~~Director Tenure~~Diversity:

~~Subject~~The Board strives 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.

~~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.

~~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~~achieve diversity 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 Lilly stock. Directors are required to hold Lilly 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. Depending 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 CEO 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 culminate in a detailed review of top 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, and development plans for the highest-potential candidates.

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 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

~~executive officer and considered by the compensation committee in establishing the chief executive officer’s compensation for the next year.~~

~~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 its consideration.~~

~~Code of Ethics~~

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

•

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

•

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

~~Both documents are available online at~~~~http://www.lilly.com/about/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 CEO at every regularly scheduled board meeting.~~

~~Lead Director~~

The board annually appoints a lead director from among the independent directors. Currently the lead director is Ms. 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 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.~~

~~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. A director will be excused from discussions on the issue, as appropriate.

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 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, and has been employed by the company for over 20 years. In 2011, he was paid approximately $390,000 in cash compensation, and 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 stock-based compensation accounting rules (FASB ASC Topic 718). Similarly, Mr. Myles O’Neill, senior vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, senior vice president, global quality, and has been employed by the company for approximately 10 years. His cash compensation in 2011 was approximately $450,000 and his equity grants were valued at approximately $130,000. Both Dr. Bamforth and Mr. O’Neill participate in the company’s benefit programs generally available to U.S. employees, and their compensation was established in accordance with the company’s compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions.

~~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.

~~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.~~

~~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 at~~~~http://investor.lilly.com/governance.cfm~~.

~~Audit Committee~~

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

~~Compensation Committee~~

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

~~Directors and Corporate Governance Committee~~

~~The duties of the directors and corporate governance committee are described in the “Directors and Corporate Governance Committee 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-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.~~

~~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.~~

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

In 2011, each director attended more than 82 percent of the total number of meetings of the board and the committees on which he or she serves. In addition, all board members are expected to attend the annual meeting of shareholders, and all the directors attended in 2011. Current committee membership and the number of meetings of the board and each committee in 2011 are shown in the table below.

Name    Board    Audit    Compensation    Directors and
Corporate
Governance    Finance    Public
Policy and
Compliance    Science and
Technology
Mr. Alvarez
Member Member Member Member
Dr. Baicker
Member Member
Sir Winfried Bischoff
Member Member Chair
Mr. Eskew
Member Chair Member
Dr. Feldstein
Member Member Member Chair
Mr. Fyrwald
Member Member Member
Dr. Gilman
Member Member Chair
Mr. Hoover
Member Member Member
Ms. Horn
Lead Director Chair Member
Dr. Lechleiter
Chair
Ms. Marram¹
Member Member Chair
Mr. Oberhelman
Member Member Member
Dr. Prendergast
Member Member Member
Ms. Seifert
Member Member Member
Number of 2011 Meetings
10 11 7 6 7 8 7

¹	~~Ms. Marram will take over as lead director in April 2012.~~

~~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 2011, the company provided nonemployee directors with an annual retainer of $100,000 (payable in monthly installments). In addition, certain board roles 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 are 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 Account~~. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. In addition, the annual award of shares to each director noted above (3,990 shares in 2011) is credited to this account on a pre-set annual date. Funds in this account are credited as hypothetical shares of company stock based on the market price of the stock at the time the compensation would otherwise have been earned. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock on the date dividends are paid. Actual shares are issued or transferred after the director ends his or her service on the board.

•

~~Deferred Compensation Account~~. Funds in this account earn interest each year at a rate of 120 percent of the applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code. The aggregate amount of interest that accrued in 2011 for the participating directors was $155,178, at a rate of 4.2 percent. The rate for 2012 is 3.3 percent.

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

~~Director Compensation~~

~~In 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
Mr. Alvarez
   $107,500    $145,000             $0    $252,500
Dr. Baicker
       $8,333                —             $0        $8,333
Sir Winfried Bischoff
   $112,000    $145,000             $0    $257,000
Mr. Eskew
   $121,000    $145,000             $0    $266,000
Dr. Feldstein
   $115,000    $145,000    $18,000    $278,000
Mr. Fyrwald
   $103,000    $145,000    $15,000    $263,000
Dr. Gilman
   $118,000    $145,000    $12,000    $275,000
Mr. Hoover
   $107,500    $145,000    $30,000    $282,500
Ms. Horn
   $142,000    $145,000      $6,575    $293,575
Ms. Marram
   $112,000    $145,000    $30,000    $287,000
Mr. Oberhelman
   $107,500    $145,000    $25,000    $277,500
Dr. Prendergast
   $103,000    $145,000             $0    $248,000
Ms. Seifert
   $103,000    $145,000      $4,150    $252,150

¹	~~In 2011, Mr. Hoover deferred $107,500 in cash compensation into his deferred stock account (2,921 shares) under the “Lilly Directors’ Deferral Plan” (further described above).~~

Each nonemployee director received an award of stock valued at $145,000 (3,990 shares). This stock award and all prior stock awards are fully vested in that they are not subject to forfeiture; however, the shares are not issued until the director ends his or her service on the board, as further described above under “~~Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers~~” table in the “Directors’ Deferral Plan Shares” column. Aggregate outstanding stock options as of December 31, 2011 are shown in the table below. Nonemployee directors received no stock options in 2011. The company discontinued granting stock options to nonemployee directors in 2005. All outstanding stock options are currently under water, meaning they have no realizable value.

