The following table sets forth the number of shares of company common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 20, 2015. None of the stock, stock options, or stock units owned by any of the listed individuals has been pledged as collateral for a loan or other obligation.



Beneficial Owners	Common Stock ¹			Stock Units Not Distributable Within 60 Days ⁴
Beneficial Owners	Shares Owned²		Options Exercisable/Stock Units Distributable Within 60 Days ³	Stock Units Not Distributable Within 60 Days ⁴
Ralph Alvarez	—		—	26,712
Katherine Baicker, Ph.D.	—		—	8,387
Enrique A. Conterno	116,492		6,928	30,360
Michael L. Eskew	—		—	28,779
J. Erik Fyrwald	100		—	48,204
Michael J. Harrington	38,922		6,024	9,066
R. David Hoover	1,000		—	28,290
Karen N. Horn, Ph.D.	—		—	70,058
William G. Kaelin, Jr., M.D.	—		—	7,012
John C. Lechleiter, Ph.D.	880,680	⁵	140,964	46,623
Jan M. Lundberg, Ph.D.	78,434		—	15,541
Ellen R. Marram	1,000		—	42,007
Douglas R. Oberhelman	—		—	22,819
Franklyn G. Prendergast, M.D., Ph.D.	—		—	60,216
Derica W. Rice	342,152		57,108	19,685
Marschall S. Runge, M.D., Ph.D.	—		—	3,132
Kathi P. Seifert	3,533		—	54,748
Jackson P. Tai	32,088		—	2,643
All directors and executive officers as a group (27 people):	2,111,219		243,102	677,670

The sum of the "Shares Owned" and "Options Exercisable/Stock Units Distributable Within 60 Days" columns represents the shares considered "beneficially owned" for purposes of disclosure in the proxy statement. Unless otherwise indicated in a footnote, each person listed in the table possesses sole voting and sole investment power with respect to their shares. No person listed in the table owns more than 0.1 percent of the outstanding common stock of the company. All directors and executive officers as a group own approximately 0.2 percent of the outstanding common stock of the company.

²This column includes the number of shares of common stock held individually as well as the number of

401(k) plan shares held by the beneficial owners indirectly through the 401(k) plan.


³	This column includes stock options exercisable within 60 days and RSUs that vest within 60 days.

⁴ For the executive officers, this column reflects RSUs that will not vest within 60 days. For the independent directors, this column includes the number of stock units credited to the directors' accounts in the Lilly Directors' Deferral Plan.

⁵ The shares shown for Dr. Lechleiter include 51,588 shares that are owned by a family foundation for which he is a director. Dr. Lechleiter has shared voting power and shared investment power with respect to the shares held by the foundation. Also included are 2,672 shares held in family trusts. Pursuant to the terms of the trusts, Dr. Lechleiter has shared investment power and no voting power over the shares held in the trusts.

Principal Holders of Stock

To the best of the company’s knowledge, the only beneficial owners of more than 5 percent of the outstanding shares of the company’s common stock, as of December 31, 2014, are the shareholders listed below:



Name and Address	Number of Shares Beneficially Owned	Percent of Class
Lilly Endowment, Inc. (the Endowment) 2801 North Meridian Street Indianapolis, Indiana 46208	131,405,804	11.8%

BlackRock, Inc. 55 East 52nd Street New York, New York 10022	59,635,631	5.4%

Wellington Management Group, LLP 280 Congress Street Boston, MA 02210	58,251,797	5.2%

PRIMECAP Management Company 225 South Lake Ave., #400 Pasadena, CA 91101	57,592,701	5.1%

The Endowment has sole voting and sole dispositive power with respect to all of its shares. The Board of Directors of the Endowment is composed of Thomas M. Lofton, chairman; N. Clay Robbins, president and chief executive officer; Mary K. Lisher; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; David N. Shane; and Craig R. Dykstra.

BlackRock, Inc. provides investment management services for various clients. It has sole voting power with respect to 50,064,212 shares and sole dispositive power with respect to all of its shares.

Wellington Management Group, LLP provides investment management services for various clients. It has shared voting power with respect to 11,878,232 of its shares and shared dispositive power with respect to all of its shares.

PRIMECAP Management Company acts as investment advisor to various clients. It has sole voting power with respect to 9,139,372 shares and sole dispositive power with respect to all of its shares.

Compensation

Item 2. Advisory Vote on Compensation Paid to Named Executive Officers

Section 14A of the Securities Exchange Act of 1934 provides the company's shareholders with the opportunity to approve, on an advisory basis, the compensation of the Company's named executive officers as disclosed in the proxy statement. As described in the Compensation Discussion and Analysis (CD&A) section below, our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s values of integrity, excellence, and respect for people.

The Compensation Committee and the Board of Directors believe that our executive compensation aligns well with our philosophy and with corporate performance. Executive compensation is an important matter for our shareholders. We routinely review our compensation practices and engage in ongoing dialog with our shareholders in order to ensure our practices are aligned with stakeholder interests and reflect best practices.

We request shareholder approval, on an advisory basis, of the compensation of the company’s named executive officers as disclosed in this proxy statement in the CD&A, the compensation tables, and related narratives. As an advisory vote, this proposal is not binding on the company. However, the Compensation Committee values input from shareholders and will consider the outcome of the vote when making future executive compensation decisions.

Board Proposal on Item 2

The Board recommends that you vote FOR the approval, on an advisory basis, of the compensation paid to the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the CD&A, the compensation tables, and related narratives provided below in this proxy statement.

Compensation Discussion and Analysis

~~Summary~~

~~Executive~~This CD&A provides a detailed description of our executive compensation philosophy, the Compensation Committee's process for ~~2012 aligned well with~~setting executive compensation, the ~~objectives~~elements of our compensation ~~philosophy~~program, the factors the committee considered when setting executive compensation in 2014, and ~~with our performance, driven by these factors:~~



• ~~The company exceeded internal corporate goals for revenue and earnings per share (EPS) as well as pipeline progress~~, as the company continued to navigate through a challenging period of significant patent expirations. The pipeline also progressed well, with approvals of Amyvid, Alimta® continuation maintenance in the U.S., Cymbalta® for generalized anxiety disorder in China, Cialis® for benign prostatic hyperplasia in the EU, and Exenatide Once Weekly® as well as six other approvals. Two new molecular entities (NMEs) entered Phase III, and 75 percent of project milestones for molecules in development were met or accelerated. As a result, the annual cash incentive bonus paid out at 142 percent of target. • Two-year adjusted non-GAAP EPS growth fell to the bottom of our peer group, an expected consequence of the Zyprexa patent expiration, resulting in a payout of 50 percent of target for the 2011-2012 Performance Award (PA). Three-year stock price growth of 35 percent resulted in the 2010-2012 Shareholder Value Award (SVA) paying out at 140 percent of target.	~~Highlights:~~ ~~• No changes to compensation and benefit design in 2012~~ • ~~Revenue and EPS decline due to Zyprexa~~^®~~patent expiration, but both exceed internal targets~~ • ~~Above-target performance in advancing the pipeline~~ ~~• Strong stock price performance in 2012~~ • ~~No increase to CEO salary or incentive targets for 2010, 2011, or 2012~~

~~A balanced program fosters employee achievement, retention, and engagement~~. We delivered a total compensation package composed of salary, performance-based cash and equity incentives, and a competitive employee benefits program. The Eli Lilly and Company Bonus Plan (the bonus plan) metrics of revenue, EPS, and pipeline performance against internal goals are designed to drive solid operational performance, promote innovation, and motivate employees duringhow the ~~next few years of patent expirations and business challenges. By contrast,~~company's results impacted incentive payouts for ~~our long-term equity programs, we use the external metrics of EPS growth versus our peers and~~

stock price performance versus expected large-cap returns. Together these elements reinforce pay-for-performance, provide balance (between short- and long-term performance, internal and external metrics, cash and stock compensation, fixed and variable pay), and encourage employee retention and engagement.2014.

~~The~~Say on Pay Results for 2014

At last year's annual meeting, in excess of 98 percent of the shares cast voted in favor of the company's Say on Pay proposal on executive compensation. Management and the Compensation ~~Committee’s Processes and Analyses~~Committee view this vote as supportive of the company's overall approach toward executive compensation.

~~Linking Business Strategy and~~

Our Philosophy on Compensation ~~Program Design~~

At Lilly, ~~we aim~~our mission is to ~~discover, develop, and acquire innovative new therapies—~~make medicines that ~~make a real difference for patients and deliver clear value for payers.~~help people live longer, healthier, more active lives. In order to accomplish ~~this goal, we must continually improve productivity in all that we do. To achieve these challenging goals,~~our mission, we must attract, engage, and retain highly-talented individuals who are committed to the ~~company’s~~company's core values of integrity, excellence, and respect for people. Our compensation programs are designed to help us achieve these goals while balancing the long-term interests of our customers and shareholders.

Objectives

Our compensation and benefits ~~programs are~~program is based on the following objectives:

Reflect both individual and company performance. We reinforce a high-performance culture by linking pay with individual performance and company performance. As employees assume greater responsibilities, the proportion of total compensation based on company performance and shareholder returns increases. We perform an annual review to ensure the programs provide incentive to deliver long-term, sustainable business results while discouraging excessive risk-taking, or other adverse behaviors.



	~~Executive Compensation Philosophy:~~ • ~~Individual and company performance~~ • ~~Long-term focus~~ • ~~Consideration of both internal relativity and competitive pay~~ • ~~Efficient and egalitarian~~ ~~• Appropriate risk mitigation~~	• ~~Reflect individual and company performance~~. ~~We link employees’ pay to individual and company performance.~~ ~~— As employees assume greater responsibilities, a greater portion of their pay is linked to company performance and shareholder returns through increased participation in equity programs.~~ — We seek to deliver above-market compensation given top-tier individual and company performance, but below-market compensation where individual performance falls short of expectations or company performance lags the industry.

—

Our 2012 incentive programs used a combination of internal corporate financial goals and a pipeline metric (annual bonus), relative EPS growth as measured against the expected performance of our peer companies (PA), and total shareholder return (TSR) (defined to include appreciation plus dividends) measured against stock price goals (SVA). We design our programs with clear targets, so that employees can understand how their efforts affect their pay.


—	We seek to balance the objectives of pay-for-performance and employee retention. Even during downturns in company performance, the program should continue to motivate and engage successful, high-achieving employees.

~~Foster a long-term focus~~. ~~In our industry, long-term focus is critical to success~~Attract and ~~is consistent~~retain talented employees.Compensation opportunities should be competitive with our goal of retaining highly-talented employees as they build their careers. A competitive benefits program including a defined benefit pension aids retention. As employees progress to higher levels of the organization, a greater portion of compensation is tied to long-term performance through our equity programs.

~~Provide compensation consistent with~~peer group and reflect the level of job ~~responsibility~~impact and responsibilities. Retention of talent is an important factor in the ~~market for pharmaceutical talent~~. ~~We seek internal pay relativity, meaning that pay differences among jobs should be commensurate with differences in job responsibility~~design of our compensation and ~~impact. In addition, the compensation committee compares the company’s programs with a peer group of global pharmaceutical and biopharmaceutical companies with whom we compete for talent.~~benefit programs.

~~Provide efficient and egalitarian compensation~~Implement broad-based programs.. ~~We seek to deliver superior long-term shareholder returns and to share with employees the value created in a cost-effective manner.~~ While the amount of compensation ~~reflects differences in job responsibilities, geographies, and marketplace considerations,~~paid to employees varies, the overall structure of our compensation and ~~benefits~~benefit programs is broadly similar across the ~~organization.~~organization to encourage and reward all employees who contribute to our success.

~~Appropriately mitigate risk~~. The compensation committee reviews the company’s compensation policies and practices annually and works with management to ensure that program design does not inadvertently create inappropriate incentives.

Consider shareholder ~~input~~.input. ~~In establishing 2012~~Management and the Compensation Committee consider the results of our annual Say on Pay vote and other sources of shareholder feedback when designing compensation the committee considered the shareholder vote in 2011 on the compensation paid to named executive officers—more than 88 percent in favor. The committee viewed this vote as supportive of the company’s overall approach to executive compensation. The shareholder vote in 2012 also confirmed this view with an overall approval of greater than 93 percent. We communicate directly with shareholders on executive compensation matters.and benefit programs.

~~Setting~~

Compensation Committee's Processes and Analyses

Process for setting compensation

The ~~compensation committee~~Compensation Committee considers ~~several factors to set compensation that meets company objectives. Among those considerations are:~~the following in determining executive compensation:

Assessment of the executive's individual performance and contribution. ~~Individual performance is a major factor in determining compensation.~~

—CEO: The independent directors, under the direction of the lead director, meet with the CEO at the beginning of ~~the~~each year to agree upon the ~~CEO’s~~CEO's performance objectives for the year. At the end of ~~the~~each year, the independent directors meet ~~with the CEO and also in executive session~~ to assess the ~~CEO’s performance based on his~~CEO's achievement of ~~the~~those objectives along with other factors, including contribution to the ~~company’s~~company's performance and ethics and ~~integrity, and other leadership accomplishments. This~~integrity. The year-end evaluation is ~~shared with the CEO by the lead director and is~~ used ~~by the compensation committee~~ in setting the ~~CEO’s~~CEO's compensation for the ~~following~~next year.

~~—For the other executive officers, the~~

Other Executive Officers ("EOs"): The committee receives individual performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the ~~board’s~~Board's knowledge and ~~its~~ interactions with the ~~executive officers.~~EOs. As with the CEO, ~~an executive officer’s~~each EO's performance assessment is based on his or her achievement of objectives established between the ~~executive officer~~EO and the CEO ~~contribution to~~at the ~~company’s performance, ethics and integrity, and~~start of the year as well as other ~~leadership attributes and accomplishments.~~factors.

Assessment of company performance. The ~~committee~~Compensation Committee considers company performance ~~measures~~ in two ways:


—	In establishing total compensation ranges, the committee uses as a reference the performance of the company and the public companies in its peer group with respect to revenue, EPS, return on assets, and one- and five-year TSR.


—	~~The committee establishes specific company performance goals that determine payouts under the company’s cash and equity incentive programs.~~

As a factor in establishing potential compensation for the coming year, the committee considers overall company performance during the prior year across a variety of metrics.

To determine payouts under the cash and equity incentive programs, the committee establishes specific company performance goals related to revenue, earnings per share (EPS), progress of our pipeline portfolio, and stock price growth.

Peer-group analysis. The committee ~~reviews~~uses peer-group data as a market check for compensation decisions, but does not ~~base~~use this data as the sole basis for its compensation ~~targets on peer-group data only.~~targets. The company does not target a specific position within the range of market data.

The Compensation Committee seeks input from an independent compensation consultant concerning CEO pay. The role of the independent compensation consultant is described in more detail under "Compensation Committee Matters" that follows the CD&A.



