UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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x | Definitive Proxy Statement |
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ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of 20112012 Annual Meeting and Proxy Statement
March 7, 20115, 2012
Dear Shareholder:
You are cordially invited to attend our annual meeting of shareholders on Monday, April 18, 2011, at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT.16, 2012.
The notice of meeting and proxy statement that follow describe the business we will consider at the meeting. Your vote is very important. I urge you to vote by mail, by telephone, or on the Internet to be certain your shares are represented at the meeting, even if you plan to attend.
Please note the ticket at the back of this proxy statement and our procedures for admission to the meeting described under “What should I do if I want to attend the annual meeting?“Meeting and Voting Logistics” below.
I look forward to seeing you at the meeting.
John C. Lechleiter, Ph.D.
Chairman, President, and Chief Executive Officer
Important notice regarding the availability of proxy materials for the shareholder meeting to be held April 18, 2011:
16, 2012: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2010.pdflillyar2011.pdf
Notice of Annual Meeting of Shareholders
April 18, 201116, 2012
The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, on Monday, April 18, 2011,16, 2012, at 11:00 a.m. EDT for the following purposes:
to elect four directors of the company to serve three-year terms
to ratify the appointment by the audit committee of Ernst & Young LLP as principal independent auditor for the year 20112012
to approve, by non-binding vote, 2010 compensation paid to the company’s named executive officers
to recommend, by non-binding vote, the frequency of future advisory votes on executive compensation
to approve amendments to the articles of incorporation to provide for annual election of all directors
to approve amendments to the articles of incorporation to eliminate all supermajority voting requirements
to approve the executive officer incentive plan.consider shareholder proposals on establishing a majority vote committee and transparency in animal research.
Shareholders of record at the close of business on February 15, 2011,2012, will be entitled to vote at the meeting and at any adjournment of the meeting.
Attendance at the meeting will be limited to shareholders, those holding proxies from shareholders, and invited guests from the media and financial community. A page at the back of this report contains an admission ticket. If you plan to attend the meeting, please bring this ticket with you.
This combined proxy statement and annual report to shareholders is being posted online and the proxy voting card are being mailed on or about March 7, 2011.5, 2012.
By order of the board of directors,
James B. Lootens
Secretary
March 7, 20115, 2012
Indianapolis, Indiana
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General InformationProxy Statement Overview
Why did I receive this proxy statement?Annual Meeting of Shareholders
The annual meeting of shareholders will be held at 11:00 a.m. EDT on Monday, April 16, 2012 at:
The Lilly Center Auditorium
Lilly Corporate Center
Indianapolis, Indiana 46285
The board of directors of Eli Lilly and Company is soliciting proxies to be voted at the annual meeting of shareholders (the annual meeting) to be held on Monday, April 18, 2011, and at any adjournment of the annual meeting. WhenThe record date for voting is February 15, 2012.
Meeting Agenda
Shareholders will vote on the company asks for your proxy, we must provide you with a proxy statement that contains certain information specified by law.
What will the shareholders vote onfollowing items at the annual meeting?meeting:
Agenda Item | Management recommendation | Vote required to pass | ||||||||||||
Elect the following nominees for director to serve a three-year term that will expire in 2015: | Vote FOR all | Majority of votes cast | ||||||||||||
Name and principal occupation | Joined the board | Age | Public boards | |||||||||||
Katherine Baicker, Ph.D. Professor of Health Economics, Harvard University | 2011 | 40 | — | Vote FOR | ||||||||||
J. Erik Fyrwald President, Ecolab Inc. | 2005 | 52 | — | Vote FOR | ||||||||||
Ellen R. Marram President, The Barnegat Group LLC | 2002 | 65 | Ford Motor Company The New York Times | Vote FOR | ||||||||||
Douglas R. Oberhelman Chairman and Chief Executive Officer, Caterpillar Inc. | 2008 | 59 | Caterpillar Inc. | Vote FOR | ||||||||||
Ratify the appointment of Ernst & Young as the company’s principal independent auditor. | Vote FOR | Majority of votes cast | ||||||||||||
Approve, by non-binding vote, compensation paid to the company’s named executive officers. | Vote FOR | Majority of votes cast | ||||||||||||
Approve amendments to the articles of incorporation to provide for annual election of all directors. | Vote FOR | 80% of out- standing shares | ||||||||||||
Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements. | Vote FOR | 80% of out- standing shares | ||||||||||||
Consider a shareholder proposal on establishing a majority vote committee. | Vote AGAINST | Majority of votes cast | ||||||||||||
Consider a shareholder proposal on transparency in animal research. | Vote AGAINST | Majority of votes cast |
Additional information about these agenda items can be found under “Items of Business” and information on voting and attending the annual meeting can be found under “Meeting and Voting Logistics” below.
Seven items:
electionBoard of directorsDirectors
ratificationThe company’s board is comprised of our chairman, president, and CEO, John Lechleiter, Ph.D. and 13 independent directors. Their biographies and qualifications can be found under “Director Biographies” below.
Committees of the appointmentboard of principaldirectors
The board has six committees, all of which are staffed by independent auditor
advisory approval of 2010 compensation paid to named executive officers
frequency of future advisory votesdirectors. Additional information on executive compensation
amendments to the company’s articles of incorporation to provide for annual election of all directors
amendments to the company’s articles of incorporation to eliminate all supermajority voting requirements
approvalfunctioning of the executive officer incentive plan.board and its committees, including director independence, can be found beginning in the section titled “Highlights of the Company’s Corporate Governance Guidelines” below.
Will there be any other itemsDirector compensation
Our independent directors receive cash compensation in the form of businessan annual retainer ($100,000), with additional annual amounts for the lead director ($30,000), committee chairs ($12,000 to $18,000, depending on the agenda?
We do not expect any other items of business because the deadline for shareholder proposalscommittee), and nominations has already passed. Nonetheless, if necessary, the accompanying proxy gives discretionary authority to the persons nameddirectors who serve on the proxy with respect to any other matters that might be brought beforeaudit committee or the meeting. Those persons intend to vote that proxyscience and technology committee ($3,000). In addition, each independent director receives $145,000 in accordance with their best judgment.
Who is entitled to vote?
Shareholders as of the close of business on February 15, 2011 (the record date) may vote at the annual meeting. You have one vote for each share of common stock you held on the record date, including shares:
held directly in your name as the shareholder of record
held for you in an account with a broker, bank, or other nominee
attributed to your account in The Eli Lilly and Company Employee 401(k) Plan (the 401(k) plan).
What constitutes a quorum?
A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the annual meeting. As of the record date, 1,157,664,779 shares of company common stock were issued and outstanding.
How many votes are required for the approval of each item?
There are differing vote requirements for the various proposals.
The four nominees for director will be elected if the votes cast for the nominee exceed the votes cast against the nominee. Abstentions will not count as votes cast either for or against a nominee.
The following items of business will be approved if the votes cast for the proposal exceed those cast against the proposal:
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The vote on frequency of future advisory votes on executive compensation asks shareholders to express their preference for one of three choices for future advisory votes on executive compensation—every year, every other year, or every three years. Abstentions have the same effect as not expressing a preference.
The proposals to amend the articles of incorporation to provide for annual election of all directors and to eliminate all supermajority voting requirements require the vote of 80 percent of the outstanding shares. For these items, abstentions have the same effect as a vote against the proposals.
Broker discretionary voting. If your shares are held by a broker, the broker will ask you how you want your shares to be voted. If you give the broker instructions, your shares will be voted as you direct. If you do not give instructions, one of two things can happen, dependingpayable after service on the type of proposal. For the ratification of the auditor and the proposals on annual election of all directors and elimination of all supermajority voting requirements, the broker may vote your shares in its discretion. For all other proposals, the broker may not vote your shares at all.board has ended. Additional information about director compensation can be found under “Director Compensation” below.
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How do I vote by proxy?
If you are a shareholder of record, you may vote your proxy by any one of the following methods:
By mail. Sign and date each proxy card you receive and return it in the prepaid envelope. Sign your name exactly as it appears on the proxy. If you are signing in a representative capacity (for example, as an attorney-in-fact, executor, administrator, guardian, trustee, or the officer or agent of a corporation or partnership), please indicate your name and your title or capacity. If the stock is held in custody for a minor (for example, under the Uniform Transfers to Minors Act), the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may sign on behalf of all owners. If you return your signed proxy but do not indicate your voting preferences, we will vote on your behalf with the board’s recommendations.
If you did not receive a proxy card in the materials you received from the company and you wish to vote by mail rather than by telephone or on the Internet as discussed below, you may request a paper copy of these materials and a proxy card by calling 317-433-5112.If you received an e-mail message notifying you of the electronic availability of these materials, please provide the control number from the e-mail, along with your name and mailing address.
By telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone by following the instructions on your proxy card or, if you received these materials electronically, by following the instructions in the e-mail message that notified you of their availability. Voting by telephone has the same effect as voting by mail. If you vote by telephone, do not return your proxy card. Telephone voting will be available until 11:59 p.m. EDT, April 17, 2011.