Name                                                Outstanding Stock Options
(Exercisable)         Weighted Average
Exercise Price
Mr. Alvarez
   —         —
Dr. Baicker
   —         —
Sir Winfried Bischoff
   8,400         $68.96
Mr. Eskew
   —         —
Dr. Feldstein
   8,400         $68.96
Mr. Fyrwald
   —         —
Dr. Gilman
   8,400         $68.96
Mr. Hoover
   —         —
Ms. Horn
   8,400         $68.96
Ms. Marram
   5,600         $65.48
Mr. Oberhelman
   —         —
Dr. Prendergast
   8,400         $68.96
Ms. Seifert
   8,400         $68.96

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 $30,000 per year for each individual. The foundation matched these donations via payments made directly to the recipient charity.

⁴	~~Directors do not participate in a company pension plan or non-equity incentive plan.~~

~~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 at~~http://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, ethnicity, and ~~ethnicity.~~experiences. Although the Board does not establish specific diversity goals

The ~~board~~Board delegates the director screening process to the ~~directors~~Directors and ~~corporate governance committee,~~Corporate Governance Committee, which receives ~~direct~~ input from other ~~board~~Board members. Potential ~~candidates~~directors are identified ~~through recommendations~~ from several sources, ~~including:~~

~~incumbent directors~~

~~management~~

~~shareholders~~

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

shareholders.

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~~Chairman of the ~~board~~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,~~

The Directors and Corporate Governance Committee performs an annual assessment of the overall composition and skills of the Board in order to ensure that the Board and management are actively engaged in succession planning for directors, and that our Board reflects the appropriate viewpoints and expertise necessary to support our complex and evolving business. The results of this assessment inform the Board's recommendations on nominations for directors at the annual meeting each year and help provide us with insight on the types of experiences, skills, and other characteristics we should be seeking for future director candidates. Based on this assessment, the committee has recommended that the four directors in the 2015 class who isare standing for election be re-elected at the 2015 annual meeting.

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.

Cash Compensation

In 2014, nonemployee directors received an annual retainer of $100,000 (payable in monthly installments). In addition, certain Board roles received additional annual retainers:

Lead director: $30,000

Committee chairs: $12,000 ($18,000 for Audit Committee chair; $15,000 for Science and Technology Committee chair)

Audit Committee/Science and Technology Committee members (including the chair): $3,000

Directors are reimbursed for customary and usual travel expenses. Directors may also receive additional cash compensation for serving on ad hoc committees that may be assembled from time-to-time.

Stock Compensation

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

Nonemployee directors receive $145,000 of stock compensation, 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: 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 the following two accounts:

Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. In addition, the annual stock compensation award as noted above is credited to this account. The number of shares credited is calculated by dividing the $145,000 annual compensation figure by the closing stock price on a pre-set annual date. Funds in this account are credited as hypothetical shares of company stock based on the market price of the stock at the time the compensation would otherwise have been earned. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock on the date dividends are paid. Actual shares are issued after the director ends his or her service on the Board.

Deferred Compensation Account. Funds in this account earn interest each year at a rate of 120 percent of the applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The aggregate amount of interest that accrued in 2014 for the participating directors was ~~referred~~$178,000, at a rate of 3.92 percent. The rate for 2015 is 3.24 percent.

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

2014 Compensation for Nonemployee Directors



Name	Fees Earned or Paid in Cash ($)	Stock Awards ($) ¹	All Other Compensation and Payments ($)²		Total ($) ³
Mr. Alvarez	$103,000	$145,000	$0		$248,000
Dr. Baicker	$103,000	$145,000	$0		$248,000
Sir Winfried Bischoff (retired)	$46,667	$60,417	$16,712	⁴	$123,796
Mr. Eskew	$121,000	$145,000	$5,250		$271,250
Mr. Fyrwald	$115,000	$145,000	$30,000		$290,000
Dr. Gilman (retired)	$49,167	$60,417	$28,576		$138,160
Mr. Hoover	$109,000	$145,000	$30,000		$284,000
Ms. Horn	$112,000	$145,000	$4,700		$261,700
Dr. Kaelin	$113,000	$145,000	$17,100		$275,100
Ms. Marram	$142,000	$145,000	$30,000		$317,000
Mr. Oberhelman	$103,000	$145,000	$30,000		$278,000
Dr. Prendergast	$103,000	$145,000	$0		$248,000
Dr. Runge	$113,500	$145,000	$0		$258,500
Ms. Seifert	$103,000	$145,000	$13,881		$261,881
Mr. Tai	$113,500	$145,000	$30,000		$288,500

Each nonemployee director received an award of stock valued at $145,000 (approximately 2,155 shares), except Sir Winfried Bischoff and Dr. Gilman, who retired from the board in May and received a pro-rated award for a partial year of service. This stock award and all prior stock awards are fully vested; however, the shares are not issued until the director ends his or her service on the Board, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the “Stock Units Not Distributable Within 60 Days” column.