— ~~Overall competitiveness~~. The committee uses aggregated market data as a reference point to ensure that executive compensation is competitive within the broad middle range of comparative pay at peer companies when the company achieves the targeted performance levels. The committee does not target a specific position within the range of market data. — ~~Individual competitiveness. The pay of individual executives is~~	~~Compensation~~ ~~Considerations:~~ ~~• Individual performance~~ ~~• Company performance~~ ~~• Peer-group analysis~~ ~~• Internal relativity~~
compared with market pay if the jobs are sufficiently similar to make the comparison meaningful. The individual’s pay is driven primarily by individual and company performance and internal relativity; the peer-group data is used as a market check to ensure that individual pay remains within the broad middle range of peer-group pay. The committee does not target a specific position within the range.

~~The~~Competitive pay assessment

Our peer group for 2012 compensation decisions included Abbott Laboratories; Amgen Inc.; AstraZeneca plc; Baxter International, Inc.; Bristol-Myers Squibb Company; Genzyme Corporation (prior to its acquisition by Sanofi-Aventis); GlaxoSmithKline plc; Hoffmann-La Roche Inc.; Johnson & Johnson; Merck & Co., Inc.; Novartis AG; Pfizer Inc.; Sanofi-Aventis; and Takeda Pharmaceuticals Company. The committee reviews the peer group for appropriateness at least every three years, and approved the current peer group in 2010. The peeris comprised of companies ~~are direct competitors for our products,~~that directly compete with us, operate in a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. ~~The~~In selecting the peer group, the committee ~~also~~ considers companies' market ~~cap~~caps and revenue as measures of ~~size.~~size, and selects a peer group whose median market cap and revenues are similar to Lilly. The committee reviews the peer group at least every three years. The group includes: Abbott, Abbvie, Allergan, Amgen, AstraZeneca, Baxter, Biogen, Bristol-Myers Squibb, Celgene, Gilead, GlaxoSmithKline, Hoffman-La Roche, Johnson & Johnson, Medtronic, Merck, Novartis, Pfizer, and Sanofi-Aventis. With the exception of Johnson & Johnson, Novartis, and Pfizer, peer companies were no greater than three times our size with regard to both measures. The committee included ~~Johnson & Johnson and Pfizer~~these three companies despite their size because ~~both~~they compete directly with Lilly, ~~for~~have similar business models, and seek to hire from the same pool of management and scientific talent.

~~CEO~~ In the aggregate, the company’s total compensation~~. To provide further assurance~~ to Named Executive Officers (NEOs) in 2014 was in the middle range of independence, the compensation for the CEO is developed based upon a recommendation from the committee’s independent consultant, with limited support from company staff. The consultant prepares analyses showing competitive CEO compensation among the peer group for the individual elements of compensation and total direct compensation. Typically, the consultant develops a range of recommendations for any change in the CEO’s base salary, annual cash incentive target, equity grant value, and equity mix. The CEO has no prior knowledge of the recommendations and takes no part in the recommendations, committee discussions, or decisions.

group.

~~Executive Compensation for 2012~~

~~Overview~~

In setting target compensation for 2012, the committee reviewed 2011 individual and company performance and peer-group data as discussed above, and also considered expected competitive trends in executive pay. That review included:

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Components of Our Compensation

~~Company performance. In 2011, the~~

Our executive compensation has three components: (1) base salary; (2) an annual bonus, which is calculated based on company ~~performed in the upper tier of the peer group in one-year TSR, in the middle tier in revenue growth, and in the lower tier in adjusted non-GAAP EPS and five-year TSR. Company~~ performance ~~against corporate operating goals was slightly above target for adjusted non-GAAP EPS growth and slightly below target for return~~ on ~~assets. Growth in adjusted revenue, adjusted non-GAAP EPS, net cash flow, operating income per employee, and pipeline progress exceeded corporate goals.~~

~~Individual performance~~. In assessing the 2011 performance of executive officers, the independent directors (for the CEO) and the compensation committee (with regard to all executive officers) considered the company’s and the executive officer’s accomplishment of objectives established at the beginning of the year and their own subjective assessment of the executive officer’s performance.


—	~~In assessing Dr. Lechleiter's performance, the independent directors noted that under Dr. Lechleiter's leadership in 2011, the company:~~

~~Delivered above-plan growth in~~ revenue, EPS, and ~~cash flow.~~

~~Achieved~~ the ~~infrastructure reduction goals set~~progress of the pipeline relative to internal targets; and (3) two different forms of equity incentives: (i) "Performance Awards" (PAs) - performance-based equity awards determined by the company's two-year growth in ~~2009 of elimination of 5,500 positions~~earnings per share (EPS) relative to the expected peer group growth followed by a service-vesting period; and ~~reduction of $1 billion in costs from~~(ii) "Shareholder Value Awards" (SVAs) - performance-based equity awards that pay out based on company stock price growth over a three-year period. Executives also receive the ~~2009 plan, excluding acquisitions and strategic additions in Japan and key emerging markets.~~

~~Continued to advance the product pipeline, with 11 molecules in late-stage development.~~company benefits package, described below under "Employee Benefits".

Adjustments to reported financial results

The ~~directors also noted Dr. Lechleiter's strong leadership~~Compensation Committee has authority to adjust the reported revenue and EPS on which incentive compensation payouts are determined in ~~establishing and executing~~order to eliminate the ~~company's strategy~~distorting effect of unusual income or expense items that may occur during a given year that impact year-over-year growth percentages or to ~~weather~~improve comparability to peer companies. Further details on the ~~period of patent expirations through~~adjustments for 2014 and ~~return~~the rationale for making these adjustments are set forth in Appendix A, "Summary of Adjustments Related to ~~long-term growth following 2014. Dr. Lechleiter continued to set a clear tone~~the Annual Bonus and Performance Award." For ease of reference, throughout the ~~organization emphasizing integrity, ethics, compliance,~~CD&A and ~~quality. In addition, he continued his effective public advocacy on behalf of~~ the ~~company, especially~~other compensation disclosures we refer simply to "revenue" and "EPS" but we encourage you to review the information in Appendix A to understand the ~~areas of FDA~~revenue and ~~patent reform, and oversaw smooth transitions of two critical leadership roles in the organization.~~

~~Dr. Lechleiter requested~~EPS adjustments that his base salary and incentive targets not be increased for 2012, as most employees worldwide did not receive increases. Despite his strong performance, the committee agreed to Dr. Lechleiter’s request and his 2012 target compensation remained the same as 2011.were approved.


—1.	Mr. Rice assumed expanded operational responsibilities. He demonstrated effective leadership during the implementation of the global financial shared services centers, which will enable the company to streamline and standardize key global financial operations. Mr. Rice also showed continued strong financial stewardship and oversight of investor relations.Base Salary

Base salaries are reviewed and established annually, and may be adjusted upon promotion, following a change in job responsibilities, or to maintain market competitiveness. Salaries are based on each person's level of contribution, responsibility, and expertise, along with peer group data.

Base salary increases, if granted during a given year, are established based upon a corporate budget for salary increases, which is set considering company performance over the prior year, expected company performance for the following fiscal year, and general external trends. In setting salaries, the Compensation Committee seeks to retain, motivate, and reward successful performers while maintaining affordability within the company's business plan.


—2.	Dr. Lundberg's leadership was a key factor in very strong pipeline progress in 2011. He enhanced Lilly Research Laboratories' focus on achieving key pipeline milestones, made strong gains in employee engagement scores, and recruited key scientific talent.Annual Bonus


—	Mr. Armitage is broadly recognized for his critical role in helping to reform the U.S. patent laws to better protect innovators, culminating in the America Invents Act of 2011. He also led the company to excellent results across a broad spectrum of Hatch-Waxman litigation. Mr. Armitage retired from the company on December 31, 2012.

—

Mr. Conterno provided key leadership to improve the company’s competitive position in markets for our diabetes business products with the successful consummation of the Boehringer-Ingelheim partnership and the termination of the Amylin commercial partnership and settlement of related issues. He collaborated effectively with manufacturing personnel to improve gross margins on these products. His organization reported high employee-engagement scores and strong commitment to ethics and compliance.

~~Pay~~The Eli Lilly and Company Bonus Plan ("Bonus Plan") is designed to align employees' individual goals with the company's financial plans and pipeline objectives for the year. The bonus is based on company performance in three areas over the course of the year, relative to ~~peer group. The company’s total compensation to executive officers, in the aggregate, for 2011 was in the broad middle range of the peer group.~~

~~The committee determined the following:~~

~~Program elements. The 2012 program consisted of base salary, a cash incentive bonus,~~internal targets: (1) revenue performance; (2) EPS performance; and two forms of performance-based equity grants: PAs and SVAs. Executives also received the company employee benefits package. This total compensation program balances the mix of cash and equity compensation, the mix of current and longer-term compensation, the mix of internally and externally focused goals, and the security of foundational benefits in a way that furthers the compensation objectives discussed above.

~~Targets~~. The company generally maintained pay ranges and a balance of pay elements similar to 2011. The committee believes this overall program continues to provide cost-effective delivery of total compensation that:


—	~~encourages employee retention and engagement by delivering competitive cash and equity components~~


—	~~maintains a strong link to company performance and shareholder returns through a balanced equity incentive program without encouraging excessive risk-taking~~

~~—maintains appropriate internal pay relativity~~


—	~~provides opportunity for total pay within the broad middle range of expected peer-group pay when company performance is comparable to that of our peers.~~

The graph below shows the balance of fixed and performance-based target compensation determined by the committee and actual compensation received for 2012 bonus. The target compensation reflects decisions made by the compensation committee for 2012. This includes the 2012-2013 PA and the 2012-2014 SVA. Actual compensation includes base salary and cash incentive bonus earned in 2012 and the equity awards that completed their performance periods in 2012, namely, the 2011-2012 PA and the 2010-2012 SVA.(3) progress on advancing our product pipeline.

~~2012 Target~~Individual bonus targets are set at the beginning of each year, and ~~Actual~~actual bonuses can range from 0 to 200% of each individual's bonus target. Company performance goals also are set at the beginning of each year. In establishing the goals, the Compensation ~~(millions)~~

Committee references the annual operating plan. Each year, the Compensation Committee reviews the relative weighting for each of the factors. The 2014 weightings remained unchanged from the prior year:

Goal

Weighting

Revenue performance

~~Fixed~~

~~Performance based~~

~~One-time~~25%

EPS performance

50%

Pipeline progress

~~Base salary~~

~~Bonus~~

~~SVA~~

~~RSU upon Hire~~

~~Cash~~

~~Long-term equity~~

25%

~~Actual base salary and~~Based on this weighting, the company bonus ~~amounts are shown in the “Summary Compensation Table.” The PA payout for 2011-2012 performance period paid out at 50 percent of target,~~multiple is annually calculated as shown in the “Outstanding Equity Awards at December 31, 2012” table. The SVA payout for 2010-2012 performance was 140 percent of target, as shown in the “Options Exercised and Stock Vested in 2012” table. Additionally, the graph above includes the vesting of a portion of restricted stock units (RSUs) that Dr. Lundberg received upon joining the company.follows:

(0.25 x revenue multiple) + (0.50 x EPS multiple) + (0.25 x pipeline multiple)

= company bonus multiple

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For 2014, in order to manage operating expenses to allow the company to fully invest in launching the company's late stage pipeline assets, the company bonus multiple was reduced by 0.25. As a result, individual payouts for 2014 were calculated according to the following formula:

Base Salary
Most employees around the globe did not receive base salary increases for 2012 as part of the company's efforts to manage costs during this period of patent expirations. As a result, executive officers' 2012 salaries remained unchanged from 2011.
Annualized Base Salary (thousands)
Name 2011 2012 Percentage Increase
Dr. Lechleiter $1,500
$1,500
0%
Mr. Rice $990
$990
0%
Dr. Lundberg $979
$979
0%
Mr. Armitage $841
$841
0%
Mr. Conterno $670
$670
0%

company bonus multiple - 0.25 = adjusted bonus multiple



	~~Cash Incentive Bonuses~~ The company’s annual cash bonus program is designed to align employees’ individual goals with the company’s financial plans and pipeline delivery objectives for the current year. For executive officers, cash incentive bonuses are made under the Executive Officer Incentive Plan (EOIP), which establishes a maximum annual incentive bonus and grants the committee discretion to reduce the bonus from the maximum. Under the EOIP, the maximum bonuses are based on non-GAAP net income (as defined under “Adjustments to Reported Results” below) for the year. For the chief executive officer, chief operating officer (if any), and executive chairman (if any), the maximum is 0.3 percent of non-GAAP net income. For other executive officers, the maximum is 0.15 percent of non-GAAP net income. No payments can be made unless the company has a positive non-GAAP net income for the year. The committee has discretion to reduce, but not increase, the annual incentive bonus.	~~Bonus Weighting:~~ ~~• 25% adjusted revenue goals~~ ~~• 50% adjusted non-GAAP EPS goals~~ ~~• 25% pipeline progress~~ ~~2012 Targets:~~ ~~• $22.3 billion adjusted revenue~~ ~~• $3.18 adjusted non-GAAP EPS~~ ~~• Achievement of pipeline milestones~~

adjusted bonus multiple x individual bonus target x base salary earnings = payout

EOs are subject to the Executive Officer Incentive Plan ("EOIP"), which sets further limits on the allowable bonus amounts. Under the EOIP, the maximum annual bonus allowable is calculated based on non-GAAP net income (as defined under "Adjustments to Reported Results" in Appendix A to this proxy statement) for the year. For the CEO, the maximum bonus award is 0.3 percent of non-GAAP net income. For other EOs, the maximum amount is 0.15 percent of non-GAAP net income. EOs will not receive any annual cash incentive payments unless the company has a positive non-GAAP net income for the year.

Once the maximum payout for an EO is determined, the Compensation Committee has the discretion to reduce (but not increase) the amount of the bonus to be paid. In exercising this discretion, the committee intends to generally to award ~~executive officers~~EOs the lesser of (i) the bonuses they would have received under the ~~bonus plan~~Bonus Plan or (ii) the EOIP maximum amounts. Each year the committee establishes target bonuses for the executive officers based on a percentage of salary. At the end of the year, the committee will reduce the bonuses from the EOIP maximum based on the company’s achievement relative to performance-based goals (as described below) set by the committee in a manner consistent with the committee’s administration of the bonus plan. Accordingly, actual payouts under the EOIP are expected to be less than the EOIP maximum amounts. The committee retains further discretion to reduce the bonuses below the results that would have been yielded under the bonus plan.


3.	Equity Incentives

All other management employees worldwide, as well as a substantial number of nonmanagement employees in the U.S., participate in the bonus plan. Under the plan, participants’ targets and company goals are set at the beginning of each year. Bonus payouts range from zero to 200 percent of target amounts depending on the company’s performance in regard to these goals. At the end of the performance period, the committee has discretion to adjust a bonus payout downward (but not upward) from the amount yielded by the formula.