On the Internet. You may vote online atwww.proxyvote.com. Follow the instructions on your proxy card or, if you received these materials electronically, follow the instructions in the e-mail message that notified you of their availability. Voting on the Internet has the same effect as voting by mail. If you vote on the Internet, do not return your proxy card. Internet voting will be available until 11:59 p.m. EDT, April 17, 2011.
You have the right to revoke your proxy at any time before the meeting by (i) notifying the company’s secretary in writing or (ii) delivering a later-dated proxy by telephone, on the Internet, or by mail. If you are a shareholder of record, you may also revoke your proxy by voting in person at the meeting.
How do I vote shares that are held by my broker?
If you have shares held by a broker or other nominee, you may instruct your broker or other nominee to vote your shares by following instructions that the broker or nominee provides to you. Most brokers offer voting by mail, by telephone, and on the Internet.
How do I vote in person?
If you are a shareholder of record, you may vote your shares in person at the meeting. However, we encourage you to vote by mail, by telephone, or on the Internet even if you plan to attend the meeting.
How do I vote my shares in the 401(k) plan?
You may instruct the plan trustee on how to vote your shares in the 401(k) plan by mail, by telephone, or on the Internet as described above, except that, if you vote by mail, the card that you use will be a voting instruction card rather than a proxy card.
How many shares in the 401(k) plan can I vote?
You may vote all the shares allocated to your account on the record date. In addition, unless you decline, your vote will also apply to a proportionate number of other shares held in the 401(k) plan for which voting directions are not received. These undirected shares include:
shares credited to the accounts of participants who do not return their voting instructions (except for a small number of shares from a prior stock ownership plan, which can be voted only on the directions of the participants to whose accounts the shares are credited)
shares held in the plan that are not yet credited to individual participants’ accounts.
All participants are named fiduciaries under the terms of the 401(k) plan and under the Employee Retirement Income Security Act (ERISA) for the limited purpose of voting shares credited to their accounts and the portion of undirected shares to which their vote applies. Under ERISA, fiduciaries are required to act prudently in making voting decisions.
If you do not want to have your vote applied to the undirected shares, you should check the box marked “I decline.” Otherwise, the trustee will automatically apply your voting preferences to the undirected shares proportionally with all other participants who elected to have their votes applied in this manner.
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What happens if I do not vote my 401(k) plan shares?
Your shares will be voted by other plan participants who have elected to have their voting preferences applied proportionally to all shares for which voting instructions are not otherwise received.
What does it mean if I receive more than one proxy card?
It means that you hold shares in more than one account. To ensure that all your shares are voted, sign and return each card. Alternatively, if you vote by telephone or on the Internet, you will need to vote once for each proxy card and voting instruction card you receive.
What does it mean if I did not receive a proxy card?
You may have elected to receive your proxy statement electronically, in which case you should have received an email with directions on how to access the proxy statement and how to vote your shares. If you wish to request a paper copy of these materials and a proxy card, please call 317-433-5112.
Who tabulates the votes?
The votes are tabulated by an independent inspector of election, IVS Associates, Inc.
What should I do if I want to attend the annual meeting?
All shareholders as of the record date may attend by presenting the admission ticket that appears at the end of this proxy statement. Please fill it out and bring it with you to the meeting. The meeting will be held at the Lilly Center Auditorium. Please use the Lilly Center entrance to the south of the fountain at the intersection of Delaware and McCarty streets. You will need to pass through security, including a metal detector. Present your ticket to an usher at the meeting.
Parking will be available on a first-come, first-served basis in the garage indicated on the map at the end of this report. If you have questions about admittance or parking, you may call 317-433-5112.
How do I contactContacting the board of directors?directors
You may send written communications to one or more members of the board, addressed to:
Lead Director, Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, Indiana 46285
All such communications (from shareholders or other interested parties) will be forwarded to the relevant director(s), except for solicitations or other matters unrelated to the company.
How do I submit aExecutive Compensation
Our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to create long-term shareholder proposal for the 2012 annual meeting?
The company’s 2012 annual meeting is currently scheduled for April 16, 2012. 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 itvalue by November 8, 2011. Proposals should be addressed toachieving top-tier corporate performance while embracing 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 thevalues of integrity, excellence, and respect for people. Our programs seek to:
closely link compensation with company written notice by November 8, 2011performance and no earlier than September 9, 2011. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online athttp://investor.lilly.com/governance.cfm or in paper form upon request to the company’s corporate secretary.
Does the company offer an opportunity to receive future proxy materials electronically?
Yes. If you are a shareholder of record or a member of the 401(k) plan, you may, if you wish, receive future proxy statements and annual reports online. If you elect this feature, you will receive an e-mail message notifying you when the materials are available, along with a web address for viewing the materials and instructions for voting by telephone or on the Internet. If you have more than one account, you may receive separate e-mail notifications for each account.
You may sign up for electronic delivery in two ways:
If you vote online as described above, you may sign up for electronic delivery at that time.individual performance
You may sign up at any time by visitinghttp://investor.lilly.com/services.cfm.foster a long-term focus
reflect the market for pharmaceutical talent
be efficient and egalitarian
appropriately mitigate risk.
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If you received these materials electronically, you do not need to do anything to continue receiving materials electronically in the future.
If you hold your shares inFor a brokerage account, you may also have the opportunity to receive proxy materials electronically. Please follow the instructions of your broker.
What are the benefits of electronic delivery?
Electronic delivery reduces the company’s printing and mailing costs. It is also a convenient way for you to receive your proxy materials and makes it easy to vote your shares online. If you have shares in more than one account, it is an easy way to avoid receiving duplicate copies of proxy materials.
What are the costs of electronic delivery?
The company charges nothing for electronic delivery. You may, of course, incur the usual expenses associated with Internet access, such as telephone charges or charges from your Internet service provider.
Can I change my mind later?
Yes. You may discontinue electronic delivery at any time. For more information, call 317-433-5112.
What is “householding”?
We have adopted householding, a procedure under which shareholders of record who have the same address and last name and do not receive proxy materials electronically will receive only one copydetailed discussion of our annual reportexecutive compensation programs and how they reflect our philosophy and are linked to company performance, please read the “Compensation Discussion and Analysis” section of this proxy statement unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure saves printing and postage costs by reducing duplicative mailings.
Shareholders who participate in householding will continue to receive separate proxy cards. Householding will not affect dividend check mailings.
Beneficial shareholders can request information about householding from their banks, brokers, or other holders of record.
What if I want to receive a paper copy of the annual report and proxy statement?statement.
If you wish to receive a paper copy of the 2010 annual report and 2011 proxy statement, or future annual reports and proxy statements, please call 1-800-542-1061 or write to: Householding Department, 51 Mercedes Way, Edgewood, New York 11717. We will deliver the requested documents to you promptly upon your request.
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Board of Directors
Katherine Baicker, Ph.D. | Michael L. Eskew | Sir Winfried Bischoff | Alfred G. M.D., Ph.D. | Karen N. Horn, Ph.D. | Franklyn G. Prendergast, M.D., Ph.D. | J. Erik Fyrwald | ||||||
Professor of Health Economics, Department of Health Policy and Management, Harvard University School of Public Health; and Research Associate, National Bureau of Economic Research | Former Chairman and Chief Executive Officer, United Parcel Service, Inc. | Chairman, Lloyds Banking Group plc | Chief Scientific Officer, Cancer Prevention and Research Institute of Texas | Retired President, | Edmond and Marion Guggenheim Professor of Biochemistry and of Molecular Pharmacology Therapeutics, Mayo and Director, Mayo | President, Ecolab Inc. | ||||||
Director since 2011 | Director since 2008 | Director since 2000 | Director since 1995 | Director since 1987 | Director since 1995 | Director since 2005 | ||||||
Board committee: public policy and compliance | Board committees: | Board committees: [chair] | Board committees: and technology | Board committees: directors and | Board committees: public policy and compliance; technology | Board committees: policy and |
Directors’4
R. David Hoover | John C. Lechleiter, Ph.D. | Douglas R. Oberhelman | Ellen R. Marram | Martin S. Feldstein, Ph.D. | Kathi P. Seifert | Ralph Alvarez | ||||||
Chairman, Ball Corporation | Chairman, President, and Officer | Chairman and Chief Executive Officer, Caterpillar Inc. | President, The Barnegat Group LLC | George F. Baker Professor of Economics, Harvard University | Retired Executive Vice President, Kimberly-Clark | Retired President and Chief Operating Officer, McDonald’s Corporation | ||||||
Director since 2009 | Director since 2005 | Director since 2008 | Director since 2002 | Director since 2002 | Director since 1995 | Director since 2009 | ||||||
Board committees: audit; compensation | Board committees: none | Board committees: audit; finance | Board committees: compensation; directors and corporate governance [chair] | Board committees: public policy | Board committees: audit; compensation | Board committees: finance; public compliance; science and technology |
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Class of 20112012
The following fourfive directors’ terms will expire at this year’s annual meeting. Dr. Feldstein will retire from the board at the end of his current term. Each of thesethe other directors in this class has been nominated and is standing for election to serve a term that will expire in 2014.2015. See “Item. 1“Item 1. Election of Directors”Directors” below for more information.