~~The committee considered the following when establishing the 2012 awards:~~

•
Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities, more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities, internal relativity, individual performance, and peer-group data. For each named executive officer, the committee maintained the same bonus targets as 2011.
Bonus Targets (as a percentage of base salary)
Name 2011 2012
Dr. Lechleiter 140 %
140 %
Mr. Rice 90 %
90 %
Dr. Lundberg 90 %
90 %
Mr. Armitage 80 %
80 %
Mr. Conterno 75 %
75 %

~~Company performance measures~~. A bonus program’s goals should be challenging, yet achievable, in order to motivate and retain employees. Since 2011, performance goals under our bonus plan are tied directly to our internal annual operating goals. The committee established 2012 corporate goals with a 25 percent weighting on adjusted revenue goals, 50 percent weighting on adjusted non-GAAP EPS goals, and 25 percent weighting on our pipeline progress.

In establishing the 2012 goals, the committee used the company’s 2012 annual operating plan to set goals of $22.3 billion in adjusted revenue, $3.18 in adjusted non-GAAP EPS, and measures of both the output and sustainability of the pipeline. Payouts were determined by this formula:

~~(0.25 x adjusted revenue multiple) + (0.50 x adjusted non-GAAP EPS multiple) + (0.25 x pipeline multiple)~~

~~= bonus multiple~~

~~bonus multiple x bonus target x base salary earnings = payout~~

The ~~committee can always lower (but not increase) payouts to individual executive officers when individual performance goals are not achieved.~~

~~2012 adjusted revenue, adjusted non-GAAP EPS,~~company has two equity incentive programs - Performance Awards (PAs) and ~~pipeline multiples are illustrated by this chart:~~

1.10
Target

Adjusted Revenue
Multiple

0.0 0.5 1.0 1.5 2.0
Adjusted Revenue $19,818 $21,033 $22,252 $23,461 $24,676
1.68

Adjusted Non-GAAP EPS Multiple 0.0 0.5 1.0 1.5 2.0
Adjusted Non-GAAP EPS $2.74 $2.96 $3.18 $3.40 $3.62
1.20

Pipeline
multiple

0.0 0.5 1.0 1.5 2.0
Pipeline
score
1.0 2.0 3.0 4.0 5.0

2012 adjusted revenue of $22.5 billion exceeded the goal of $22.3 billion, and resulted in an adjusted revenue multiple of 1.10. 2012 adjusted non-GAAP EPS of $3.48 exceeded the goal of $3.18, resulting in an adjusted non-GAAP EPS multiple of 1.68.

Shareholder Value Awards (SVAs). The pipeline output and sustainability metrics were set consistent with corporate goals. The science and technology committee of the board of directors assessed the company’s progress toward achieving these goals at 3.4 (on a scale of 1 to 5), noting 11 product approvals versus a goal of 10, and two NMEs entering into Phase III versus a goal of 1 NME. Additionally, 75 percent of pipeline projects met their milestone goals, which was in the target range of 70 to 80 percent. The science and technology committee also performed a subjective assessment of the quality of the pipeline. Based on the recommendation of the science and technology committee, the compensation committee certified a pipeline score of 3.4, resulting in a pipeline multiple of 1.20.

~~Combined, the revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.42.~~

~~(0.25 x 1.10) + (0.50 x 1.68) + (0.25 x 1.20) = 1.42 bonus multiple~~

~~Equity Incentives—Total Equity Program~~

~~We employ two forms of equity incentives granted under the 2002 Lilly Stock Plan:~~ PAs ~~and SVAs. These incentives~~ are designed to focus company leaders on multi-year operational performance ~~as well as~~relative to peer companies and the SVAs align compensation with long-term growth in shareholder value. ~~In 2012,~~The Compensation Committee has the ~~company granted~~discretion to adjust downward (but not upward) any executive officer's equity ~~incentives to approximately 15 percent of our employee population. For executive officers, SVAs pay out in~~award payout from the amount yielded by the applicable formula.

Performance Awards

PAs are structured as a single award vesting over three years. Potential shares ~~that have~~are earned based on achieving EPS growth targets over a ~~three-year performance~~two-year period followed by ~~a one-year holding requirement; PAs have a~~an additional 13-month service-vesting period. The growth rate targets are set relative to the median expected EPS growth for the peer group for the period. These awards do not accumulate dividends during the two-year performance period, ~~and pay out in RSUs that vest one year after~~but do accumulate dividends during the ~~performance~~service-vesting period. ~~The following chart shows the performance and holding periods for PA and SVA grants over time:~~

Performance and Holding Periods for PAs and SVAs
2010 2011 2012 2013 2014 2015 2016

2010-2011 PA
2011-2012 PA Performance Period
2012-2013 PA Restricted Stock Units
2013-2014 PA

2010-2012 SVA Performance Period
2011-2013 SVA Required Holding Period
2012-2014 SVA
2013-2015 SVA



~~Target grant values~~. For 2012, the committee set the aggregate target values for the named executive officers based on internal relativity, individual performance, and aggregated peer-group data. Dr. Lundberg's target grant value was increased, reflecting his leadership in helping the company achieve key pipeline milestones. The target grant values for the remaining named executive officers were maintained. Consistent with the company's compensation objectives, individuals at higher levels received a greater proportion of total compensation in the form of equity. The committee determined that for members of senior management, a 50/50 split between PAs and SVAs appropriately balances the company financial	~~Equity Compensation:~~ ~~• Performance metrics of growth in non-GAAP EPS and share price are objective and align with shareholder interests~~ ~~• Target grant values set based on internal relativity, performance, and peer data~~



Performance and Service-Vesting Periods for PAs
2012	2013	2014	2015	2016	2017
2012-2013 PA						Performance Period
	2013-2014 PA					Service-vesting Period
		2014-2015 PA
			2015-2016 PA

~~performance and shareholder equity return metrics of the two programs.~~ ~~Target values for the 2011 and 2012 equity grants for the named executive officers were as follows:~~

Target Grant Values (thousands)
Name 2011-2012 PA 2012-2013 PA 2011-2013 SVA 2012-2014 SVA Percentage Increase (total)
Dr. Lechleiter $3,750 $3,750 $3,750 $3,750 0%
Mr. Rice $1,900 $1,900 $1,900 $1,900 0%
Dr. Lundberg $1,375 $1,500 $1,375 $1,500 9%
Mr. Armitage $1,000 $1,000 $1,000 $1,000 0%
Mr. Conterno $1,000 $1,000 $1,000 $1,000 0%



~~Equity Incentives—Performance Awards~~ PAs provide employees with shares of company stock if certain company performance goals are achieved. The awards are structured as a schedule of potential shares earned based on cumulative, compounded annual growth in adjusted non-GAAP EPS over a two-year period. The growth rates are based on expected peer group adjusted non-GAAP EPS growth for the period. Possible payouts for the 2012-2013 PA range from 0 to 150 percent of the target depending on adjusted non-GAAP EPS growth over the performance period. No dividends are accrued or paid on the awards during the performance period.	~~Performance Awards:~~ ~~• Target two-year ajdusted non-GAAP EPS growth for 2012-2013 PA is 3.3% annually, slightly above median expected peer-group performance~~ ~~• Payout in RSUs for executive officers vests after one year~~

~~Company performance measure~~. ~~For the 2012 grants, the committee once again established the performance measure as adjusted non-GAAP EPS growth.~~ The ~~committee~~Compensation Committee believes ~~adjusted non-GAAP~~ EPS growth is an effective ~~motivator~~measure of performance because it is closely linked to shareholder value, is broadly communicated to the public, is easily understood by employees, and allows for objective comparisons to peer-group performance. The target compounded growth percentage of 3.3 percent per year slightly exceeded the median expected adjusted non-GAAP EPS growth of companies in our peer group, based on investment analysts’ published estimates. Accordingly, consistentConsistent with our compensation objectives, company performance exceeding the expected peer-group median will result in above-target payouts, while company performance lagging the expected peer-group median will result in below-target payouts. Possible payouts range from 0 to 150 percent of the target depending on the EPS growth over the performance period.

The measure of ~~adjusted non-GAAP~~ EPS used in the PA program differs from the ~~adjusted non-GAAP EPS~~ measure used in our annual bonus program in two ways. First, the bonus program measures ~~adjusted non-GAAP~~ EPS over a one-year period, while the PA program measures ~~adjusted non-GAAP~~ EPS over a

two-year period. Second, the target ~~adjusted non-GAAP~~ EPS goal in the bonus program is set with reference to internal goals that align to our ~~internal~~annual operating plan for the year, while the target ~~adjusted non-GAAP~~ EPS goal in the PA program is set relative to expected growth rates ~~for~~among our peer group.

~~Potential payouts for 2012-2013 PAs are illustrated by the chart below:~~

2012-2013 PA
50% payout

Target

Payout Multiple 0.00 0.50 0.75 1.00 1.25 1.50
Cumulative 2-Year Adjusted Non-GAAP EPS $4.41 $8.46 $8.86 $9.26 $9.67 $10.09+

~~Equity Incentives—~~Shareholder Value Awards

~~In 2007, the company replaced its stock option program with the SVA program.~~ SVAs are structured as a schedule of ~~potential~~ shares of company stock that may be earned based on ~~the company’s~~Lilly's share price performance over a three-year period. As reflected in the chart below, SVAs have a three-year performance period and any shares paid out are subject to a one-year holding requirement. No dividends are accrued ~~or paid on the awards~~ during the performance period. ~~Payouts~~SVAs pay out above target if Lilly stock outperforms an expected compounded annual rate of return and below target if company stock underperforms that rate of return. The expected rate of return includes dividends and is based on the total three-year shareholder return (TSR) that a reasonable investor would consider appropriate for investing in a basket of large-cap U.S. companies. The share price payout schedule is based on this expected rate of return less the company’s dividend yield, applied to the starting share price. Executive officers receive no payout if TSR for the three-year period is zero or negative.



Performance and Holding Periods for SVAs
2012	2013	2014	2015	2016	2017	2018
2012-2014 SVA							Performance Period
	2013-2015 SVA						Required Holding Period
		2014-2016 SVA
			2015-2017 SVA

Possible payouts range from 0 to 140 percent of the target amount, depending on stock performance over the period. At

Pay for Performance

The mix of compensation for the ~~end~~CEO and other NEOs reflects the company's desire to link executive compensation with company performance. As reflected in the charts below, a substantial portion of the target pay for all NEOs is performance-based. Both the annual bonus and equity payouts are contingent upon company performance, with the bonus factoring in performance over a one-year period, and equity compensation factoring in performance over a longer term (as described above under "Components of Our Compensation - Equity Incentives").

2014 Target Total Compensation

Performance Review Process

In setting potential EO compensation for 2014, the Compensation Committee reviewed both individual and company performance during 2013.

2013 Individual EO Performance

A summary of the committee's review of the individual EOs is provided below:

Dr. John Lechleiter: In accordance with the company's Corporate Governance Guidelines, the independent directors conducted a review of Dr. Lechleiter's performance during 2013, which was provided to the Compensation Committee during a private session. Despite numerous challenges including the continued impact of patent expirations and other external downsides, under Dr. Lechleiter's leadership the company met corporate goals for revenue and exceeded corporate goals for growth in cash flow, EPS and progressing the company's pipeline, all while controlling operating expenses.

Dr. Lechleiter continued to set a strong cultural tone throughout the organization, consistently demonstrating honesty, integrity, and transparency in his internal and external interactions. Dr. Lechleiter also successfully oversaw the transition of a key executive leadership role during 2013, as well as a number of changes to the composition of the Board of Directors. In addition, Dr. Lechleiter has continued his effective public advocacy on behalf of the broader biopharmaceutical industry, via his key leadership roles in PhRMA and IFPMA, among other organizations.

Derica Rice: Mr. Rice demonstrated skillful leadership in serving as interim CEO during Dr. Lechleiter's medical leave in 2013, while maintaining strong performance of the global services organization. Mr. Rice has also driven a culture of strong financial discipline within the organization and maintains an excellent external reputation.

Dr. Jan Lundberg: Dr. Lundberg continued to oversee strong overall progress in the company pipeline and, through his leadership, has helped strengthen discovery and early clinical research capabilities. Dr. Lundberg has continued to reinvigorate the scientific culture within Lilly Research Labs (LRL) and has contributed significantly to gains in LRL employee engagement and recruitment.

Michael Harrington: Mr. Harrington led significant efforts during 2013 to develop and implement the "Protect Lilly" program, the company's comprehensive data protection program. Mr. Harrington also served as a trusted advisor to the executive team and has contributed to a strong ethics and compliance tone within the company.

Enrique Conterno: Mr. Conterno's leadership was critical to achieving strong operating results within the diabetes business unit during 2013, along with strong and continually improving customer engagement scores. During Mr. Conterno's tenure in his role, the company has made excellent progress with the diabetes pipeline and insulin manufacturing technical agenda.

The information in the section below reflects target total compensation for executive officers for 2014. The actual payouts made to the NEOs in the form of the 2014 annual bonus and equity awards that vested in 2014 are summarized in the next section, under "2014 Compensation Payouts".

Resulting Compensation Targets

Base Salary

As referenced in the "Proxy Statement Overview," most employees did not receive a salary increase for 2014. Therefore, the Compensation Committee decided the executives' base salaries also should remain flat for 2014. Each executive's full base salary for 2014 is reflected in the "Summary Compensation Table" in the "Executive Compensation" section of the proxy that follows.

Annual Bonus Targets

Based on a review of internal relativity, peer data, and individual performance, the committee ~~has discretion~~decided to ~~adjust an award payout downward (but not upward) from~~maintain the ~~amount yielded by~~same bonus targets for the ~~formula. The SVA program delivers equity compensation that is strongly linked to three-year total shareholder return, which aligns employee interests with those~~NEOs for 2014 as were in place for 2013, shown in the table below as a percentage of ~~shareholders.~~base salary:



~~Shareholder Value Awards:~~ ~~• Three-year performance period~~ •Name	2014 Bonus Target ~~is determined by applying an expected three-year rate of return for peer group companies~~ ~~• Shares earned by executive officers must be held one year~~
Dr. Lechleiter	~~Company performance measure~~. For the 2012 grants, the SVA will pay above target if company stock outperforms an expected compounded annual rate of return for peer group companies and below target if company stock underperforms that rate of return. The expected rate of return is based on the total return that a reasonable investor would consider appropriate for investing in a basket of large-cap U.S. companies (based on input from external money managers). The resulting share price payout schedule was developed using this expected rate of return (ten percent) , less the company’s dividend yield applied to the starting share price. Executive officers receive no payout if TSR for the three-year period is zero or negative. 140%
Mr. Rice	90%
Dr. Lundberg	90%
Mr. Harrington	75%
Mr. Conterno	75%

The Compensation Committee established the company performance targets for 2014 equal to the targets specified in the company's 2014 corporate operating plan approved by the Board of Directors in 2013.

Total Equity Program - Target Grant Values

For 2014 equity grants, the committee set the total target values for NEOs based on internal relativity, individual performance, and peer-group data. Mr. Harrington was the only NEO who received an increase in equity grant value. The committee considered his strong performance, increased experience in the role and a desire to position him more competitively in the market. The committee determined that for all NEOs a 50/50 split between PAs and SVAs appropriately balances company financial performance with shareholder return. Total target values for the 2014 equity grant to the NEOs were as follows:



Name	2014 Total Equity (in thousands)
Dr. Lechleiter	$9,000
Mr. Rice	$3,800
Dr. Lundberg	$3,000
Mr. Harrington	$1,900
Mr. Conterno	$2,000

Performance Awards – 2014-2015 PA

The committee established the compounded EPS growth target at 7.6 percent across the two-year period (8 percent and 7 percent for 2014 and 2015, respectively), based on investment analysts’ published estimates for the peer group. Possible payouts for the 2014-2015 PA range from 0 to 150 percent of the target, as illustrated in the chart below:



			50% payout

						Target


Payout Multiple		0.00		0.50	0.75		1.00	1.25		1.50
Cumulative 2-Year EPS	≤	$4.15		$8.50	$8.88		$9.27	$9.67	≥	$10.07+
EPS Annual Growth Rate				1.60%	4.60%		7.60%	10.60%		13.60%

Shareholder Value Awards – 2014-2016 SVA

The starting price ~~for the 2012-2014 SVAs~~ was ~~$38.64~~$50.42 per share, representing the average of the closing prices of company stock for all trading days in November and December ~~2011.~~2013. The ~~future~~target ending share price ~~that would pay out the target number of shares~~range was established based on the expected annual rate of return for large-cap companies (8 percent), less an assumed dividend yield of ~~5.1~~3.89 percent. The ending price to determine payouts will be the average of the closing prices of company stock for all trading days in November and December 2016. The award is designed to deliver no

payout to EOs if the shareholder return (including projected dividends) is zero or negative. The target share price growth of 4.1 percent per year is comparable to an annual total shareholder return of 7.8 percent. Possible payouts are illustrated in the grid below.



Ending Stock Price	Less than$44.55	$44.55-$48.62	$48.63-$52.69	$52.70-$56.94	$56.95-$61.19	$61.20-$65.44	Greater than $65.44
Compounded Annual Share Price Growth Rate (excluding dividends)	Less than(4.0%)	(4.0%)-(1.2)%	(1.2%)-1.5%	1.5%-4.1%	4.1%-6.7%	6.7% -9.1%	Greater than 9.1%
Percent of Target	0%	40%	60%	80%	100%	120%	140%

2014 Compensation Payouts

The information in this section reflects the amounts paid to NEOs for the 2014 annual bonus and payouts from equity awards for which the relevant performance period ended in 2014.

2014 Company Performance

For 2014, the company slightly exceeded its revenue target with annual revenues of $19.5 billion after adjustments as described in Appendix A. The company exceeded its EPS target, with EPS of $2.83 after adjustments. The company also made significant progress on its pipeline, meeting or exceeding most targets for pipeline progress, highlighted by regulatory approvals for four products - empagliflozin, dulaglutide, ramucirumab, and new insulin glargine, along with 12 other new approvals or new indications or line extensions ("NILEX") during 2014.

Bonus Award for 2014

The company's 2014 performance compared to targets for revenue, EPS, and pipeline progress, as well as the resulting bonus multiple, are illustrated below.



	2014 Corporate Target	Adjusted Results	Multiple
Revenue	$19.4 billion	$19.5 billion	1.04
EPS	$2.81	$2.83	1.05
Pipeline score	3	3.5	1.25
Resulting Bonus Multiple			1.10
Downward Adjustment to Company Bonus Multiple for 2014			(0.25)
Adjusted Bonus Multiple			.85

The ~~2012-2014 SVA will be paid out~~Science and Technology Committee assessed the company’s progress toward achieving product pipeline goals at 3.5 (on a scale of 1 to ~~executive officers according to~~5) as follows:

4 new molecular entity (NME) product approvals versus a goal of 3, and 12 other approvals versus a goal of 6

1 NME entering into Phase III versus a goal of 2

30 percent of preclinical pipeline projects and 75 percent of clinical projects met their delivery reliability goals, compared with targets of 60 and 75 percent, respectively

The Science and Technology Committee also performed a subjective assessment of the ~~grid below~~quality of the pipeline, considering many factors, and awarded a score of 5, recognizing a record-setting year for innovation. Based on the recommendation of the Science and Technology Committee, the Compensation Committee certified a pipeline score of 3.5, resulting in ~~early 2015:~~

2012-2014 SVA
Ending Stock Price Less than $32.77 $32.77-$37.46 $37.47-$42.14 $42.15-$44.64 $44.65-$47.14 $47.15-$49.64 Greater than $49.64
Compounded Annual Share Price Growth Rate (excluding dividends) Less than (5.3%) (5.3%)-(1.0%) (1.0%)-2.9% 2.9%-4.9% 4.9%-6.9% 6.9% -8.7% Greater than 8.7%
Percent of Target 0% 40% 60% 80% 100% 120% 140%
a pipeline multiple of 1.25.

~~Restricted Stock Units~~Combined, the revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.10. The company bonus multiple was reduced by 0.25 for 2014 in order to manage operating expenses to allow the company to fully invest in launching the company's late stage pipeline assets.

~~No one-time RSUs were awarded to any of the named executive officers in 2012.~~(0.25 x 1.04) + (0.50 x 1.05) + (0.25 x 1.25) = 1.10 bonus multiple

1.10 bonus multiple - 0.25 = 0.85 adjusted bonus multiple

~~Stock Options~~The bonus amounts paid to NEOs for 2014 are reflected in the "Summary Compensation Table" below.

Equity Award Payouts in 2014

2013-2014 Performance Award

The ~~company stopped granting stock options~~target cumulative EPS for the 2013-2014 PA was set in ~~2007.~~January 2013 reflecting expected industry growth of 7.78 percent each year. The ~~stock options granted~~company's two-year EPS growth was 1.4 percent, reflecting the negative impact of multiple patent expirations.

The company's performance compared to targets (and the resulting multiple) for the 2013-2014 PA is reflected in ~~2002 expired in 2012, and~~ the charts below.

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~~named executive officers who held them forfeited the awards having realized no value. These awards (and other expired stock options) were not replaced.~~

~~Adjustments to Reported Results~~

Consistent with past practice, the committee adjusted the results on which 2011-2012 PAs and the 2012 bonus were determined to eliminate the distorting effect of certain unusual income or expense items on year-over-year growth percentages. The adjustments are intended to:

~~align award payments with the underlying performance of the core business~~

~~avoid volatile, artificial inflation or deflation of awards due to unusual items in either the award year or the previous (comparator) year~~

eliminate certain counterproductive short-term incentives—for example, incentives to refrain from acquiring new technologies, to defer disposing of underutilized assets, or to defer settling legacy legal proceedings to protect current bonus payments.

To assure the integrity of the adjustments, the committee establishes adjustment guidelines at the beginning of the year. These guidelines are generally consistent with the company guidelines for reporting non-GAAP earnings to the investment community, which are reviewed by the audit committee of the board. The adjustments apply equally to income and expense items. The compensation committee reviews all adjustments and retains downward discretion, i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.

~~Adjustments for 2012 Bonus Plan. For the 2012 bonus calculations, the committee made the following adjustments to reported revenue and EPS:~~

Neutralized the impact of the early payment by Bristol-Myers Squibb of Amylin's exenatide revenue-sharing obligations by (i) eliminating the income recognized on the early payment and (ii) adjusting planned revenue and EPS for exenatide to include the planned amounts for the portion of the year after the early payment.

~~Eliminated the EPS impact of significant asset impairments and restructuring charges.~~

Made additional reductions to "as reported" revenue and non-GAAP EPS in connection with the timing of certain pricing actions that occurred earlier than anticipated. Because the increases had occurred at the time the targets were being established, management recommended, and the committee agreed, to adjust the incremental revenue and EPS out of the 2012 results for bonus purposes.

Neutralized the impact of the delayed enactment of the American Taxpayer Relief Act of 2012, by adding the expected amount of the delayed 2012 tax benefits to 2012 EPS, and increasing the 2013 bonus EPS goal by the same amount to offset the benefit to be received in 2013.

~~Reconciliations of these adjustments to our reported revenue and EPS are below.~~



	~~2012~~
~~Revenue as reported ($ millions)~~	~~$22,603.4~~
~~Impact of certain pricing actions~~	~~$(106.0)~~
~~Impact of Amylin pro-rata revenue~~	~~$(9.0)~~
~~Revenue—adjusted~~	~~$22,488.4~~
~~EPS as reported~~	~~$3.66~~
~~Eliminate IPR&D charges for acquisitions and in-licensing transactions~~	~~$0.00~~
~~Eliminate asset impairments, restructuring, and other special charges (including Xigris® withdrawal)~~	~~$0.16~~
~~Eliminate impact of the early payment of Amylin financial obligation~~	~~$(0.43)~~
~~Non-GAAP EPS~~	~~$3.39~~
~~Xigris withdrawal adjustment~~	~~$(0.01)~~
~~EPS impact of the timing of pricing actions~~	~~$(0.06)~~
~~Pro-rata portion of Amylin net income~~	~~$0.09~~
~~2012 R&D Tax Credit~~	~~$0.07~~
~~Non-GAAP EPS—adjusted~~	$3.48*
*Numbers may not add due to rounding

~~Adjustments for 2011-2012 PA~~. When the committee set EPS growth goals for the 2011-2012 PA, the termination of our exenatide alliance with Amylin and the associated revenue-sharing obligation was not contemplated and therefore, the 2011-2012 PA goals assumed ongoing net income from sales of exenatide. The committee decided to neutralize the impact of the early payment. In addition, although the company excluded the impact of the Xigris®

product withdrawal that occurred in 2011 in its published non-GAAP earnings, the committee chose to include the negative impact on sales and EPS for both 2011 and 2012 when determining EPS for purposes of paying the 2011-2012 PA.

For the ~~2011-2012~~NEOs, the number of shares awarded in RSUs subject to an additional 13-month service-vesting period under the 2013-2014 PA ~~payout calculations,~~is reflected in the ~~committee made~~table below (this information is also included in footnote 5 to the ~~following adjustments to reported EPS:~~

~~For 2012: (i) Eliminated~~"Outstanding Equity Awards" table in the ~~income received from the early payment of the exenatide revenue-sharing obligation; (ii) Added back the planned income from exenatide for the portion of the year after the early payment;~~

~~For 2010 and 2011: Eliminated one-time accounting charges for acquired in-process research and development;~~

~~For 2010: Eliminated the impact of U.S. health care reform~~

~~For 2010, 2011, and 2012: Eliminated the impact of significant asset impairment and restructuring charges.~~

The adjustments were intended to align award payments more closely with underlying business growth trends and eliminate volatile swings (up or down) caused by the unusual items. This is demonstrated by the 2010, 2011, and 2012 adjustments:"Executive Compensation" section below):

EPS Percent Growth vs. Prior Years
20%

15%

10%

5%

0%
EPS growth - as reported
-5%
EPS growth - adjusted non-GAAP
-10%

-15%

-20%

-25%

2010 2011 2012



Name	Target Shares	RSUs Awarded
Dr. Lechleiter	89,659	46,623
Mr. Rice	37,856	19,685
Dr. Lundberg	29,886	15,541
Mr. Harrington	17,434	9,066
Mr. Conterno	19,924	10,360

~~Reconciliations of these adjustments to our EPS and our published non-GAAP EPS are below.~~

2012 2011 % Growth
2012 vs. 2011 2010 % Growth
2011 vs. 2010
EPS as reported $3.66 $3.90 (6.2)% $4.58 (14.8)%
Eliminate IPR&D charges for acquisitions and in-licensing transactions — $0.23
$0.03
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal) $0.16 $0.29
$0.13
Eliminate income from early payment of Amylin financial obligation $(0.43)

Non-GAAP EPS $3.39 $4.41 (23.1)% $4.74 (7.0)%
Health care reform adjustment —

$0.24
Xigris withdrawal adjustment $(0.01) $(0.05)
—
Pro-rata portion of Amylin Net Income $0.09 —
—
Non-GAAP EPS—adjusted $3.47 $4.36 (20.4)% $4.98 (12.4)%

Numbers reflected may not add due to rounding

~~Equity Incentive Grant Mechanics and Timing~~2012-2014 Shareholder Value Award

The ~~committee approves~~ target ~~grant values~~stock price of $44.64 for ~~equity incentives prior to~~ the ~~grant date. On~~2012-2014 SVA was set in January 2012 based on a beginning stock price of $38.64, which was the ~~grant date, those values are converted to shares based on:~~

~~The~~average closing price for Lilly stock for all trading days in November and December 2011. The ending stock price of ~~company~~$69.13 represents stock onprice growth of approximately 79 percent over the ~~grant date.~~relevant three-year period. The company's performance compared to target (and the resulting payout multiple) for the 2012-2014 SVA is shown below.

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~~The same valuation methodology the company uses to determine the accounting expense of the grants under FASB ASC Topic 718.~~

The ~~committee's procedure~~number of shares paid to NEOs during 2014 for the timing of equity grants assures that grant timing is not being manipulated for employee gain. The annual equity grant date for all eligible employees is in the first half of February. The committee establishes this date in October. The February grant date timing is driven by these considerations:2012-2014 SVA were as follows:

It coincides with the company's calendar-year-based performance management cycle, allowing supervisors to deliver the equity awards close in time to performance appraisals, which increases the impact of the awards by strengthening the link between pay



Name	Target Shares	Shares Paid Out
Dr. Lechleiter	141,938	198,713
Mr. Rice	71,915	100,681
Dr. Lundberg	56,775	79,485
Mr. Harrington	7,835	10,969
Mr. Conterno	37,850	52,990

Other Compensation Practices and ~~performance.~~Information

~~It follows the annual earnings release, so that the stock price at that time can reasonably be expected to fairly represent the market's collective view of our then-current results and prospects.~~

~~Grants to new hires and other off-cycle grants are effective on the first trading day of the following month.~~

Employee ~~and Post-Employment~~ Benefits

The company offers core employee benefits coverage to:

provide our ~~global~~ workforce with a reasonable level of financial support in the event of illness or injury,

provide post-retirement income; and ~~retirement~~

enhance productivity and job satisfaction through benefit programs that focus on ~~work/life balance.~~overall well-being.

The benefits available are the same for all U.S. employees and include medical and dental coverage, disability insurance, and life insurance.

In addition, The Lilly Employee 401(k) plan (the 401(k) plan) and The Lilly Retirement Plan (the retirement plan) provide U.S. employees a reasonable level of retirement income reflecting employees’ careers with the company. To the extent that any employee’s retirement benefit exceeds IRS limits for amounts that can be paid through a qualified plan, the company also offers a nonqualified pension plan and a nonqualified savings plan. These plans provide only the difference between the calculated benefits and the IRS limits, and the formula is the same for all U.S. employees.

The cost of ~~both~~ employee ~~and post-employment~~ benefits is partially borne by the employee, including each executive officer.