Katherine Baicker, Ph.D. | Age 40 | Director since 2011 | ||
Professor of Health Economics at the Harvard University School of Public Health, Department of Health Policy and Management; and Research Associate at the National Bureau of Economic Research Dr. Baicker has been a professor of health economics at the Department of Health Policy and Management, School of Public Health, since 2007. From 2005 to 2007, she served as a Senate-confirmed member of the Council of Economic Advisers. From 1998 to 2005, Dr. Baicker was assistant professor and associate professor of economics at Dartmouth College. In 2001 and 2002 she also served as an economist to the Council of Economic Advisers, Executive Office of the President, and in 2003 was a visiting assistant professor at the University of Chicago Harris School of Public Policy. Dr. Baicker is a commissioner of the Medicare Payment Advisory Board and serves on the Panel of Health Advisers to the Congressional Budget Office. She is a member of the editorial boards ofHealth Affairs and theJournal of Health Economics, chair of the board of directors of AcademyHealth, editor of theForum for Health Economics and Policy, and associate editor of theJournal of Economic Perspectives. She is an elected member of the Institute of Medicine. Dr. Baicker has been serving under interim election since December 2011. Qualifications: Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued advisor 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. Board committee: public policy and compliance | ||||
Martin S. Feldstein, Ph.D. | Age 72 | Director since 2002 | ||
George F. Baker Professor of Economics, Harvard University Dr. Feldstein is the George F. Baker Professor of Economics at Harvard University and president emeritus of the National Bureau of Economic Research. From 1982 through 1984, he served as chairman of the Council of Economic Advisers and President Ronald Reagan’s chief economic adviser. Dr. Feldstein served as president and chief executive officer of the National Bureau of Economic Research from 1977 to 1982 and 1984 to 2008. In 2009, President Obama appointed him to the President’s Economic Recovery Advisory Board. He is a member of the American Philosophical Society, a corresponding fellow of the British Academy, a fellow of the Econometric Society, and a fellow of the National Association for Business Economics. Dr. Feldstein is a trustee of the Council on Foreign Relations and a member of the Trilateral Commission, the Group of 30, the American Academy of Arts and Sciences, and the Council of Academic Advisors of the American Enterprise Institute, as well as past president of the American Economic Association. He previously served on the boards of American International Group, Inc., TRW, Phoenix Life Insurance, and HCA Inc. Qualifications: Dr. Feldstein is a renowned economist, academic, and adviser to U.S. presidents of both political parties. He has deep economic and public policy expertise, financial acumen, and a global perspective. His background as an academic brings a diversity of experience and perspective to the board’s deliberations. He has also served on the boards of several major public companies. Board committees: audit; finance; public policy and compliance (chair) |
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Age | Director since 2005 | ||||||
President of Ecolab Inc. J. Erik Fyrwald is president of Ecolab Inc. Prior to the merger of Ecolab and Nalco Company in December 2011, Mr. Fyrwald was chairman and chief executive officer of Nalco from 2008 to 2011. He joined Nalco following a 27-year career at DuPont. From 2003 to 2008, Mr. Fyrwald served as group vice president of the agriculture and nutrition division at DuPont. From 2000 until 2003, he was vice president and general manager of DuPont’s nutrition and health business. At DuPont, he held a broad variety of assignments in a number of divisions covering many industries. He has worked in several locations throughout North America and Asia. Mr. Fyrwald serves as a director of the Society of Chemical Industry, the American Chemistry Council, and the Chicago Public Education Fund, and is a trustee of the Field Museum of Chicago. Qualifications: Mr. Fyrwald has a strong record of operational and strategy leadership in two complex worldwide businesses with a focus on technology and innovation. An engineer by training, he has extensive senior executive experience at DuPont, a multinational chemical company, where he led the agriculture and nutrition division, which used chemical and biotechnology solutions to enhance plant health. He served for three years as chairman of the board and CEO of Nalco, a global technology-based water products and services company. Board committees: public policy and compliance; science and technology | |||||||
Ellen R. Marram | Age 65 | Director since 2002 | |||||
President, The Barnegat Group LLC Ms. Marram will serve as the board’s lead director beginning April 2012. Ms. Marram is the president of The Barnegat Group LLC, a firm that provides business advisory services. She was a managing director at North Castle Partners, LLC from 2000 to 2005 and served as an advisor to the firm from 2006 to 2010. From 1993 to 1998, Ms. Marram was president and chief executive officer of Tropicana and the Tropicana Beverage Group. From 1988 to 1993, she was president and chief executive officer of the Nabisco Biscuit Company, the largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco’s grocery division; and from 1970 to 1986, she held a series of marketing positions at Nabisco/Standard Brands, Johnson & Johnson, and Lever Brothers. Ms. Marram is a member of the board of directors of Ford Motor Company and The New York Times Company, as well as several private companies. She previously served on the board of Cadbury plc. She also serves on the boards of Wellesley College, Institute for the Future, New York-Presbyterian Hospital, Lincoln Center Theater, and Families and Work Institute. 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. Board committees: compensation; directors and corporate governance (chair) | |||||||
Douglas R. Oberhelman | Age 59 | Director since 2008 | |||||
Chairman and Chief Executive Officer, Caterpillar Inc. Mr. Oberhelman has been chairman of the board of Caterpillar Inc. since November 2010 and chief executive officer since July 2010. He previously served as vice chairman and chief executive officer-elect of Caterpillar. He joined Caterpillar in 1975 and has held a variety of positions, including senior finance representative based in South America for Caterpillar Americas Co., region finance manager and district manager for the company’s North American commercial division, and managing director and vice general manager for strategic planning at Caterpillar Japan Ltd. Mr. Oberhelman was elected a vice president in 1995, serving as Caterpillar’s chief financial officer from 1995 to November 1998. In 1998, he became vice president with responsibility for the engine products division and he was elected a group president and member of Caterpillar’s executive office in 2002. Mr. Oberhelman serves on the boards of Caterpillar, the National Association of Manufacturers, and the Wetlands America Trust. He previously served on the board of Ameren Corporation. He is a member of the Executive Committee of the Business Roundtable and a member of the Business Council. Qualifications: Mr. Oberhelman has a strong strategic and operational background as a senior executive (and currently as chairman and 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. Board committees: audit; finance |
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Class of 2013
The following five directors will continue in office until 2013.
Ralph Alvarez | Age 56 | Director since 2009 | ||
Retired President and Chief Operating Officer, McDonald’s Corporation Mr. Alvarez served as president and chief operating officer of McDonald’s Corporation from August 2006 until December 2009. Previously, he served as president of McDonald’s North America, with responsibility for all the McDonald’s restaurants in the U.S. and Canada. Prior to that, he was president of McDonald’s USA. Mr. Alvarez joined McDonald’s in 1994 and held a variety of leadership roles throughout his career, including chief operations officer and president of the central division, both with McDonald’s USA, and president of McDonald’s Mexico. Prior to joining McDonald’s, he held leadership positions at Burger King Corporation and Wendy’s International, Inc. Mr. Alvarez serves on the board of directors of Lowe’s Companies, Inc. He also serves on the President’s Council, the School of Business Administration Board of Overseers, and the International Advisory Board of the University of Miami. He was previously a member of the boards of McDonald’s Corporation and KeyCorp. Qualifications: Through his senior executive positions at McDonald’s Corporation and 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. Board committees: finance; public policy and compliance; science and technology | ||||
Sir Winfried Bischoff | Age 70 | Director since 2000 | ||
Chairman, Lloyds Banking Group plc Sir Winfried Bischoff has been chairman of the board of Lloyds Banking Group plc since September 2009. He served as chairman of Citigroup Inc. from December 2007 until February 2009 and as interim chief executive officer for a portion of 2007. He served as chairman of Citigroup Europe from 2000 to 2009. From 1995 to 2000, he was chairman of Schroders plc. He joined the Schroder Group in 1966 and held a number of positions there, including chairman of J. Henry Schroder & Co. and group chief executive of Schroders plc. He is also a director of The McGraw-Hill Companies, Inc. He previously served on the boards of Citigroup Inc., Prudential plc, Land Securities plc, and Akbank T.A.S. Qualifications: Sir Winfried Bischoff has a distinguished career in banking and finance, including commercial banking, corporate finance, and investment banking. He has CEO experience both in Europe and the U.S. He is a globalist, with particular expertise in European matters but with extensive experience overseeing worldwide operations. He has broad corporate governance experience from his service on public company boards in the U.S., UK, and other European and Asian countries. Board committees: directors and corporate governance; finance (chair) | ||||
R. David Hoover | Age 66 | Director since 2009 | ||
Chairman, Ball Corporation Mr. Hoover is chairman of Ball Corporation. Mr. Hoover joined Ball Corporation in 1970 and has held a variety of leadership roles throughout his career, including vice president and treasurer; executive vice president and chief financial officer; vice chairman, president, and chief operating officer; and chairman, president, and chief executive officer. He is a member of the boards of Ball Corporation and Energizer Holdings, Inc. Mr. Hoover previously served on the board of Irwin Financial Corporation. He is a member and past chair of the board of trustees of DePauw University and on the Indiana University Kelley School of Business Dean’s Council. He is also a director of Boulder Community Hospital and a member of the Colorado Forum. Qualifications: Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He is an audit committee financial expert 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. Board committees: audit; compensation |
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Franklyn G. Prendergast, M.D., Ph.D. | Age 66 | Director since 1995 | ||
Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; and Director, Mayo Clinic Center for Individualized Medicine Dr. Prendergast is the Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics at Mayo Medical School and the director of the Mayo Clinic Center for Individualized Medicine. He has held several other teaching positions at the Mayo Medical School since 1975. 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 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. Board committees: public policy and compliance; science and technology | ||||
Kathi P. Seifert | Age 62 | Director since 1995 | ||
Retired Executive Vice President, Kimberly-Clark Corporation Ms. Seifert served as executive vice president for Kimberly-Clark Corporation until June 2004. She joined Kimberly-Clark in 1978 and served in several capacities in connection with both the domestic and international consumer-products businesses. Prior to joining Kimberly-Clark, Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods, and Fort Howard Paper Company. She is chairman of Katapult, LLC. Ms. Seifert serves on the boards of Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.; Appleton Papers Inc.; the U.S. Fund for UNICEF; and the Fox Cities Performing Arts Center. Qualifications: Ms. Seifert is a retired senior executive of Kimberly-Clark, a global consumer products company. 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. Board committees: audit; compensation |
Class of 2014
The following four directors will continue in office until 2014.