Perquisites

The company provides very limited perquisites to executive officers. The company does not allow personal use of the corporate aircraft except the aircraft is made available for the personal use of Dr. Lechleiter in very rare cases when the security and efficiency benefits to the company outweigh the expense. The company did not incur any expenses for personal use by Dr. Lechleiter ~~did not use the corporate~~of its aircraft ~~for personal flights during 2012,~~in 2014, nor did he receive any other perquisites. Depending on seat availability, family members and personal guests of executive officers may travel on the company aircraft to accompany executives who are traveling on business. ~~There is no incremental cost to the company for these trips.~~

The Lilly Deferred Compensation Plan

~~Executives~~

Members of senior management may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan (the deferred compensation plan), which allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded plan, amounts deferred by the executive are credited at an interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the “Nonqualified Deferred Compensation in ~~2012��~~2014” table.

Severance Benefits

Except in the case of a change in control of the company, the company is not obligated to pay severance to ~~named~~ executive officers upon termination of their employment; any such payments are at the discretion of the ~~compensation committee.~~Compensation Committee.

The company has adopted change-in-control severance pay plans for nearly all employees, including the executive officers. The plans are intended to preserve employee morale and productivity and encourage

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retention in the face of the disruptive impact of an actual or rumored change in control. In addition, the plans are intended to align executive and shareholder interests by enabling executives to evaluate corporate transactions that may be in the best interests of the shareholders and other constituents of the company without undue concern over whether the transactions may jeopardize the executives’ own employment.



~~Change in Control~~ ~~Severance:~~ Highlights of our change-in-control severance plans
•	All regular employees are covered	•	Up to two-year pay protection
•	Double trigger generally required	• ~~Two-year cash pay protection for executives~~ •	18-month benefit continuation
• ~~Tax gross-up eliminated in 2012~~	The company has adopted a change-in-control severance pay plan for nearly all employees, including the executive officers. The plan is intended to preserve employee morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control. In addition, the plan is intended to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of the shareholders and other constituents of the company without undue concern over whether the transactions may jeopardize the executives’ own employment. ~~Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the plan are comparable for all regular employees:~~ No tax gross-ups

Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the plans are comparable for all eligible employees:

Double trigger. Unlike “single trigger” plans that pay out immediately upon a change in control, the ~~company plan~~plans generally ~~requires~~require a “double trigger”—a change in control followed by an involuntary loss of employment within two years thereafter. This is consistent with the plan's intent to provide employees with financial protection upon loss of employment. A partial exception is made for outstanding PAs, a portion of which would be paid out upon a change in control on a pro-rated basis for time worked based on the forecasted payout level at the time of the change in control. This partial payment is appropriate because of the difficulties in converting the company EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs would be paid out on a pro-rated basis for time worked up to the change in control based on the merger price for company stock.

Covered terminations. Employees are eligible for payments if, within two years of the change in control, their employment is terminated (i) without cause by the company or (ii) for good reason by the employee, each as is defined in the plan. See “Potential Payments Upon Termination or Change in Control” for a more detailed discussion, including a discussion of what constitutes a change in control.

Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits protection. These provisions assure employees a reasonable period of protection of their income and core employee benefits.

—

Severance payment. Eligible terminated employees would receive a severance payment ranging from six months’ to two years’ base salary. Executives are all eligible for two years’ base salary plus two times the then-current year’s target bonus.

—

Benefit continuation. Basic employee benefits such as health and life insurance would be continued for 18 months following termination of employment, unless the individual becomes eligible for coverage with a new employer. All employees would receive an additional two years of both age and years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.

Accelerated vesting of equity awards. Any unvested equity awards vest at the time of termination of ~~employment would vest.~~employment.

Excise tax. In some circumstances, the payments or other benefits received by the employee in connection with a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The employee would then be subject to an excise tax on top of normal federal income tax. The company does not reimburse employees for ~~any excise or income taxes paid or other severance benefits related to change in control severance.~~these taxes. However, the amount of change in control-related benefits will be reduced to the 280G limit if the ~~employee~~effect would ~~receive~~be to deliver a greater after-tax benefit ~~when compared to~~than the ~~payment net of all income and excise taxes that~~employee would ~~be owed as a result of all change in control payments.~~receive with an unreduced benefit.

Share Ownership and Retention Guidelines; Prohibition on Hedging ~~Prohibition~~ and Pledging Shares

Share ownership and retention guidelines help to foster a focus on long-term growth. The CEO is required to own company stock valued at least six times ~~his or her~~ annual base salary. Other executive officers are required to own a fixed number of shares based on their position. ~~The fixed~~Until the required number of shares ~~eliminates volatility in the share ownership requirements that can occur with sharp movements in share price. Until the guideline level~~ is reached, the executive officer must retain ~~all existing holdings as well as~~ 50 percent of net shares ~~resulting~~received from new equity payouts. Our executives have a long history of maintaining extensive holdings in company ~~stock, and all named executive officers already meet or exceed the guideline. All new executive officers are on track to meet or exceed~~

~~the guideline within the next few years.~~stock. As of February ~~22, 2013,~~20, 2015, Dr. Lechleiter held shares valued at approximately 2644 times his annual salary. The following table shows the ~~required~~ share ~~levels~~requirements for ~~the named executive officers:~~each NEO:



			Executive officers are also required to retain all shares received from the company equity programs, net of acquisition costs and taxes, for at least one year, even once share ownership requirements have been met. For PAs, this requirement is met by paying the award in the form of RSUs with a one-year vesting period. Employees are not permitted to hedge their economic exposures to company stock through short sales or derivative transactions, and our executive officers do not hold any pledged shares.
Name	Share Requirement	~~Meets Requirement~~Owns Required Shares
Dr. Lechleiter	six times base salary	Yes
Mr. Rice	75,000	Yes
Dr. Lundberg	75,000	Yes
Mr. ~~Armitage~~Harrington	~~Retired~~55,000	-- No¹
Mr. Conterno	50,000	Yes

~~Tax Deductibility Cap~~

¹ As a newer executive officer, Mr. Harrington is required to retain at least half of all equity payouts until he reaches the 55,000 share ownership requirement.

Executive officers are also required to hold all shares received from equity program payouts, net of acquisition costs and taxes, for at least one year, even once share ownership requirements have been met. For PAs, this holding requirement is met by the one-year service-vesting period on ~~Executive Compensation~~

~~U.S. federal income tax law prohibits~~ the company from taking a tax deduction for non-performance based compensation paid in excess of $1,000,000 to named executive officers. However, performance-based compensation is fully deductible if the programs are approved by shareholders and meet other requirements. Our policy is to qualify our incentive compensation programs for full corporate deductibilityRSUs awarded pursuant to the ~~extent feasible and consistent with our overall compensation objectives.~~program.

~~We have taken steps to qualify all incentive awards (bonuses, PAs, and SVAs) for full deductibility as performance-based compensation. The committee may make payments that~~Employees are not ~~fully deductible if,~~permitted to hedge their economic exposures to company stock through short sales or derivative transactions. Effective in ~~its judgment, such payments are necessary to achieve~~2014, the ~~company's compensation objectives~~committee adopted a formal policy prohibiting outside directors and ~~to protect shareholder interests. For 2012, the non-deductible compensation was approximately $440,000~~all members of senior management from pledging any company stock (i.e., using company stock as collateral for Dr. Lechleiter, less than the portion of his base salary that exceeded $1,000,000, and approximately $1.36 million for Dr. Lundberg, primarily attributable to the vesting of RSUs received when he joined the company.a loan or trading shares on margin).

Executive Compensation Recovery Policy ~~and Other Risk Mitigation Tools~~

All incentive awards are subject to forfeiture upon termination of employment prior to the end of the performance period or for disciplinary reasons. In addition, the Compensation Committee has adopted an executive compensation recovery policy, ~~is administered by~~which gives the ~~compensation~~ committee ~~which has~~ broad discretion to ~~determine appropriate implementation. Pursuant~~claw back incentive payouts from any member of senior management (approximately 160 employees) whose misconduct results in a material violation of law or company policy that causes significant harm to the ~~executive compensation recovery policy~~company, or who fails in ~~place for 2012,~~his or her supervisory responsibility to prevent such misconduct by others.

Additionally, the company ~~is empowered to~~can recover incentive compensation (cash or equity) that was based on achievement of financial results that were subsequently the subject of a restatement if the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement and the effect of the wrongdoing was to increase the amount of bonus or incentive compensation. The committee does not believe it is practical to apply a specific claw-back policy to SVAs in the event of misstated financial results since it is very difficult to isolate the amount, if any, by which the stock price might benefit from misstated financial results over a three-year performance period. As set forth in the "Looking Ahead to 2013 Compensation" section below, the recovery policy for misconduct will be broadened in future years.

~~The company can also recover or “claw back”~~ all or a portion of any incentive compensation in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful conduct. Recoveries under ~~this “no-fault” provision cannot~~the plan can extend back ~~more than two~~as far as three years.

The recovery policy ~~applies to~~covers any incentive compensation awarded or paid beginning in 2013 to an employee at a time when he or she is ~~an executive officer.~~a member of senior management. Subsequent changes in status, including retirement or termination of employment, do not affect the company’s rights to recover compensation under the policy.

In addition to the executive compensation recovery policy, the committee and management have implemented compensation-program design features to mitigate the risk of compensation programs encouraging misconduct or imprudent risk-taking. First, incentive programs are designed using a diversity of meaningful financial metrics (growth in stock price measured over three years, revenue, EPS [measured over one and two years], and pipeline progress), providing a balance between short- and long-term performance. The committee reviews incentive programs each year against the objectives of the programs, assesses any features that could encourage excessive risk-taking, and makes changes as necessary. Second, management has implemented effective controls that minimize unintended and willful reporting errors.

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Looking Ahead to ~~2013~~2015 Compensation

~~Changes~~

As we move beyond the recent period of patent expirations, we plan to ~~the company’s executive compensation program effective in 2013:~~

~~Following dialogue with shareholders, we have broadened~~resume our ~~executive compensation recovery policy in two ways:~~custom and practice of providing annual increases to base salaries and delivering bonuses reflective of company and individual performance, without reductions, to eligible employees.

◦

We removed the requirement that there be a financial restatement in order to recover compensation from an executive who has engaged in misconduct. The policy now allows recovery from an executive whose misconduct results in a material violation of law or company policy that causes significant harm to the company, or who fails in his or her supervisory responsibility to prevent such misconduct by others; and


◦	~~We expanded the policy to apply to all members of senior management.~~

For our 2013 compensation decisions, we expanded our peer group to include six smaller biopharmaceutical and medical device companies: Allergan, Inc., Biogen IDEC Inc., Celgene Corporation, Covidien PLC, Gilead Sciences, Inc., and Medtronic, Inc. Lilly's size in terms of revenue is in the middle of our new peer group.Executive Compensation

Summary Compensation ~~Committee Report~~

The compensation committee evaluates and establishes compensation for executive officers and oversees the deferred compensation plan, the company’s management stock plans, and other management incentive, benefit, and perquisite programs. Management has the primary responsibility for the company’s financial statements and reporting process, including the disclosure of executive compensation. With this in mind, the compensation committee has reviewed and discussed with management the “Compensation Discussion and Analysis” above. The committee is satisfied that the “Compensation Discussion and Analysis” fairly and completely represents the philosophy, intent, and actions of the committee with regard to executive compensation. The committee recommended to the board of directors that the “Compensation Discussion and Analysis” be included in this proxy statement for filing with the SEC.

~~Compensation Committee~~

~~Karen N. Horn, Ph.D., Chair~~

~~R. David Hoover~~

~~Ellen R. Marram~~

~~Kathi P. Seifert~~

~~Executive Compensation~~Table


Summary Compensation Table
Name and Principal Position		Year	Salary ($)	Bonus ($)		Stock Awards ($) ³		Option Awards ($)	Non-Equity Incentive Plan Compensation ($) ⁴	Change in Pension Value ($) ⁵	All Other Compensation ($) ⁶	Total Compensation ($)	Year	Salary ($)	Bonus ($)	Stock Awards ($) ¹	Option Awards ($)	Non-Equity Incentive Plan Compensation ($) ²	Change in Pension Value ($) ³		All Other Compensation ($) ⁴	Total Compensation ($)
John C. Lechleiter, Ph.D.	¹	2012	$1,500,000	$0		$5,625,000		$0	$2,982,000	$4,423,633	$90,000	$14,620,633	2014	$1,500,000	$0	$6,750,000	$0	$1,785,000	$4,356,142		$90,000	$14,481,142
Chairman, President, and Chief Executive Officer		2011	td,500,000	$0		$5,625,000		$0	td,625,000	$6,530,094	$90,000	td6,370,094	2013	td,500,000	$0	$6,750,000	$0	td,877,000	$0	⁵	$90,000	td1,217,000
Chairman, President, and Chief Executive Officer		2010	td,500,000	$0		$8,175,000		$0	td,982,000	$3,757,545	$90,000	td6,504,545	2012	td,500,000	$0	$5,625,000	$0	td,982,000	$4,423,633		$90,000	td4,620,633
Derica W. Rice		2012	$990,000	$0		$2,850,000		$0	$1,265,220	$1,770,767	$59,400	$6,935,387	2014	$1,019,700	$0	$2,850,000	$0	$780,071	$2,023,458		$61,182	$6,734,411
Executive Vice President, Global Services and Chief Financial Officer		2011	$984,167	$0		td,850,000		$0	td,107,188	$940,589	$59,050	$5,940,993	2013	td,014,750	$0	td,850,000	$0	td,251,187	$0	⁵	$60,885	$5,176,822
		2010	$955,000	$0		$3,270,000		$0	td,220,490	$996,723	$57,300	$6,499,513	2012	$990,000	$0	td,850,000	$0	td,265,220	td,770,767		$59,400	$6,935,387
Jan M. Lundberg, Ph.D.		2012	$978,500	$0		$2,250,000		$0	$1,250,523	$307,275	$58,710	$4,845,008	2014	$1,007,855	$0	$2,250,000	$0	$771,009	$517,761		$60,471	$4,607,096
Executive Vice President, Science and Technology and President, Lilly Research Laboratories		2011	$973,750	$0		td,062,500		$0	td,095,469	td32,128	$58,425	$4,422,272	2013	td,002,963	$0	td,250,000	$0	td,236,653	td24,741		$60,178	$4,774,535
		2010	$946,401	td,000,000	²	$6,225,000	²	$0	td,209,501	$83,150	$87,833	$9,551,885	2012	$978,500	$0	td,250,000	$0	td,250,523	$307,275		$58,710	$4,845,008

Robert A. Armitage		2012	$840,900	$0		$1,500,000		$0	$955,262	$629,012	$50,454	$3,975,628
Michael J. Harrington													2014	$765,000	$0	$1,425,000	$0	$487,688	$1,330,586		$45,900	$4,054,174
Senior Vice President and General Counsel		2011	$840,900	$0		td,500,000		$0	$840,900	$595,293	$50,454	$3,827,547	2013	$765,000	$0	td,312,500	$0	$786,038	td64,784		$45,900	$3,174,222
Senior Vice President and General Counsel		2010	$836,817	$0		td,180,000		$0	$950,624	$521,237	$50,209	$4,538,886	2012	N/A	N/A	N/A	N/A		N/A		N/A	N/A
Enrique A. Conterno		2012	$669,500	$0		$1,500,000		$0	$713,018	$992,187	$40,170	$3,914,875	2014	$682,890	$0	$1,500,000	$0	$435,342	$1,235,839		$40,973	$3,895,044
Senior Vice President and President, Lilly Diabetes		2011	$666,250	$0		td,500,000		$0	$624,609	$887,380	$39,975	$3,718,214	2013	$680,658	$0	td,500,000	$0	$699,376	$88,167		$40,840	$3,009,041
Senior Vice President and President, Lilly Diabetes		2010	$650,000	$0		td,962,000		$0	$692,250	td75,998	$39,000	$3,619,248	2012	$669,500	$0	td,500,000	$0	$713,018	$992,187		$40,170	$3,914,875

¹This column shows the grant date fair value of PAs and SVAs computed in accordance with FASB ASC Topic 718. Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the performance condition as of the grant date. A discussion of assumptions used in calculating award values may be found in Note 11 to our 2014 audited financial statements in our Form 10-K.