Michael L. Eskew | Age 62 | Director since 2008 | ||
Former Chairman and Chief Executive Officer, United Parcel Service, Inc. Mr. Eskew served as chairman and chief executive officer of United Parcel Service, Inc., from January 2002 until December 2007. He continues to serve on the UPS board of directors. Mr. Eskew began his UPS career in 1972 as an industrial engineering manager and held various positions of increasing responsibility, including time with UPS’s operations in Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for industrial engineering. Two years later he became group vice president for engineering. In 1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive vice president and a year later was given the additional title of vice chairman. He serves as chairman of the board of trustees of The Annie E. Casey Foundation. Mr. Eskew also serves on the boards of 3M Corporation and IBM Corporation. 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. Board |
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Alfred G. Gilman, M.D., Ph.D. | Age | 70 | Director since 1995 | |||||
Chief Scientific Officer, Cancer Prevention and Research Institute of Texas Dr. Gilman is the chief scientific officer of the Cancer Prevention and Research Institute of Texas and regental professor of pharmacology emeritus at the University of Texas Southwestern Medical Center at Dallas. Dr. Gilman was on the faculty of the University of Virginia School of Medicine from 1971 to 1981 and was named a professor of pharmacology there in 1977. He previously served as executive vice president for academic affairs and provost of the University of Texas Southwestern Medical Center at Dallas, dean of the University of Texas Southwestern Medical School, and professor of pharmacology at the University of Texas Southwestern Medical Center. He held the Raymond and Ellen Willie Distinguished Chair of Molecular Neuropharmacology; the Nadine and Tom Craddick Distinguished Chair in Medical Science; and the Atticus James Gill, M.D., Chair in Medical Science at the university and was named a regental professor in 1995. He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in Physiology or Medicine in 1994. Qualifications: Dr. Gilman is a Nobel Prize-winning pharmacologist, researcher, and professor. He has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research. As the former dean of a major medical school, he brings to the board important perspectives of both the academic and practicing medical communities. Board | ||||||||
Karen N. Horn, Ph.D. | Age | 68 | Director since 1987 | |||||
Retired President, Private Client Services, and Managing Director, Marsh, Inc. Ms. Horn 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. Board |
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John C. Lechleiter, Ph.D. | Age | Director since 2005 | ||||
Chairman, President, and Chief Executive Officer Dr. Lechleiter is chairman, president, and chief executive officer of Eli Lilly and Company. He served as president and chief operating officer from 2005 to 2008. He joined Lilly in 1979 as a senior organic chemist and has held management positions in England and the U.S. He was named vice president of pharmaceutical product development in 1993 and vice president of regulatory affairs in 1994. In 1996, he was named vice president for development and regulatory affairs. Dr. Lechleiter became senior vice president of pharmaceutical products in 1998 and executive vice president for pharmaceutical products and corporate development in 2001. He was named executive vice president for pharmaceutical operations in 2004. He is a member of the American Chemical Society and the Business
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Class of 2012
The following four directors will continue in office until 2012.
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Class of 2013
The following five directors will continue in office until 2013.
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Highlights of the Company’s Corporate Governance Guidelines
The following summary provides highlights of the company’s guidelines established by the board of directors. A complete copy of the guidelines is available online athttp://investor.lilly.com/governance.cfm or in paper form 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 a 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 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. For more information on the director nomination process, including the current selection criteria, see “Directors“Directors and Corporate Governance Committee Matters.Matters.”
Independence Determinations
The board annually determines and discloses the independence of directors based on a review by the directors and corporate governance committee. No director is considered independent unless the 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 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 with the company impairs independence is extended from three to four years.
Specifically, a director is not considered independent if (i) the director or an immediate family member is a current partner of the company’s independent auditor (currently Ernst & Young LLP); (ii) 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.
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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 ana 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 determined that all 1213 nonemployee directors listed below are independent, and that the members of each committee also meet the independence standards referenced above. The committee recommended this conclusion to the board and explained the basis for its decision, and this conclusion was adopted by the board. The committee and the board determined that none of the 1213 directors has had during the last four years (i) any of the relationships listed above or (ii) any other material relationship with the company that would compromise his or her independence. In reaching this conclusion, the directors and corporate governance 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 includes a description of categories or types of transactions, relationships, or arrangements considered by the board in reaching its determinations. All of these transactions 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 of these transactions exceeded the thresholds described above or otherwise compromises the independence of the named directors.
Name | Independent | Transactions/Relationships/Arrangements | ||||||
Mr. Alvarez | Yes | None | ||||||
Dr. Baicker | Yes | Payments to Harvard University totalling approximately $2.3 million (less than 0.1 percent of Harvard’s consolidated gross revenue), primarily for medical research | ||||||
Sir Winfried Bischoff | Yes | None | ||||||
Mr. Eskew | Yes | None | ||||||
Dr. Feldstein | Yes | |||||||
Mr. Fyrwald | Yes | |||||||
Dr. Gilman | Yes | None | ||||||
Mr. Hoover | Yes | None | ||||||
Ms. Horn | Yes | None | ||||||
Ms. Marram | Yes | None | ||||||
Mr. Oberhelman | Yes | None | ||||||
Dr. Prendergast | Yes | |||||||
Ms. Seifert | Yes | None |
Director Tenure and Retirement Policy
Subject to the company’s charter documents, the following are the board’s expectations for director tenure:
A company officer-director, including the chief executive officer, will resign from the board at the time he or she retires or otherwise ceases to be an active employee of the company.
Nonemployee directors will retire from the board not later than the annual meeting of shareholders that follows their seventy-second birthday.
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 also considers the contributions of individual directors at least every three years when considering whether to recommend nominating the director to a new three-year term.
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Other Board Service
Effective November 1, 2009, no new director may serve on more than three other public company boards, and no incumbent director may accept new positions on public company boards that would result 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.
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Voting for Directors
In an uncontested election, any nominee for director who fails to receive a majority of the votes cast shall promptly tender his or her resignation following certification of the shareholder vote. The directors and corporate governance committee will consider the resignation offer and recommend to the board whether to accept it. The board will act 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.
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 committee or board deliberations regarding the resignation offer. If all members of the directors and corporate governance committee fail to receive a majority of the votes cast at the same election, the independent directors who did receive a majority of the votes cast will appoint a committee amongst themselves to consider the resignation offers and recommend to the board whether to accept them.
III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any recommendations for changes are made to the board by the committee.
Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion of director compensation is in the form of company equity.Lilly stock. Directors are required to hold companyLilly stock 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 of Chairman and Chief Executive Officer; Succession Planning
The board currently combines the role of chairman of the board with the role of chief executive officer, coupled with a lead director position to further strengthen the governance structure. The board believes this provides an efficient and effective leadership model for the company. Combining the chairman and CEO roles fosters clear accountability, effective decision-making, and alignment on corporate strategy. To assure effective independent oversight, the board has adopted a number of governance practices, including:
a strong, independent, clearly-defined lead director role (see below for a full description of the role)
executive sessions of the independent directors after every regular board meeting
annual performance evaluations of the chairman and CEO by the independent directors.
However, no single leadership model is right for all companies and at all times. The board recognizes that dependingDepending on the circumstances, other leadership models, such as a separate independent chairman of the board, might be appropriate. Accordingly, the board periodically reviews its leadership structure.