~~Supplement to the "Summary Compensation Table."~~ The PA grant values included in the "Stock Awards" column are based on the probable payout outcome anticipated at the time of grant, which was different from the target value in each year. For purposes of comparison, the supplemental table below shows Dr. Lechleiter's target compensation, which has remained the same for the past three years as the company entered the current period of patent expirations.

Name Year Annualized Salary Target Stock Awards Target Cash Incentive Bonus Total
John C. Lechleiter, Ph.D. 2012 $1,500,000 $7,500,000 $2,100,000 $11,100,000

2011 $1,500,000 $7,500,000 $2,100,000 $11,100,000

2010 $1,500,000 $7,500,000 $2,100,000 $11,100,000


²	~~Dr. Lundberg received a signing bonus and a one-time RSU award upon joining the company in January 2010.~~

This column shows the grant date fair value of PAs and SVAs computed in accordance with FASB ASC Topic 718. Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the performance condition as of the grant date. A discussion of assumptions used in calculating award values may be found in Note 9 to our 2012 audited financial statements in our Form 10-K.

The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the ~~2012-2013~~2014-2015 PA grant included in this column of the Summary Compensation Table.


Name	Payout Date	Minimum Payout	Target Payout	Maximum Payout	Payout Date	Minimum Payout	Target Payout	Maximum Payout
Dr. Lechleiter	January 2014	$0	$3,750,000	$5,625,000	January 2016	$0	$4,500,000	$6,750,000
Mr. Rice	January 2014	$0	$1,900,000	$2,850,000	January 2016	$0	$1,900,000	$2,850,000
Dr. Lundberg	January 2014	$0	$1,500,000	$2,250,000	January 2016	$0	$1,500,000	$2,250,000
Mr. Armitage	January 2014	$0	$1,000,000	$1,500,000
Mr. Harrington					January 2016	$0	$950,000	$1,425,000
Mr. Conterno	January 2014	$0	$1,000,000	$1,500,000	January 2016	$0	$1,000,000	$1,500,000


⁴ ²Payments for 2014 performance under the bonus plan. All bonuses paid to NEOs were part of a non-equity incentive plan. ³The amounts in this column reflect the change in pension value for each individual, calculated by our actuary, and are affected by additional service accruals and pay earned, as well as actuarial assumption changes. The	~~Payments for 2012 performance were made in March 2013 under the bonus plan. All bonuses paid to named executive officers were part of a non-equity incentive plan.~~


⁵	The amounts in this column are the change in pension value for each individual, calculated by our actuary. No named executive officer received preferential or above-market earnings on deferred compensation.


⁶	~~The table below shows the components of the “All Other Compensation” column for 2010 through 2012, which~~

3742

~~includes~~increases in pension values in 2014 were driven to a large extent by a lower discount rate and a new mortality table that reflects longer expected lifetimes. The design of the pension benefit did not change. See the Pension Benefits in 2014 table on page 46 for information about the standard actuarial assumptions used. No named executive officer received preferential or above-market earnings on deferred compensation.

⁴The amounts in this column are solely company ~~match~~matching contributions for each ~~individual’s~~individual's 401(k) plan ~~contributions, tax reimbursements, andperquisites.~~ contributions. The company does not reimburse executives for taxes outside of the limited circumstance of taxes related to employee relocation or a prior international assignment. There were no reportable perquisites or personal benefits.

Name Year Savings Plan
Match Tax
Reimbursements Perquisites Other Total "All Other
Compensation"
Dr. Lechleiter 2012 $90,000 $0
$0 $0
$90,000

2011 $90,000 $0
$0 $0
$90,000

2010 $90,000 $0
$0 $0
$90,000
Mr. Rice 2012 $59,400 $0
$0 $0
$59,400

2011 $59,050 $0
$0 $0
$59,050

2010 $57,300 $0
$0 $0
$57,300
Dr. Lundberg 2012 $58,710 $0
$0 $0
$58,710

2011 $58,425 $0
$0 $0
$58,425

2010 $56,784 $12,876
¹
$0 $18,173
²
$87,833
Mr. Armitage 2012 $50,454 $0
$0 $0
$50,454

2011 $50,454 $0
$0 $0
$50,454

2010 $50,209 $0
$0 $0
$50,209
Mr. Conterno 2012 $40,170 $0
$0 $0
$40,170

2011 $39,975 $0
$0 $0
$39,975

2010 $39,000 $0
$0 $0
$39,000


¹	The company does not reimburse executive officers for taxes outside of the limited circumstance of taxes related to employee relocation. The 2010 amount for Dr. Lundberg is related to such relocation-related tax reimbursements, which were made pursuant to our relocation policy that applies to any employee asked by the company to relocate.


²	~~Relocation expenses reimbursed under the company relocation policy.~~

~~We have~~⁵The net present value of the pension benefits for Dr. Lechleiter and Mr. Rice reflect no ~~employment agreements with our~~change from 2013 due to an increase in the discount rate over 2012. For the other named executive ~~officers.~~officers, increases in pensionable earnings offset the impact of the increased discount rate.

Grants of Plan-Based Awards During ~~2012~~2014

The compensation plans under which the grants in the following table were made are described in the ~~“Compensation Discussion and Analysis”~~CD&A and include the bonus plan (a non-equity incentive plan) and the 2002 Lilly Stock Plan (which provides for PAs, SVAs, stock options, restricted stock grants, and RSUs).


					Estimated Possible Payouts Under Non-Equity Incentive Plan Awards ¹			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock or Option Awards: Number of Shares of Stock, Options, or Units	Grant Date Fair Value of Equity Awards
Name												Grant Date Fair Value of Equity Awards	Award	Grant Date²		Compensation Committee Action Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards¹			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock or Option Awards: Number of Shares of Stock, Options, or Units	Grant Date Fair Value of Equity Awards
Name	Award	Grant Date		Compensation Committee Action Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (# shares)	Target (# shares)	Maximum (# shares)	All Other Stock or Option Awards: Number of Shares of Stock, Options, or Units	Grant Date Fair Value of Equity Awards	Award	Grant Date²		Compensation Committee Action Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (# shares)	Target (# shares)	Maximum (# shares)		Grant Date Fair Value of Equity Awards
Dr. Lechleiter		—		—	$52,500	td,100,000	$4,200,000					Grant Date Fair Value of Equity Awards		__		__	$52,500	td,100,000	$4,200,000
	2012-2013 PA	2/6/2012	²	12/12/2011				52,462	104,924	157,386		$1,875,000	2014-2015 PA	2/6/2014	³	12/16/2013				46,097	92,194	138,291		$2,250,000
	2012-2014 SVA	2/6/2012	³	12/12/2011				56,775	141,938	198,713		$3,750,000	2014-2016 SVA	2/6/2014	⁴	12/16/2013				49,194	122,984	172,178		$4,500,000
											—												0
Mr. Rice		—		—	$22,275	$891,000	$1,782,000							__		__	$22,943	$917,730	$1,835,460
	2012-2013 PA	2/6/2012	²	12/12/2011				26,581	53,162	79,743		$950,000	2014-2015 PA	2/6/2014	³	12/16/2013				19,463	38,926	58,389		$950,000
	2012-2014 SVA	2/6/2012	³	12/12/2011				28,766	71,915	100,681		$1,900,000	2014-2016 SVA	2/6/2014	⁴	12/16/2013				20,771	51,927	72,698		$1,900,000
											—												0
Dr. Lundberg		—		—	$22,016	$880,650	$1,761,300							__		__	$22,677	$907,070	$1,814,139
	2012-2013 PA	2/6/2012	²	12/12/2011				20,985	41,970	62,955		$750,000	2014-2015 PA	2/6/2014	³	12/16/2013				15,366	30,731	46,097		$750,000
	2012-2014 SVA	2/6/2012	³	12/12/2011				22,710	56,775	79,485		$1,500,000	2014-2016 SVA	2/6/2014	⁴	12/16/2013				16,398	40,995	57,393		$1,500,000
											—												0
Mr. Armitage		—		—	$16,818	$672,720	$1,345,440
Mr. Harrington														__		__	$14,344	$573,750	$1,147,500
	2012-2013 PA	2/6/2012	²	12/12/2011				13,990	27,980	41,970		$500,000	2014-2015 PA	2/6/2014	³	12/16/2013				9,732	19,463	29,195		$475,000
	2012-2014 SVA	2/6/2012	³	12/12/2011				15,140	37,850	52,990		$1,000,000	2014-2016 SVA	2/6/2014	⁴	12/16/2013				10,385	25,963	36,348		$950,000
											—												0
Mr. Conterno		—		—	$12,553	$502,125	$1,004,250							__		__	$12,804	$512,168	$1,024,335
	2012-2013 PA	2/6/2012	²	12/12/2011				13,990	27,980	41,970		$500,000	2014-2015 PA	2/6/2014	³	12/16/2013				10,244	20,488	30,732		$500,000
	2012-2014 SVA	2/6/2012	³	12/12/2011				15,140	37,850	52,990		$1,000,000	2014-2016 SVA	2/6/2014	⁴	12/16/2013				10,932	27,330	38,262		$1,000,000
											—												0

¹These columns show the threshold, target, and maximum payouts for performance under the bonus plan. Bonus payouts range from 0 to 200 percent of target. The bonus payment for 2014 performance was 85 percent of target, and is included in the “Summary Compensation Table” in the column titled “Non-Equity Incentive Plan Compensation.”

²To assure grant timing is not manipulated for employee gain, the annual grant date is established in advance by the Compensation Committee and consistently falls in the first week of February. Equity awards to new hires and other off-cycle grants are effective on the first trading day of the following month.

³This row shows the range of payouts for 2014-2015 PA grants. This PA will pay out in January 2016, with payouts ranging from 0 to 150 percent of target. The grant-date fair value of the PA reflects the probable payout outcome anticipated at the time of grant, which was less than the target value.

⁴This row shows the range of payouts for 2014-2016 SVA grants. This SVA will pay out in January 2017, with payouts ranging from 0 to 140 percent of target. We measure the fair value of the SVA on the grant date using a Monte Carlo simulation model.

These columns show the threshold, target, and maximum payouts for performance under the bonus plan. As described in the section titled “Cash Incentive Bonuses” in the “Compensation Discussion and Analysis,” bonus-payouts range from 0 to 200 percent of target. The bonus payment for 2012 performance was 142 percent of target, and is included in the “Summary Compensation Table” in the column titled “Non-Equity Incentive Plan Compensation.”

This row shows the range of payouts for 2012-2013 PA grants as described in the section titled “Equity Incentives—Performance Awards” in the “Compensation Discussion and Analysis.” The 2012-2013 PA will pay out in January 2014 based on cumulative adjusted non-GAAP EPS for 2012 and 2013. Payouts will range from 0 to 150 percent of target and will be in the form of RSUs, vesting in February 2015. The grant-date fair value of the PA reflects the probable payout outcome anticipated at the time of grant, which was less than the target value.

This row shows the range of payouts for 2012-2014 SVA grants as described in the section titled “Equity Incentives—Shareholder Value Awards” in the “Compensation Discussion and Analysis.” The 2012-2014 SVA payout will be determined in January 2015. SVA payouts range from 0 to 140 percent of target. We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model.

To receive a payout under the PA or the SVA, a participant must remain employed with the company through the end of the relevant performance period (except in the case of death, disability, or retirement). In addition, an employee who was an executive officer at the time of the 2012-2013 PA grant will receive payment in RSUs according to the chart titled “Performance and Holding Periods for PAs and SVAs” in the “Compensation Discussion and Analysis.” SVAs granted in 2012 will pay out in common stock at the end of the three-year performance period according to the grid in the section of the “Compensation Discussion and Analysis” titled “Equity Incentives—Shareholder Value Awards,” provided the participant is still employed with the company (except in the case of death, disability, or retirement). No dividends accrue on either PAs or SVAs during the performance period. Non-preferential dividends accrue during the earned PA’s one-year restriction period (following the two-year performance period) and are paid upon vesting.

Outstanding Equity Awards at December 31, 2014

The 2014 closing stock price applied to the values in the table below was $68.99.