The lead director recommends to the board an appropriate process by which a new chairman and chief executive officerCEO will be selected. The board has no required procedure 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 leadership over the long term. Each year, succession-planning reviews are held at every significant organizational level of the company, culminatingculminate in a detailed review of seniortop leadership talent by the compensation committee and a summary review by the independent directors as a whole. During this review, the CEO and the independent directors discuss future candidates for senior leadership positions, succession timing, for those positions, and development plans for the highest-potential candidates. This process ensures continuity of leadership over the long term, and it forms the basis on which the company makes ongoing leadership assignments. It is a key success factor in managing the long planning and investment lead times of our business.
In addition, the CEO maintains in place at all times, and reviews with the independent directors, a confidential plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency or his or her sudden departure, incapacitation, or departure.death.
Evaluation of Chief Executive Officer
The lead director is responsible for leading the independent directors in executive session to assess the performance of the chief executive officer at least annually. The results of this assessment are reviewed with the chief
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executive officer and considered by the compensation committee in establishing the chief executive officer’s compensation for the next year.
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Corporate Strategy
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. This assists the board in its succession-management responsibilities.
Throughout the year, significant corporate strategy decisions are brought to the board in a timely way for approval.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 athttp://www.lilly.com/about/compliance/conduct/ or in paper form 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 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 chief executive officerCEO at every regularly scheduled board meeting.
Lead Director
The board annually appoints a lead director from among the independent directors (currentlydirectors. Currently the lead director is Ms. Horn).Horn, but effective in April 2012, Ms. Marram will become lead director. 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 chief executive officer;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; and
has the authority to retain advisors to the independent directors.
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Conflicts of Interest
Occasionally a director’s business or personal relationships may give rise to an interest that conflicts, or appears to conflict, with the interests of the company. 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. In appropriate cases, the affectedA director will be excused from discussions on the issue.issue, as appropriate.
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To avoid any conflict or appearance of a conflict, board decisions on certain matters of corporate governance are made solely by the independent directors. These include executive compensation and the selection, evaluation, and removal of the chief executive officer.CEO.
Review and Approval of Transactions with Related Persons
The board has adopted a written policy and written 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 that there are no changed circumstances that would render it advisable for the company 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 in consultation with the chair 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. |
— | 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 board has approved only the following related-party transactions. Dr. John Bamforth, senior director, global cardiovascular and urology, Lilly Bio-Medicines, is the spouse of Dr. Susan Mahony, senior vice president and president, Lilly oncology,Oncology, and has been employed by the company for over 20 years. In 2010,2011, he was paid approximately $400,000 (including base salary$390,000 in cash compensation, and cash incentive compensation). In addition, he received grants under the company’s performance-based equity program valued at approximately $56,000 based upon the fair value computed in accordance with target payoutsstock-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 approximately 2,900 shares of company stock.10 years. His cash compensation in 2011 was approximately $450,000 and his equity grants were valued at approximately $130,000. Both Dr. Bamforth also participatedand Mr. O’Neill participate in the company’s benefit programs generally available to U.S. employees. Dr. Bamforth’semployees, and their compensation was established in accordance with the company’s compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions.
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Orientation of New Directors; Director Education
A comprehensive orientation process is in place for new directors. In addition, directors receive ongoing continuing education through educational sessions at meetings, the annual strategy retreat, and periodic communications between meetings. We hold periodic mandatory training sessions for the audit committee, to which other directors and executive officers are invited. We also afford directors the opportunity to attend external director education programs.
Director Access to Management and Independent Advisors
Independent directors have direct access to members of management whenever they deem it necessary. The company’s executive officers attend at least part of each regularly scheduled board meeting. The independent directors and committees are also free to retain their own independent advisors, at company expense, whenever they feel it would be desirable to do so. In accordance with NYSE listing standards, the audit, compensation, and directors and corporate governance committees have sole authority to retain independent advisors to their respective committees.
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Assessment of Board Processes and Performance
The directors and corporate governance committee annually assesses the performance of the board, its committees, and board processes based on inputs from all directors. The committee also considers the contributions of individual directors at least every three years when considering whether to recommend nominating the director to a new three-year term.
Committees of the Board 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.
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 on the committees.
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. In addition, 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.
Audit Committee
The duties of the audit committee are described in the “Audit“Audit Committee Report.Report” below.
Compensation Committee
The duties of the compensation committee are described on pages 23-24,in the “Compensation Committee Matters” section, and the “Compensation“Compensation Committee Report” is shown on page 37.Report” below.
Directors and Corporate Governance Committee
The duties of the directors and corporate governance committee are described in the “Directors“Directors and Corporate Governance Committee Matters” section.Matters” section below.
Finance Committee
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 developmentbusiness-development projects.
Public Policy and Compliance Committee
The 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 integrity
reviews and makes recommendations regarding policies, practices, and procedures of the company that relate to public policy and social, political, and economic issues.
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Science and Technology Committee
The 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
oversees matters of scientific and medical integrity and risk management.
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Membership and Meetings of the Board and Its Committees
In 2010,2011, each director attended more than 7882 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 11all the directors attended in 2010.2011. Current committee membership and the number of meetings of the board and each committee in 20102011 are shown in the table below.
Name | Board | Audit | Compensation | Directors and Corporate Governance | Finance | Public Policy and Compliance | Science and Technology | Board | Audit | Compensation | Directors and Corporate Governance | Finance | Public Policy and Compliance | Science and Technology | ||||||||||||||||||||||||||||||||||||||||||
Mr. Alvarez | Member | Member | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||
Dr. Baicker | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Winfried Bischoff | Member | Member | Chair | Member | Member | Chair | ||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Eskew | Member | Chair | Member | Member | Chair | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dr. Feldstein | Member | Member | Member | Chair | Member | Member | Member | Chair | ||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Fyrwald | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dr. Gilman | Member | Member | Chair | Member | Member | Chair | ||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Hoover | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Horn | Lead Director | Chair | Member | Lead Director | Chair | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dr. Lechleiter | Chair | Chair | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Marram | Member | Member | Chair | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Marram 1 | Member | Member | Chair | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Oberhelman | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dr. Prendergast | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Seifert | Member | Member | Member | Member | Member | Member | ||||||||||||||||||||||||||||||||||||||||||||||||||
Number of 2010 Meetings | 7 | 10 | 10 | 4 | 8 | 8 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||
Number of 2011 Meetings | 10 | 11 | 7 | 6 | 7 | 8 | 7 |
1 | Ms. Marram will take over as lead director in April 2012. |
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Directors’Director Compensation
Director compensation is reviewed and approved annually by the board, on the recommendation of the directors and corporate governance committee. Directors who are employees receive no additional compensation for serving on the board or its committees.
Cash Compensation
In 2010,2011, the company provided nonemployee directors the following cash compensation:
retainer of $80,000 per year (payable monthly)
$1,000 for each committee meeting attended
$2,000 to the committee chair for each committee meeting conducted as compensation for the chair’s preparation time
retainer of $30,000 per year to the lead director
reimbursement for customary and usual travel expenses.
In 2011, cash compensation for directors will be revised to eliminate meeting fees, and instead providewith an annual retainer of $100,000 (payable monthly)in monthly installments). In addition, certain board roles will receive additional annual retainers:
$3,000 for audit committee and science and technology committee members
$12,000 for committee chairs ($18,000 for audit committee chair and $15,000 for science and technology committee chair)
$30,000 for the lead director.
Directors will continue to beare reimbursed for customary and usual travel expenses.
Stock Compensation
Stock compensation for nonemployee directors consists of shares of company stock equaling $145,000, deposited annually in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below), payable after service on the board has ended.
Lilly Directors’ Deferral Plan
This plan allows nonemployee directors to defer receipt of all or part of their cash compensation until after their service on the board has ended. Each director can choose to invest the funds in one or both of two accounts:
• | Deferred Stock |
• | Deferred Compensation |
Both accounts may be paid in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from the board. Amounts in the deferred stock account are paid in shares of company stock.