	Option Awards			Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable ¹	Option Exercise Price ($)	Option Expiration Date	Award	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($)
Dr. Lechleiter				2014-2016 SVA				172,178	²	$11,878,533
				2013-2015 SVA				155,058	³	$10,697,479
				2014-2015 PA				92,194	⁴	$6,360,464
				2013-2014 PA	46,623	⁵	$3,216,521
				2012-2013 PA	52,462	⁶	$3,619,353
	140,964	$56.18	02/09/2016
Mr. Rice				2014-2016 SVA				72,698	²	$5,015,421
				2013-2015 SVA				65,468	³	$4,516,651
				2014-2015 PA				38,926	⁴	$2,685,505
				2013-2014 PA	19,685	⁵	$1,358,068
				2012-2013 PA	26,581	⁶	$1,833,823
	30,000	$52.54	04/29/2016
	27,108	$56.18	02/09/2016
Dr. Lundberg				2014-2016 SVA				57,393	²	$3,991,683
				2013-2015 SVA				51,687	³	$3,594,803
				2014-2015 PA				30,731	⁴	$1,068,671
				2013-2014 PA	15,541	⁵	$1,072,174
				2012-2013 PA	20,985	⁶	$1,447,755
Mr. Harrington				2014-2016 SVA				36,348	²	$2,507,662
				2013-2015 SVA				30,150	³	$2,080,076
				2014-2015 PA				19,463	⁴	$1,342,752
				2013-2014 PA	9,066	⁵	$625,463
	6,024	$56.18	02/09/2016
Mr. Conterno				2014-2016 SVA				38,262	²	$2,639,695
				2013-2015 SVA				34,457	³	$2,377,175
				2014-2015 PA				20,488	⁴	$1,413,467
				2013-2014 PA	10,360	⁵	$714,736
				2012-2013 PA	13,990	⁶	$965,170
				RSU	20,000	⁷	$1,379,800
	6,928	$56.18	02/09/2016

3944

Outstanding Equity Awards at December 31, 2012

Option Awards Stock Awards
Name Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
¹
Option Exercise Price
($) Option
Expiration
Date Award Number of
Shares or
Units of Stock
That Have Not
Vested (#) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) Equity Incentive
Plan Awards:
Market or
Payout Value of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($)
Dr. Lechleiter

2012-2014 SVA

198,713
²
$9,800,525

2011-2013 SVA

209,331
³
$10,324,205

2012-2013 PA

52,462
⁴
$2,587,426

2011-2012 PA 58,778
⁵
$2,898,931

2010-2011 PA 132,367
⁶
$6,528,340

140,964

$56.18 02/09/2016

127,811

$55.65 02/10/2015

200,000

$73.11 02/14/2014

120,000
⁷

$57.85 02/15/2013

Mr. Rice

2012-2014 SVA

100,681
²
$4,965,587

2011-2013 SVA

106,061
³
$5,230,929

2012-2013 PA

26,581
⁴
$1,310,975

2011-2012 PA 29,781
⁵
$1,468,799

2010-2011 PA 52,947
⁶
$2,611,346

30,000

$52.54 04/29/2016

27,108

$56.18 02/09/2016

23,077

$55.65 02/10/2015

25,000

$73.11 02/14/2014

11,200
⁷

$57.85 02/15/2013

Dr. Lundberg

2012-2014 SVA

79,485
²
$3,920,200

2011-2013 SVA

76,755
³
$3,785,557

2012-2013 PA

20,985
⁴
$1,034,980

2011-2012 PA 21,552
⁵
$1,062,945

2010-2011 PA 44,122
⁶
$2,176,097

Grant upon hire 33,334
⁸
$1,644,033

Mr. Armitage

2012-2014 SVA

52,990
²
$2,613,467

2011-2013 SVA

55,821
³
$2,753,092

2012-2013 PA

13,990
⁴
$689,987

2011-2012 PA 15,674
⁵
$773,042

2010-2011 PA 35,297
⁶
$1,740,848

54,217

$56.18 02/09/2016

53,254

$55.65 02/10/2015

80,000

$73.11 02/14/2014

80,000
⁷

$57.85 02/15/2013

Mr. Conterno

2012-2014 SVA

52,990
²
$2,613,467

2011-2013 SVA

55,821
³
$2,753,092

2012-2013 PA

13,990
⁴
$689,987

2011-2012 PA 15,674
⁵
$773,042

2010-2011 PA 31,768
⁶
$1,566,798

RSU 30,000
⁹
$1,479,600

6,928

$56.18 02/09/2016

7,101

$55.65 02/10/2015

10,700

$73.11 02/14/2014

10,700
⁷
$57.85 02/15/2013


¹¹These options vested as listed in the table below by expiration date.	~~These options vested as listed in the table below by expiration date.~~



~~Expiration Date~~	~~Vesting Date~~	Expiration Date	Vesting Date
4/29/2016	5/1/2009	~~2/14/2014~~	~~2/19/2007~~
2/9/2016	2/10/2009	~~2/15/2013~~	~~2/17/2006~~
~~2/10/2015~~	~~2/11/2008~~

²SVAs granted for the 2014-2016 performance period. The number of shares reported reflects the maximum payout, which will be made if the average closing stock price in November and December 2016 is over $65.44. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended December 31, 2014, the payout would have been 140 percent of target.

³ SVAs granted for the 2013-2015 performance period. The number of shares reported reflects the maximum payout, which will be made if the average closing stock price in November and December 2015 is over $62.64. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended December 31, 2014, the payout would have been 140 percent of target.

⁴This number represents the threshold value of PA shares that could pay out for 2014-2015 performance, provided performance goals are met. Any award resulting from this program will be made in the form of RSUs, vesting February 2017. Actual payouts may vary from 0 to 150 percent of target. The number of shares recorded in the table reflects the payout if the combined cumulative EPS for 2014 and 2015 is $9.27.

⁵The 2013-2014 PA was determined to be 52 percent of target in January 2015 and the resulting RSUs will vest February 2016.

⁶RSUs vested February 2015 from the 2012-2013 PA.

SVAs granted for the 2012-2014 performance period that will end December 31, 2014. The number of shares reported in the table reflects the maximum payout, which will be made if the average closing stock price in November and December 2014 is over $49.64. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended at year-end 2012, the payout would have been 120 percent of target.

SVAs granted for the 2011-2013 performance period that will end December 31, 2013. The number of shares reported in the table reflects the maximum payout, which will be made if the average closing stock price in November and December 2013 is over $44.59. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended at year-end 2012, the payout would have been 140 percent of target.

⁴

This number represents the threshold value of PA shares that could pay out in January 2014 for 2012-2013 performance, provided performance goals are met. Any shares resulting from this award will pay out in the form of RSUs, vesting February 2015. Actual payouts may vary from 0 to 150 percent of target. The number of shares recorded in the table reflects the payout if the combined cumulative adjusted non-GAAP EPS for 2012 and 2013 falls between the range of $4.41 and $8.46.


⁵	~~The 2011-2012 PA paid out at 50 percent of target in January 2013 in the form of RSUs, vesting February 2014.~~


⁶	~~PA shares paid out in January 2012 for the 2010-2011 performance period. These shares vested in February 2013.~~

⁷~~These options expired with no value realized by~~This grant was made in 2008 outside of the ~~holder.~~normal annual cycle and will vest on May 1, 2018.

⁸~~Dr. Lundberg’s RSU award was granted February 1, 2010; one third vested on February 1, 2011, one third vested February 1, 2012,~~

Options Exercised and ~~the remaining shares vested February 1, 2013.~~Stock Vested in 2014


⁹	~~This grant was made in 2008 outside of the normal annual cycle and will vest in two installments, one third on May 1, 2013, and the remaining shares on May 1, 2018.~~


Options Exercised and Stock Vested in 2012
	Option Awards		Stock Awards			Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($) ¹	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($) ¹
Dr. Lechleiter	0	$0	219,812	²	$8,735,329	127,811	td,173,305	58,778	²	$3,174,600
Dr. Lechleiter	0	$0	238,203	³	td2,674,782	127,811	td,173,305	198,713	³	td4,102,662
Mr. Rice	0	$0	87,924	²	$3,494,100	23,077	td96,155	29,781	²	td,608,472
Mr. Rice	0	$0	95,281	³	$5,069,902	23,077	td96,155	100,681	³	$7,145,331
Dr. Lundberg	0	$0	33,333	⁴	td,324,653	0	$0	21,552	²	td,164,024
Dr. Lundberg	0	$0	79,401	³	$4,224,927	0	$0	79,485	³	$5,641,050
Mr. Armitage	0	$0	58,616	²	td,329,400
Mr. Armitage	0	$0	63,521	³	$3,379,952
Mr. Harrington						2,722	td4,780	0		$0
Mr. Harrington						2,722	td4,780	10,969	³	$778,470
Mr. Conterno	0	$0	—		—	7,101	td17,593	15,674	²	$846,553
Mr. Conterno	0	$0	57,169	³	$3,041,962	7,101	td17,593	52,990	³	$3,760,700



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●	WHEN:	11:00 a.m. EDT, Monday, May 4, 2015
●	WHERE:	The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285


●	ITEMS OF BUSINESS:	Election of the four directors listed in the proxy statement to serve three-year terms
		Approval, by non-binding vote, of the compensation paid to the company's named executive officers
		Ratification of Ernst & Young LLP as the principal independent auditors for 2015
●	WHO CAN VOTE:	Shareholders of record at the close of business on February 27, 2015



Agenda Item					Management recommendation	Vote required to pass
Item 1	Elect the following nominees for director to serve a three-year term that will expire in 2016:				Vote FOR all	Majority of votes cast
	Name and principal occupation	Joined the board	Age	Public boards

	Ralph Alvarez	2009	57	Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.	Vote FOR
	Executive Chairman, Skylark Co., Ltd.	2009	57	Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.	Vote FOR

	Sir Winfried Bischoff	2000	71	The McGraw-Hill Companies, Inc.	Vote FOR
	Chairman, Lloyds Banking Group plc	2000	71	The McGraw-Hill Companies, Inc.	Vote FOR

	R. David Hoover	2009	67	Ball Corporation; Energizer Holdings, Inc.; Steelcase, Inc.	Vote FOR
	Chairman, Ball Corporation	2009	67	Ball Corporation; Energizer Holdings, Inc.; Steelcase, Inc.	Vote FOR

	Franklyn G. Prendergast, M.D., Ph.D.	1995	68	__	Vote FOR
	Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; and Director Emeritus, Mayo Clinic Center for Individualized Medicine	1995	68	__	Vote FOR

	Kathi P. Seifert	1995	63	Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.	Vote FOR
	Retired Executive Vice President, Kimberly-Clark Corporation	1995	63		Vote FOR
Item 2	Ratify the appointment of Ernst & Young LLP as the company’s principal independent auditor.				Vote FOR	Majority of votes cast
Item 3	Approve, by non-binding vote, compensation paid to the company’s named executive officers.				Vote FOR	Majority of votes cast
Item 4	Reapprove the material terms of the performance goals for the 2002 Lilly Stock Plan.				Vote FOR	Majority of votes cast



Meeting:	Annual Meeting of Shareholders	Date:	May 4, 2015
Time:	11:00 a.m. EDT	Location:	The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285
Record Date:	February 27, 2015
Items of Business:	Item 1: Election of the four directors listed in this proxy statement to serve three-year terms.
	Item 2: Approval, by non-binding vote, of the compensation paid to the company's named executive officers.
	Item 3: Ratification of Ernst & Young LLP as the principal independent auditors for 2015.



SEC 1913 (11-01)	Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.



Notice of Annual Meeting of Shareholders	1
Proxy Statement Overview	2
Governance	8
Item 1 - Election of Directors	8
Board Operations and Governance	8
Director Compensation	15
Director Independence	17
Committees of the Board of Directors	19
Membership and Meetings of the Board and Its Committees	21
Board Oversight of Compliance and Risk Management	21
Highlights of the Company's Corporate Governance	22
Shareholder Engagement on Governance Issues	25
Prior Management Proposals to Eliminate Classified Board	25
Shareholder Proposals and Nominations	26
Ownership of Company Stock	27
Compensation	28
Item 2 - Advisory Vote on Compensation Paid to Named Executive Officers	28
Compensation Discussion and Analysis	29
Executive Compensation	42
Compensation Committee Matters	51
Audit Matters	53
Item 3 - Proposal to Ratify the Appointment of Principal Independent Auditor	53
Other Information	55
Meeting and Voting Logistics	55
Other Matters	58
Appendix A - Summary of Adjustments Related to the Annual Bonus and Performance Award	59
Annual Meeting Admission Ticket	61



~~Michael L. Eskew~~	~~Katherine Baicker, Ph.D.~~	~~Alfred G. Gilman, M.D., Ph.D.~~	~~Karen N. Horn, Ph.D.~~	~~Franklyn G. Prendergast, M.D., Ph.D.~~	~~J. Erik Fyrwald~~	~~R. David Hoover~~



Katherine Baicker, Ph.D., age 43, director since 2011
Board Committees: Audit; Public Policy and Compliance
Career Highlights		Industry Memberships
Harvard University School of Public Health, Department of Health Policy and Management		•	Commissioner of the Medicare Payment Advisory Commission
•	Professor of health economics (2007 - present)	•	Chair of the Group Insurance Commission of Massachusetts
•	C. Boyden Gray Professor and Acting Chair, department of health economics (2014 - present)	•	Panel of Health Advisers to the Congressional Budget Office
Council of Economic Advisers, Executive Office of the President		•	Editorial boards of Health Affairs; the Journal of Health Economics
•	Member (2005 - 2007)	•	Member of the Institute of Medicine
•	Senior Economist (2001 - 2002)
Qualifications: Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued adviser to numerous health care-related commissions and committees, her expertise in health care policy and health care delivery is recognized by both academia and government.



J. Erik Fyrwald, age 55, director since 2005
Board Committees: Public Policy and Compliance (chair); Science and Technology
Career Highlights		E.I. duPont de Nemours and Company, a global chemical company
Univar, Inc.,a leading distributor of industrial and specialty chemicals and provider of related services
		•	Group Vice President, agriculture and nutrition (2003 - 2008)
•	President and Chief Executive Officer (2012 - present)
Nalco Company, a provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications		Other Board Service
		•	Non-profit boards: Society of Chemical Industry; Amsted Industries; The Chicago Public Education Fund; Field Museum of Chicago, Trustee
•	Chairman and Chief Executive Officer (2008 - 2011)
Qualifications: Mr. Fyrwald has a strong record of operational and strategic leadership in three complex worldwide businesses with a focus on technology and innovation. He is an engineer by training and has CEO experience with Univar and Nalco.



Ellen R. Marram, age 68, director since 2002, Lead director since 2012
Board Committees: Compensation; Directors and Corporate Governance (chair)
Career Highlights		Other Board Service
The Barnegat Group LLC, provider of business advisory services		•	Public boards: Ford Motor Company, The New York Times Company
•	President (2006 - present)	•	Prior public board service: Cadbury plc
North Castle Partners, LLC		•	Private boards: Newman's Own, Inc.
•	Managing Director (2000 - 2006)	•	Non-profit boards: Wellesley College; Institute for the Future; New York-Presbyterian Hospital; Lincoln Center Theater; and Families and Work Institute
Tropicana Beverage Group
•	President and Chief Executive Officer (1993 - 1998)
Nabisco Biscuit Company, a unit of Nabisco, Inc.
•	President and Chief Executive Officer (1988 - 1993)
Qualifications: Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her nonprofit and private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has extensive corporate governance experience through service on other public company boards in a variety of industries.



Douglas R. Oberhelman, age 62, director since 2008
Board Committees: Audit; Finance
Career Highlights		Other Board Service
Caterpillar Inc.		•	Public boards: Caterpillar Inc.
•	Chairman and Chief Executive Officer (2010 - present)	•	Prior public board service: Ameren Corporation
•	Group President (2001 - 2010)	•	Non-profit boards: Wetlands America Trust; Easter Seals Foundation of Central Illinois
•	Chief Financial Officer (1995 - 1998)
Memberships and Other Organizations
•	Business Roundtable, Executive Committee
•	Business Council
•	National Association of Manufacturers, Chairman
Qualifications: Mr. Oberhelman has a strong strategic and operational background as the CEO of Caterpillar, a leading manufacturing company with worldwide operations and a special focus on emerging markets. He is an audit committee financial expert as a result of his prior experience as CFO of Caterpillar and as a member and chairman of the audit committee of another U.S. public company.