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Directors’Director Compensation
In 2010,2011, we provided the following compensation to directors who are not employees:
Name | Fees Earned or Paid in Cash ($) 1 | Stock Awards ($) 2 | All Other Compensation and Payments ($) 3 | Total ($) 4 | Fees Earned or Paid in Cash ($) 1 | Stock Awards ($) 2 | All Other Compensation and Payments ($) 3 | Total ($) 4 | ||||||||||||
Mr. Alvarez | $98,000 | $145,000 | $0 | $243,000 | $107,500 | $145,000 | $0 | $252,500 | ||||||||||||
Dr. Baicker | $8,333 | — | $0 | $8,333 | ||||||||||||||||
Sir Winfried Bischoff | $106,000 | $145,000 | $0 | $251,000 | $112,000 | $145,000 | $0 | $257,000 | ||||||||||||
Mr. Eskew | $119,000 | $145,000 | $0 | $264,000 | $121,000 | $145,000 | $0 | $266,000 | ||||||||||||
Dr. Feldstein | $115,000 | $145,000 | $41,000 | $301,000 | $115,000 | $145,000 | $18,000 | $278,000 | ||||||||||||
Mr. Fyrwald | $99,000 | $145,000 | $61,784 | $305,784 | $103,000 | $145,000 | $15,000 | $263,000 | ||||||||||||
Dr. Gilman | $109,000 | $145,000 | $9,500 | $263,500 | $118,000 | $145,000 | $12,000 | $275,000 | ||||||||||||
Mr. Hoover | $99,000 | $145,000 | $30,000 | $274,000 | $107,500 | $145,000 | $30,000 | $282,500 | ||||||||||||
Ms. Horn | $144,000 | $145,000 | $4,700 | $293,700 | $142,000 | $145,000 | $6,575 | $293,575 | ||||||||||||
Ms. Marram | $102,000 | $145,000 | $45,000 | $292,000 | $112,000 | $145,000 | $30,000 | $287,000 | ||||||||||||
Mr. Oberhelman | $96,000 | $145,000 | $49,838 | $290,838 | $107,500 | $145,000 | $25,000 | $277,500 | ||||||||||||
Dr. Prendergast | $95,000 | $145,000 | $0 | $240,000 | $103,000 | $145,000 | $0 | $248,000 | ||||||||||||
Ms. Seifert | $98,000 | $145,000 | $37,511 | $280,511 | $103,000 | $145,000 | $4,150 | $252,150 |
1 | In |
2 | Each nonemployee director received an award of stock valued at $145,000 |
Name | Outstanding Stock Options (Exercisable) | Weighted Average Exercise Price | Outstanding Stock Options (Exercisable) | Weighted Average Exercise Price | ||||||||||||||||||||
Mr. Alvarez | — | — | — | — | ||||||||||||||||||||
Dr. Baicker | — | — | ||||||||||||||||||||||
Sir Winfried Bischoff | 11,200 | $ | 70.22 | 8,400 | $68.96 | |||||||||||||||||||
Mr. Eskew | — | — | — | — | ||||||||||||||||||||
Dr. Feldstein | 8,400 | $ | 68.96 | 8,400 | $68.96 | |||||||||||||||||||
Mr. Fyrwald | — | — | — | — | ||||||||||||||||||||
Dr. Gilman | 11,200 | $ | 70.22 | 8,400 | $68.96 | |||||||||||||||||||
Mr. Hoover | — | — | — | — | ||||||||||||||||||||
Ms. Horn | 11,200 | $ | 70.22 | 8,400 | $68.96 | |||||||||||||||||||
Ms. Marram | 5,600 | $ | 65.48 | 5,600 | $65.48 | |||||||||||||||||||
Mr. Oberhelman | — | — | — | — | ||||||||||||||||||||
Dr. Prendergast | 11,200 | $ | 70.22 | 8,400 | $68.96 | |||||||||||||||||||
Ms. Seifert | 11,200 | $ | 70.22 | 8,400 | $68.96 |
3 | This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. under its matching gift program, which is generally available to U.S. employees as well as the outside directors. Under this program, the foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of |
4 | Directors do not participate in a company pension plan or non-equity incentive plan. |
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Directors and Corporate Governance Committee Matters
Overview
The directors and corporate governance committee recommends to the board candidates for membership on the board and board committees and for lead director. The committee also oversees matters of corporate governance, including board performance, director independence and compensation, and the corporate governance guidelines. The committee’s charter is available online athttp://investor.lilly.com/governance.cfm or in paper form upon request to the company’s corporate secretary.
All committee members are independent as defined in 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
health care system (public or private).
Finally, board members should display the personal attributes necessary to be an effective director: unquestioned integrity,integrity; sound judgment,judgment; independence in fact and mindset,mindset; ability to operate collaboratively,collaboratively; and commitment to the company, its shareholders, and other constituencies.
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. Below are some of the specificSpecific experiences and skills of our independent directors:
Ralph Alvarezdirectors are included in”Director Biographies” above.
Through his senior executive positions at McDonald’s Corporation and 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.
Sir Winfried Bischoff
Sir Winfried Bischoff has a distinguished career in banking and finance, including commercial banking, corporate finance, and investment banking. He has CEO experience both in Europe and the U.S. He is a globalist, with particular expertise in European matters but with extensive experience overseeing worldwide operations. He has broad corporate governance experience from his service on public company boards in the U.S., UK, and other European and Asian countries.
Michael L. Eskew
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.
Martin S. Feldstein
Dr. Feldstein is a renowned economist, academic, and adviser to U.S. presidents of both political parties. He has deep economic and public policy expertise, financial acumen, and a global perspective. His background as an academic brings a diversity of experience and perspective to the board’s deliberations. He has also served on the boards of several major public companies.
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J. Erik Fyrwald
Mr. Fyrwald has a strong record of operational and strategy leadership in two complex worldwide businesses with a focus on technology and innovation. An engineer by training, he has extensive senior executive experience at DuPont, a multinational chemical company, where he led their agriculture and nutrition division, which used chemical and biotechnology solutions to enhance plant health. For the last three years he has been chairman and CEO of Nalco, a global technology-based water products and services company.
Alfred G. Gilman
Dr. Gilman is a Nobel Prize winning pharmacologist, researcher, and professor. He has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research. As the former dean of a major medical school, he brings to the board important perspectives of both the academic and practicing medical communities.
R. David Hoover
Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He is an audit committee financial expert 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.
Karen N. Horn
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.
John C. Lechleiter
Dr. Lechleiter is our chairman, president, and chief executive officer. Under our corporate governance guidelines, the CEO is expected to serve on the board of directors. Dr. Lechleiter, a Ph.D. chemist, has over 30 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.
Ellen R. Marram
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
Mr. Oberhelman has a strong strategic and operational background as a senior executive (and most recently as chairman and 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.
Franklyn G. Prendergast
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 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
Ms. Seifert is a retired senior executive of Kimberly-Clark, a global consumer products company. 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.
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Director Nomination Process
The board delegates the 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
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). Dr. Baicker, who is standing for election, was referred to the committee by an independent incumbent director.
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Process for Submitting Recommendations and Nominations
A shareholder who wishes to recommend a director candidate for evaluation by the committee pursuant to this process 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 20122013 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 8, 20115, 2012 and no earlier than September 9, 2011.6, 2012. 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 athttp://investor.lilly.com/governance.cfm. The bylaws will also be provided by mail without charge upon request to the corporate secretary.
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.
The audit committee (“we” or “the 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, we have met and held discussions with management and the independent auditor. Management represented to us that the company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles (GAAP), and we have 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 us. We have sole authority to appoint and to replace the independent auditor.
We have 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.
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In addition, we have 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 have discussed with the independent auditor the auditor’s independence from the company and its management. In concluding that the auditor is independent, we 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, we have adopted policies to avoid compromising the independence of the independent auditor, such as prior committee approval of nonaudit services and required audit partner rotation.
We 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. We periodically meet 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. We also periodically meet in executive session.
In reliance on the reviews and discussions referred to above, we 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, 2010,2011, for filing with the SEC. We have also appointed the company’s independent auditor, subject to shareholder ratification, for 2011.2012.
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Audit Committee
Michael L. Eskew, Chair
Martin S. Feldstein, Ph.D.
R. David Hoover
Douglas R. Oberhelman
Kathi P. Seifert
Services Performed by the Independent Auditor
The audit committee preapproves all services performed by the independent auditor, in part 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 annualaudit 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 servicesare 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.
Tax services.services. 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 approveother 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.
Process.Process. 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.
For each engagement, management provides 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.
After the end of the audit year, management provides the committee with a summary of the actual fees incurred for the completed audit year.
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Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by the company’s independent auditor in 20102011 and 2009.2010. All such services were preapproved by the committee in accordance with the preapproval policy.
2010 (millions) | 2009 (millions) | |||||||||||||||||||
Audit Fees •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 | $8.7 | $8.0 | ||||||||||||||||||
Audit-Related Fees •Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements — 2010 and 2009: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions | $0.8 | $1.1 | ||||||||||||||||||
Tax Fees •2010 and 2009: primarily related to consulting and compliance services | $0.9 | $1.2 | ||||||||||||||||||
All Other Fees •2010 and 2009: primarily related to compliance services outside the U.S. | $0.1 | $0.1 | ||||||||||||||||||
Total | $10.5 | $10.4 |
2011 (millions) | 2010 (millions) | |||||||
Audit Fees •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 | $9.1 | $8.7 | ||||||
Audit-Related Fees •Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements — 2011 and 2010: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential and completed acquisitions | $1.3 | $0.8 | ||||||
Tax Fees •2011 and 2010: primarily related to consulting and compliance services | $2.9 | $0.9 | ||||||
All Other Fees •2011: primarily related to integration services for an acquisition •2010: primarily related to compliance services outside the U.S. | $0.9 | $0.1 | ||||||
Total | $14.2 | $10.5 |
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Compensation Committee Matters
Scope of Authority
The compensation committee oversees the company’s global compensation philosophy and establishes the compensation of executive officers. The committee also 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 may delegate authority to company officers 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 under “The“The Committee’s Processes and Analyses”Analyses” below. Additional processes and procedures include:
• |
|
• | Role of independent |
— | review committee agendas and supporting materials in advance of each meeting and raise questions with the company’s global compensation group and the committee chair as appropriate |
— | review the company’s total compensation philosophy, peer group, and target competitive positioning for reasonableness and appropriateness |
— | review the company’s executive compensation program and advise the committee of plans or practices that might be changed in light of evolving best practices |
— | provide independent analyses and recommendations to the committee on the CEO’s pay |
— | review draft “Compensation Discussion and Analysis” and related tables for the proxy statement |
— | proactively advise the committee on best practices for board governance of executive compensation |
— | undertake 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 |
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with the assistance of its compensation consultant. The CEO and the senior vice president of human resources 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.) |
The CEO normally does not participate in the formulation or discussion of his pay recommendations; however, as he did last year,for the past two years, Dr. Lechleiter requested that no increases be made to his base salary or incentive targets for 2011.2012. The CEO has no prior knowledge of the recommendations that the consultant makes to the committee.
• | Risk |
— | cash and equity and short-term and long-term incentive compensation are balanced |
— | incentive plans include |
— | incentive payouts are capped at appropriate levels |
— | multiple measures/goals and different measurement periods are used across our incentive plans |
— | company performance targets and individual incentive payment targets are set using multiple inputs |
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— | a blend of internal and external measures |
— | the cost of incentive program payouts is included when determining payout results |
— | performance objectives are appropriately difficult |
— |
|
the bonus program has a continuum of payout levels for individual |
— | meaningful share ownership requirements exist for all members of senior management. |
The committee concluded that, for all employees, the company’s compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation.
Compensation Committee Interlocks and Insider Participation
None of the compensation committee members:
has ever been an officer or employee of the company
is or was a participant in a related-person transaction in 2010 (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions)
• | is or was a participant in a related-person transaction in 2011 (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions) |
is an executive officer of another entity, at which one of our executive officers serves on the board of directors.
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Compensation Discussion and Analysis
Summary
Executive compensation for 20102011 aligned well with the objectives of our compensation philosophy and with our performance, driven by these factors:
• • Two-year EPS growth fell in the middle range of our peer companies.Three-year stock price growth to $38.64 was under our target of $39.50. For the | Highlights: •
•
• New bonus metrics include a pipeline progress metric and sales and EPS growth measured against corporate goals •No increase to CEO salary or incentive targets for 2010, 2011, or |
• | ||
|
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In addition:
• |
|
• |
|
The Committee’s Processes and Analyses
Linking Business Strategy and Compensation Program Design
At Lilly, we aim to discover, develop, and acquire innovative new therapies—medicines that make a real difference for patients and deliver clear value for payers. In addition, we must continually improve productivity in all that we do. To achieve these goals, we must attract, engage, and retain highly-talented individuals who are committed to the company’s core values of integrity, excellence, and respect for people. Our compensation and benefits programs are based on these objectives:
| Executive Compensation Philosophy: • Individual and company performance
•Long-term focus
•
|
• Efficient and egalitarian | • Reflect individual and company performance. We link employees’ pay to individual and company performance. — As employees assume greater responsibilities, more 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. | ||
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— | Our |
— | We 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 and is consistent with our goal of retaining highly-talented employees as they build their careers. A competitive benefits program 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 the level of job responsibility and reflective of the market. We seek internal pay relativity, meaning that pay differences among jobs should be commensurate with differences in job responsibility and impact. In addition, the committee compares the company’s programs with a peer group of global pharmaceutical companies. Pharmaceutical companies’ needs for scientific and sales and marketing talent are unique to the industry and we |
• | Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns and to share value created with employees in a cost-effective manner. While the amount of compensation |
• | 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. |
• | Shareholder input. In establishing 2012 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 compensation committee uses several tools to set compensation targets that meet company objectives. Among those are:
• | Assessment of individual performance. Individual performance has a strong impact on compensation. |
— | The independent directors, under the direction of the lead director, meet with the CEO at the beginning of the year to agree upon the CEO’s performance objectives for the year. At the end of the year, the independent directors meet with the CEO and in executive session to assess the CEO’s performance based on his achievement of the objectives, contribution to the company’s performance, ethics and integrity, and |
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other leadership accomplishments. This evaluation is shared with the CEO by the lead director and is used by the compensation committee in setting the CEO’s compensation for the following year. |
— | For the other executive officers, the committee receives performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the board’s interactions with the executive officers. As with the CEO, an executive officer’s performance assessment is based on his or her achievement of objectives established between the executive officer and the CEO, contribution to the company’s performance, ethics and integrity, and other leadership attributes and accomplishments. |
• | Assessment of company performance. The committee |
— | 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, |
— | The committee establishes specific company performance |
• |
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| —Overall competitiveness. The committee uses aggregated market data as a —Individual competitiveness. The committee compares the overall pay of individual | Compensation • Individual metrics • Company metrics • Peer-group analysis • External advisor • Internal relativity | ||
The peer group consists of 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 Sanofi-Aventis (Schering-Plough Corporation and Wyeth are no longer included independently, due to
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industry consolidation).Takeda Pharmaceuticals Company. The committee reviews the peer group for appropriateness at least every three years, and the committee considered the current peer group was used in both 2009 andat the end of 2010 (with the exception of Schering-Plough Corporation and Wyeth in 2010).when considering 2011 compensation opportunities. The peer companies are direct competitors for our products, operate in a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. The committee also considers market cap and revenue as measures of size; withsize. With the exception of Johnson & Johnson alland Pfizer, peer companies were between one-half tono greater than three times our size with regard to both measures at the time the peer group was approved in 2008.measures. The committee included Johnson & Johnson and Pfizer despite itstheir size because it competesboth compete directly with Lilly for talent at all management levels.and scientific talent.
• | CEO |
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Executive Compensation for 20102011
Overview
In setting target compensation for 2010,2011, the committee reviewed 20092010 individual and company performance and peer grouppeer-group data as discussed above, and also considered expected competitive trends in executive pay. That review showed:included:
• | Company |
• | Individual |
— | In assessing Dr. Lechleiter’s performance, the independent directors noted that under Dr. Lechleiter’s leadership in |
delivered strong pro forma revenue growth (5(6 percent actual vs. 32.5 percent expected industry growth) and pro forma non-GAAP EPSearnings growth (16 percent actual vs. 7 percent expected industry growth)that exceeded analysts’ expectations for the company
effectively reorganized into four pharmaceutical business areas plus Elanco Animal Health, supported by a new global services organization
made measurable progress toward the growthgoals of marketing, selling,eliminating 5,500 positions and administrative expenses at a rate slower than revenue while increasing our investment$1 billion in research andcosts by the end of 2011
continued to demonstrate progress in the development as a percentage of revenue
The committee also noted Dr. Lechleiter’s continued leadership in the implementation of sweeping organizational changes designed to speed development, improve competitiveness in key therapeutic areas and geographies, and reduce its cost base
Despite Dr. Lechleiter’s strong performance, the committee agreed with Dr. Lechleiter’s request that his base salary and incentive plan targets not be increased for 2010.2011.
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— |
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— | Mr. |
— | Mr. Carmine reorganized the sales and marketing functions and collaborated effectively with other business unit leaders. Lilly Biomedicines operating results exceeded target. Mr. Carmine retired from the company on December 31, 2011. |
— | Mr. Armitage |
• | Pay relative to peer group. The company’s total compensation to executive officers, in the aggregate, for |
The committee determined the following:
• | Program elements.The |
• | Targets.The company generally maintained pay ranges and a balance of pay elements similar to |
— | 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 given company performance comparable to that of our peers. |
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The graph below shows the balance of fixed and performance-based target compensation determined by the committee and actual compensation received for 2010.2011. The target compensation reflects decisions made by the compensation committee for 2010.2011. This includes the 2010-20112011-2012 PA and the 2010-20122011-2013 SVA. For comparison purposes, actual compensation includes compensationearned or paid in 2010, including 2010 base salary and cash incentive bonus as well asearned in 2011 and the equity awards that completed their performance periods in 2010—2011: the 2009-20102010-2011 PA and the 2008-20102009-2011 SVA.
20102011 Target and Actual Compensation (millions)
Actual base salary and bonus amounts are shown in the “Summary Compensation Table.Table.” The PA payout for 2009-20102010-2011 performance period paid out at 200109 percent of target, as shown in the “Outstanding Equity Awards at December 31, 20102011” table. The SVA payout for 2008-20102009-2011 performance was zero80 percent of target for all named executive officers.participants as shown in the “Options Exercised and Stock Vested in 2011” table. Since Dr. Lundberg joined the company after these awards werethe SVA award was granted, he was not eligible for eitherthe payout. The graph above shows 2010 target compensation forincludes the vesting of one-third of the award of restricted stock units that Dr. Lundberg and excludes one-time incentive compensation he received upon joining the company.