Jackson P. Tai, age 64, director since 2013
Board Committees: Audit; Finance
Career Highlights		Other Board Service
DBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial services groups in Asia		•	Public boards: The Bank of China Limited, MasterCard Incorporated, Royal Philips NV

•	Vice Chairman and Chief Executive Officer (2002-2007)	•	Prior board service: Singapore Airlines; NYSE Euronext; ING Groep NV; CapitaLand (Singapore); DBS Group Holdings and DBS Bank
•	President and Chief Operating Officer (2001-2002)
J.P. Morgan & Co. Incorporated, a leading global financial institution
•	25 year career in investment banking, including senior management responsibilities in New York, Tokyo and San Francisco
Qualifications: Mr. Tai is a former CEO with extensive experience in international business and finance, and is an audit committee financial expert. He has deep expertise in the Asia-Pacific region, a key growth market for Lilly. He also has broad corporate governance experience from his service on public company boards in the U.S., Europe, and Asia.



Ralph Alvarez, age 59, director since 2009
Board Committees: Compensation; Science and Technology
Career Highlights		Other Board Service
Skylark Co., Ltd., a leading restaurant operator in Japan		•	Public boards: Skylark Co., Ltd.; Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.; Realogy Holdings Corp.
•	Executive Chairman (2013 - present)
McDonald's Corporation
•	President and Chief Operating Officer (2006 - 2009)	•	Prior public board service: McDonald's Corporation; KeyCorp
Memberships and Other Organizations
•	University of Miami: President's Council; School of Business Administration Board of Overseers; International Advisory Board
Qualifications: Through his senior executive positions at Skylark Co., Ltd. and McDonald’s Corporation, as well as with other global restaurant businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and strategic planning. His international experience includes a special focus on emerging markets.



~~John C. Lechleiter, Ph.D.~~CEO Experience:	~~Douglas R. Oberhelman~~				~~Ellen R. Marram~~7	~~Sir Winfried Bischoff~~
Financial Expertise:	~~William G. Kaelin, Jr., M.D.~~		~~Kathi P. Seifert~~6	~~Ralph Alvarez~~
Relevant Scientific/Academic Expertise:			6
Healthcare Experience:		4
Operational/Strategic Expertise:					7
International Experience:			6
Marketing and Sales Expertise:		4
Gender/Ethnic Diversity:					7



2 Years Tenure or Less:	2
3-5 Years:		4
6-10 Years:		4
More than 10 Years:		4



R. David Hoover,age 69, director since 2009
Board Committees: Finance; Public Policy and Compliance
Career Highlights		Other Board Service
Ball Corporation, a provider of packaging products and other technologies and services to commercial and governmental customers		•	Public boards: Ball Corporation; Energizer Holdings, Inc.; Steelcase, Inc.

•	Chairman (2002 - 2013)	•	Non-profit boards: Boulder Community Hospital; Children's Hospital Colorado
•	President and Chief Executive Officer (2001 - 2010)
•	Chief Operating Officer (2000 - 2001)	•	Prior public board service: Irwin Financial Corporation; Qwest International, Inc.
•	Chief Financial Officer (1998 - 2000)
Memberships and Other Organizations
•	Board of Trustees of DePauw University
•	Indiana University Kelley School of Business, Dean's Council
Qualifications: Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He has deep financial expertise as a result of his experience as CEO and CFO of Ball. He also has extensive corporate governance experience through his service on other public company boards.



Franklyn G. Prendergast, M.D., Ph.D., age 70, director since 1995
Board Committees: Public Policy and Compliance; Science and Technology
Career Highlights		Other Board Service
Mayo Medical School		•	Public boards: Cancer Genetics Incorporated
•	Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology (1986 - 2014)
•	Professor of Molecular Pharmacology and Experimental Therapeutics (1987 - 2014)
•	Mayo Clinic Center for Individualized Medicine, Director Emeritus (2006 - 2012)
Qualifications: Dr. Prendergast is a prominent medical clinician, researcher, and academician. He has extensive experience in senior-most administration at Mayo Clinic, a major medical institution, and as director of its renowned cancer center. He retired from Mayo at the end of 2014. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he brings an important practicing-physician perspective to the Board’s deliberations.



Kathi P. Seifert, age 65, director since 1995
Board Committees: Audit; Compensation
Career Highlights		Other Board Service
Kimberly-Clark Corporation, a global consumer products company		•	Public companies: Revlon Consumer Products Corporation; Lexmark International, Inc.
•	Executive Vice President (1999 - 2004)
Katapult, LLC, a provider of pro bono mentoring and consulting services to non-profit organizations		•	Private boards: Appvion, Inc.
		•	Prior public board service: Supervalu Inc.; Appleton Papers, Inc.
•	Chairman (2004 - present)
		•	Non-profit boards: Community Foundation for the Fox Valley Region; Fox Cities Building for the Arts; Fox Cities Chamber of Commerce

Qualifications: Ms. Seifert is a retired senior executive of Kimberly-Clark. She has strong expertise in consumer marketing and brand management, having led sales and marketing for several worldwide brands, with a special focus on consumer health. She has extensive corporate governance experience through her other board positions.



Michael L. Eskew, age 65, director since 2008
Board Committees: Audit (chair); Finance
Career Highlights		Other Board Service
United Parcel Service, Inc.		•	Public boards: 3M Corporation; IBM Corporation; Allstate Insurance Company
•	Chairman and Chief Executive Officer (2002 - 2007)
•	UPS Board of Directors (1998 - 2014)	•	Non-profit boards: Chairman of the board of trustees of The Annie E. Casey Foundation
•	Vice Chairman (2000 - 2002)
Qualifications: Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide operations, strategic planning, and building a strong consumer-brand focus. He is an Audit Committee financial expert, based on his CEO experience and his service on other U.S. company audit committees. He has extensive corporate governance experience through his service on the boards of other companies.



Karen N. Horn, Ph.D., Age 71, Director since 1987
Board Committees: Compensation (chair); Directors and Corporate Governance
Career Highlights		Other Board Service
Brock Capital Group, a provider of financial advising and consulting services		•	Public boards: T. Rowe Price Mutual Funds; Simon Property Group, Inc.; Norfolk Southern Corporation
•	Senior Managing Director (2004 - present)	•	Prior public board service: Fannie Mae; Georgia-Pacific Corporation
Marsh, Inc., a global provider of risk and insurance services
•	President, Private Client Services and Managing Director (1999 - 2003)	•	Non-profit boards: The National Bureau of Economic Research; The Florence Griswold Museum
Bank One, Cleveland, N.A.
•	Chairman and chief executive officer (1982 - 1987)
Qualifications: Ms. Horn is a former CEO with extensive experience in various segments of the financial industry, including banking and financial services. Through her for-profit and her public-private partnership work, she has significant experience in international economics and finance. Ms. Horn has extensive corporate governance experience through service on other public company boards in a variety of industries.



William G. Kaelin, Jr., M.D.,age 57, director since 2012
Board Committees: Finance; Science and Technology
Career Highlights		Industry Memberships
Dana-Farber/Harvard Cancer Center		•	Institute of Medicine; National Academy of Sciences; Association of American Physicians; American Society of Clinical Investigation
•	Professor of Medicine (2002 - present)
•	Associate director, Basic Science (2009 - present)	Honors
		•	Canada Gairdner International Award
		•	Lefoulon-Delalande Prize - Institute of France
Qualifications: Dr. Kaelin is a prominent medical researcher and academician. He has extensive experience at Harvard Medical School, a major medical institution, as well as special expertise in oncology—a key component of Lilly's business. He also has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research.



John C. Lechleiter, Ph.D., age 61, director since 2005
Board Committees: none
Career Highlights		Industry Memberships
Eli Lilly and Company		•	American Chemical Society; Business Roundtable; Pharmaceutical Research and Manufacturers of America; U.S. - Japan Business Council, chairman
•	President and CEO (2008 - present)
•	Chairman of the Board (2009 - present)
Honors		Other Board Service
•	Honorary doctorates: Marian University, University of Indianapolis, the National University of Ireland, Indiana University, and Franklin College	•	Public boards: Ford Motor Company; Nike, Inc.
		•	Non-profit boards: United Way Worldwide, chairman; Life Sciences Foundation; and the Central Indiana Corporate Partnership
Qualifications: Dr. Lechleiter is our chairman, president, and chief executive officer. A Ph.D. chemist by training, Dr. Lechleiter has over 35 years of experience with the company in a variety of roles of increasing responsibility in research and development, sales and marketing, and corporate administration. As a result, he has a deep understanding of pharmaceutical research and development, sales and marketing, strategy, and operations. He also has significant corporate governance experience through service on other public company boards.



Marschall S. Runge, M.D., Ph.D., age 60, director since 2013
Board Committees: Science and Technology; Public Policy and Compliance
Career Highlights		Industry Memberships
University of Michigan		•	Experimental Cardiovascular Sciences Study Section of the National Institutes of Health
•	Executive Vice President for Medical Affairs (since March 2015)
University of North Carolina, School of Medicine
•	Executive Dean (2010 - 2015); Chair of the Department of Medicine (2000 - 2015)
•	Principal Investigator and Director of the North Carolina Translational and Clinical Sciences Institute
Qualifications: Dr. Runge brings the unique perspective of a practicing physician who has a broad background in health care, clinical research, and academia. He has extensive experience as a practicing cardiologist, and has deep expertise in biomedical research and clinical trial design.



Name	Outstanding Stock Options (Exercisable)	Weighted Average Exercise Price
Sir Winfried Bischoff	5,600	$65.48
Dr. Gilman	5,600	$65.48
Ms. Horn	5,600	$65.48
Ms. Marram	5,600	$65.48
Dr. Prendergast	5,600	$65.48
Ms. Seifert	5,600	$65.48



			2012 (millions)	2011 (millions)
Audit Fees			$8.8	$8.8
•	Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation
•	Reviews of quarterly financial statements
•	Other services normally provided by the auditor in connection with statutory and regulatory filings
Audit-Related Fees			$0.7	$1.5
•	Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements
	–	2012 and 2011: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions
Tax Fees			$2.2	$3.4
•	2012 and 2011: primarily related to consulting and compliance services
All Other Fees			$0.4	$0.5
•	2012 and 2011: primarily related to compliance services outside the U.S.
Total			$12.1	$14.2



Base Salary Most employees around the globe did not receive base salary increases for 2012 as part of the company's efforts to manage costs during this period of patent expirations. As a result, executive officers' 2012 salaries remained unchanged from 2011.	Annualized Base Salary (thousands)
	Name	2011	2012	Percentage Increase
	Dr. Lechleiter	$1,500	$1,500	0%
	Mr. Rice	$990	$990	0%
	Dr. Lundberg	$979	$979	0%
	Mr. Armitage	$841	$841	0%
	Mr. Conterno	$670	$670	0%



•	Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities, more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities, internal relativity, individual performance, and peer-group data. For each named executive officer, the committee maintained the same bonus targets as 2011.	Bonus Targets (as a percentage of base salary)
		Name	2011		2012
		Dr. Lechleiter	140	%	140	%
		Mr. Rice	90	%	90	%
		Dr. Lundberg	90	%	90	%
		Mr. Armitage	80	%	80	%
		Mr. Conterno	75	%	75	%



Target Grant Values (thousands)
Name	2011-2012 PA	2012-2013 PA	2011-2013 SVA	2012-2014 SVA	Percentage Increase (total)
Dr. Lechleiter	$3,750	$3,750	$3,750	$3,750	0%
Mr. Rice	$1,900	$1,900	$1,900	$1,900	0%
Dr. Lundberg	$1,375	$1,500	$1,375	$1,500	9%
Mr. Armitage	$1,000	$1,000	$1,000	$1,000	0%
Mr. Conterno	$1,000	$1,000	$1,000	$1,000	0%



2012-2014 SVA
Ending Stock Price	Less than $32.77	$32.77-$37.46	$37.47-$42.14	$42.15-$44.64	$44.65-$47.14	$47.15-$49.64	Greater than $49.64
Compounded Annual Share Price Growth Rate (excluding dividends)	Less than (5.3%)	(5.3%)-(1.0%)	(1.0%)-2.9%	2.9%-4.9%	4.9%-6.9%	6.9% -8.7%	Greater than 8.7%
Percent of Target	0%	40%	60%	80%	100%	120%	140%



EPS Percent Growth vs. Prior Years
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%				EPS growth - as reported
-5%
-5%				EPS growth - adjusted non-GAAP
-10%				EPS growth - adjusted non-GAAP
-10%
-15%
-15%
-20%
-20%
-25%
-25%
	2010	2011	2012



	2012	2011	% Growth 2012 vs. 2011	2010	% Growth 2011 vs. 2010
EPS as reported	$3.66	$3.90	(6.2)%	$4.58	(14.8)%
Eliminate IPR&D charges for acquisitions and in-licensing transactions	—	$0.23		$0.03
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal)	$0.16	$0.29		$0.13
Eliminate income from early payment of Amylin financial obligation	$(0.43)
Non-GAAP EPS	$3.39	$4.41	(23.1)%	$4.74	(7.0)%
Health care reform adjustment	—			$0.24
Xigris withdrawal adjustment	$(0.01)	$(0.05)		—
Pro-rata portion of Amylin Net Income	$0.09	—		—
Non-GAAP EPS—adjusted	$3.47	$4.36	(20.4)%	$4.98	(12.4)%

Numbers reflected may not add due to rounding



Name	Year	Annualized Salary	Target Stock Awards	Target Cash Incentive Bonus	Total
John C. Lechleiter, Ph.D.	2012	$1,500,000	$7,500,000	$2,100,000	$11,100,000
	2011	$1,500,000	$7,500,000	$2,100,000	$11,100,000
	2010	$1,500,000	$7,500,000	$2,100,000	$11,100,000



Name	Year	Savings Plan Match	Tax Reimbursements		Perquisites	Other		Total "All Other Compensation"
Dr. Lechleiter	2012	$90,000	$0		$0	$0		$90,000
	2011	$90,000	$0		$0	$0		$90,000
	2010	$90,000	$0		$0	$0		$90,000
Mr. Rice	2012	$59,400	$0		$0	$0		$59,400
	2011	$59,050	$0		$0	$0		$59,050
	2010	$57,300	$0		$0	$0		$57,300
Dr. Lundberg	2012	$58,710	$0		$0	$0		$58,710
	2011	$58,425	$0		$0	$0		$58,425
	2010	$56,784	$12,876	¹	$0	$18,173	²	$87,833
Mr. Armitage	2012	$50,454	$0		$0	$0		$50,454
	2011	$50,454	$0		$0	$0		$50,454
	2010	$50,209	$0		$0	$0		$50,209
Mr. Conterno	2012	$40,170	$0		$0	$0		$40,170
	2011	$39,975	$0		$0	$0		$39,975
	2010	$39,000	$0		$0	$0		$39,000


¹	~~Amounts reflect the market value of the stock on the day the stock vested.~~


²	~~PAs paid out in January 2011 (as RSUs) for company performance during 2009-2010 and subject to forfeiture until vesting in February 2012.~~

Management recommendation

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