Base Salary
In setting base salaries for 2010, in addition to the considerations described above, the committee considered the corporate budget for salary increases, which was established at 3 percent based on company performance for 2009, expected performance for 2010, and general external trends. Mr. Rice’s base salary increase reflects his promotion to executive vice president and added responsibility for global services. The objective of the budget is to allow salary increases to retain, motivate, and reward successful performers while maintaining affordability within | Base Salary (thousands)
| |||||||||||
Name | 2009 | 2010 | Percentage Increase | |||||||||
Dr. Lechleiter | $ | 1,500 | $ | 1,500 | 0% | |||||||
Dr. Lundberg | — | $950 | — | |||||||||
Mr. Rice | $901 | $955 | 6% | |||||||||
Mr. Carmine | $924 | $952 | 3% | |||||||||
Mr. Armitage | $816 | $841 | 3% | |||||||||
the company’s business plan. Individual pay increases can be more or less than the budget amount depending on individual performance, but aggregate increases must stay within the budget. The aggregate increases for the named executive officers and the other executive officers were within this budget. In setting 2010 compensation, peer group data confirmed that proposed salaries were within the broad middle range of competitive pay. |
In setting base salaries for 2011, in addition to the considerations described above, the committee considered the corporate budget for salary increases, which was established at 3 percent based on company performance for 2010, expected per formance for 2011, and general external trends. The objective of the budget is to allow salary increases to retain, motivate, and reward successful performers while maintaining affordability within the company’s business plan. Individual pay increases can be more or less than the budget amount depending on individual performance, but aggregate increases must stay within the budget. The aggregate increases for the named executive officers and the other executive officers were | Annualized Base Salary (thousands) | |||||||||||
Name | 2010 | 2011 | Percentage Increase | |||||||||
Dr. Lechleiter | $ | 1,500 | $ | 1,500 | 0% | |||||||
Mr. Rice | $955 | $990 | 4% | |||||||||
Mr. Carmine | $952 | $952 | 0% | |||||||||
Dr. Lundberg | $950 | $979 | 3% | |||||||||
Mr. Armitage | $841 | $841 | 0% | |||||||||
within this budget. Mr. Rice’s base salary reflects his increased responsibilities. In setting 2011 compensation, peer-group data confirmed that the proposed salaries were within the broad middle range of competitive pay.
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Cash Incentive Bonuses | ||||||||||||
The company’s annual cash bonus program aligns employees’ 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 operates by establishing a maximum annual incentive bonus and granting 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 “Non-GAAP Results” below) for the year. For the chief executive officer, chief operating officer (if any), and executive chairman (if any), the maximum | Bonus Weighting: • 25% revenue goals
• 50% non-GAAP EPS goals
• 25% pipeline progress
2011 Targets: • $23.2 billion revenue • $4.31 adjusted non-GAAP EPS • achievement of pipeline milestones | |||||||||||
Cash Incentive Bonuses29
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.
In exercising this discretion, the committee intends generally to award executive officers the lesser of (i) the bonuses they would have received under the Eli Lilly and Company Bonus Plan (the 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 annual cash bonus program aligns employees’achievement relative to performance-based goals (as described below) set by the committee in a manner consistent with the company’s revenue and earnings growth objectives forcommittee’s administration of the current year. Cash incentivebonus 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 for allbelow the results that would have been yielded under the bonus plan.
All other management employees worldwide, as well as a substantial number of nonmanagement employees in the U.S., are determined under The Eli Lilly and Company Bonus Plan (theparticipate in the bonus plan).plan. Under the plan, theparticipants’ targets and pre-established company sets bonus targets for all participantsgoals are set at the beginning of each year. Bonus payoutsBonus-payouts range from 0zero to 200 percent of target amounts depending on the company’s financial results relativeperformance in regard to predetermined performance measures.these goals. At the end of the performance period, the committee has discretion to adjust a bonus payoutbonus-payout downward (but not upward) from the amount yielded by the formula.
The committee considered the following when establishing the 2011 awards:
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Bonus Weighting:
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Targets slightly above expected peer performance:
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Bonus Targets (as a percentage of base salary)
Name | 2009 | 2010 | ||||||
Dr. Lechleiter | 140% | 140% | ||||||
Dr. Lundberg | — | 90% | ||||||
Mr. Rice | 80% | 90% | ||||||
Mr. Carmine | 90% | 90% | ||||||
Mr. Armitage | 80% | 80% |
•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 2010. |
Bonus Targets (as a percentage of base salary) | |||||
Name | 2010 | 2011 | ||||
Dr. Lechleiter | 140% | 140% | ||||
Mr. Rice | 90% | 90% | ||||
Mr. Carmine | 90% | 90% | ||||
Dr. Lundberg | 90% | 90% | ||||
Mr. Armitage | 80% | 80% |
• | Company performance |
In establishing the 2010 target growth rates,2011 goals, the committee consideredused the expected 2010 performancecompany’s 2011 annual operating plan to set goals of our peer group, based on published investment analyst estimates. The target growth rates of 4 percent for$23.2 billion in revenue and 8 percent for non-GAAP$4.31 in adjusted EPS were slightly aboveand measures of both the median expected growth rates for our peer group. These targets were aligned with our compensation objectivesoutput and sustainability of producing above-target payouts if the company outperformed the peer group and below-target payouts if company performance lagged the peer group.pipeline. Payouts were determined by this formula:
(0.25 x revenue multiple) + (0.75(0.50 x adjusted EPS multiple) + (0.25 x pipeline multiple) = bonus multiple
Bonusbonus multiple Xx bonus target Xx base salary earnings = payout
2010 revenue and EPS multiples are illustrated by this chart:
2010 revenue (adjusted for U.S. health care reform) of $23,305 million represented 6.7 percent growth over 2009 revenue of $21,836 million and resulted in a revenue multiple of 1.27. 2010 non-GAAP EPS (adjusted for U.S. health care reform) of $4.98 represented growth of 12.7 percent over 2009 non-GAAP EPS of $4.42 and resulted in an EPS multiple of 1.47.
Together, the revenue multiple and the EPS multiple yielded a bonus multiple of 1.42.
(0.25 x 1.27) + (0.75 x 1.47) = 1.42 bonus multiple
See page 34 for a reconciliation of 2009 and 2010 reported revenue and revenue adjusted for U.S. health care reform, as well as reported and non-GAAP EPS (adjusted for U.S. health care reform).
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2011 revenue, EPS, and pipeline multiples are illustrated by this chart:
2011 adjusted revenue of $24.3 billion represented 5.1 percent growth over 2010, exceeding the goal of $23.2 billion, and resulted in a revenue multiple of 1.41. 2011 adjusted non-GAAP EPS of $4.36 represented a reduction of 8 percent from 2010, exceeding the 2011 goal of $4.31 and resulting in an EPS multiple of 1.10.
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 3.8 (on a scale of 1 to 5), noting 3 major product approvals (plus 4 other approvals) versus a goal of 3, and 5 new molecular entities (NMEs) moved into Phase III versus a goal of 3 NMEs. Additionally, 61 percent of pipeline projects met their milestone goals, which was below the target of 70 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 3.8 resulting in a pipeline multiple of 1.40.
Combined, the sales, EPS, and pipeline progress multiples yielded a bonus multiple of 1.25.
(0.25 x 1.41) + (0.50 x 1.10) + (0.25 x 1.40) = 1.25 bonus multiple
Equity Incentives—Total Equity Program
We employ two forms of equity incentives granted under the 2002 Lilly Stock Plan: performance awards (PAs) and shareholder value awards (SVAs). These incentives are designed to focus company leaders on long-term shareholder value. For executive officers, SVAs have a three-year performance period followed by a one-year holding requirement; PAs have a two-year performance period and pay out in restricted stock units (RSUs) that vest one year after the performance period. Participants must achieve satisfactory performance throughout the relevant performance period of the grant in order for either SVA or PA grants to vest. The following chart shows the performance and holding periods for PA and SVA grants over time:
Target grant values. For 2010, the committee held aggregate grant values flat for the four continuing named executive officers unchanged, based on internal relativity, individual performance, and aggregated peer-group data suggesting that the 2009 grant values were in the broad middle range compared to those of peers. 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 performance and shareholder equity return metrics of the two programs. Target values for 2009 and 2010 equity grants for the named executive officers were as follows:
Target Grant Values (thousands)
Name | 2009-2010 PA | 2010-2011 PA | 2009-2011 SVA | 2010-2012 SVA | Percentage Increase (total) | |||||||||||||
Dr. Lechleiter | $ | 3,750 | $ | 3,750 | $ | 3,750 | $ | 3,750 | 0% | |||||||||
Dr. Lundberg | — | $ | 1,250 | — | $ | 1,250 | — | |||||||||||
Mr. Rice | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | 0% | |||||||||
Mr. Carmine | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | 0% | |||||||||
Mr. Armitage | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | 0% |
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Target grant values. For 2011, the committee set the aggregate target grant values for the named executive officers based on internal relativity, individual performance, and aggregated peer-group data. Mr. Rice and Dr. Lundberg’s target grant values were increased, reflecting Mr. Rice’s increased responsibilities and implementation of the global services organization and Dr. Lundberg’s successful first year. 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 performance and shareholder equity return metrics of the two programs. Target values for 2010 and 2011 equity grants for the named executive officers were as follows: | Equity Compensation:
Target Grant Values (thousands)
Performance Awards:
Company performance measure. For the
published estimates. Accordingly, consistent with our compensation objectives, company performance exceeding the expected peer-group median Payouts for
32 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 based on the
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