This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. ("Foundation") under its matching gift program, which is generally available to U.S. employees as well as the outside directors. Under this program, the Foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The Foundation matched these donations via payments made directly to the recipient charity.


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

⁴For Sir Winfried Bischoff, this column includes $16,712 for expenses for his spouse to travel to and participate in board functions that included spouse participation.

2015 Director Compensation

For 2015, the following changes have been made to director compensation, representing the first increase in director pay since 2011:

Annual retainer increased to $110,000

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

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

Director Independence

The Board annually determines 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(s) with the company impairs independence is extended from three to four years.

The company's process for determining director independence is set forth in our Standards for Director Independence which can be found on our website at http://www.lilly.com/about/corporate-governance/Pages/guidelines.aspx along with our Corporate Governance Guidelines.

On the recommendation of the Directors and Corporate Governance Committee, the Board determined that all 13 nonemployee directors are independent, and that the members of each committee also meet our independence standards. The Board determined that none of the 13 nonemployee directors has had during the last four years (i) any of the relationships referenced above or (ii) any other material relationship with the company that would compromise his or her independence. The table that follows includes a description of categories or types of transactions, relationships, or arrangements the Board considered in reaching its determinations.



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

All of the transactions described above were entered into at arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms. Aggregate payments to each of the relevant organizations, in each of the last four fiscal years, did not exceed the greater of $1 million or 2 percent of that organization's consolidated gross revenues in a single fiscal year for the relevant four-year period. No director had any direct business relationships with the company or received any direct personal benefit from any of these transactions, relationships, or arrangements.

Committees of the Board of Directors

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

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.

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

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

Audit Committee

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

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

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

The performance of internal and independent audit functions; and

The company's compliance with legal and regulatory requirements.

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

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

Compensation Committee

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

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

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

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

None of the Compensation Committee members:

•Has ever been an officer or employee of the company

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

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

Directors and Corporate Governance Committee

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

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

Finance Committee

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

Capital structure and strategies;

Dividends;

Stock repurchases;

Capital expenditures;

Investments, financings and borrowings;

Financial risk management; and

Significant business-development opportunities.

Public Policy and Compliance Committee

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

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

Science and Technology Committee

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

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

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

Reviews the scientific aspects of significant business development opportunities; and

Oversees matters of scientific and medical integrity and risk management.

Membership and Meetings of the Board and Its Committees

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



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

Board Oversight of Compliance and Risk Management

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

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

Code of Ethics

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

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

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

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

Highlights of the Company’s Corporate Governance

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

Role of the Board

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

Providing general oversight of the business;

Approving corporate strategy;

Approving major management initiatives;

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

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

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

Nominating, compensating, and evaluating directors.

Board Composition and Requirements

Mix of Independent Directors and Officer-Directors

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

Voting for Directors

In an uncontested election, directors are elected by a majority of votes cast. An incumbent ~~director.~~

~~Process~~nominee who fails to receive a majority of the votes cast will tender his or her resignation. The Board, on recommendation of the Directors and Corporate Governance Committee, will decide whether to accept the resignation. The company will promptly disclose the Board's decision, including, if applicable, the reasons why the Board rejected the resignation.

Director Tenure and Retirement Policy

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

Other Board Service

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

Board Confidentiality Policy

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

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

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

Leadership Structure

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

Board Independence

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

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

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

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


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


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


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


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


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


◦	Conducting executive sessions of the independent directors; and


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

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

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

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

CEO Succession Planning

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

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

Board Education and Annual Performance Assessment

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

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

Conflicts of Interest and Transactions with Related Persons

Conflicts of Interest

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

Review and Approval of Transactions with Related Persons

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

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

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

The alternatives to entering into a related-person transaction;

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

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

The overall fairness of the transaction to the company.

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

Procedures:

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

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

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

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

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

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

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

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

Communication with the Board of Directors

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

Board of Directors

Eli Lilly and Company

c/o Corporate Secretary

Lilly Corporate Center

Indianapolis, IN 46285

Shareholder Engagement on Governance Issues

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

Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements

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

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

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

Shareholder proposals

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

Shareholder Recommendations and Nominations

for Director Candidates

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

Chair of the ~~directors and corporate governance committee, in care of the corporate secretary, at~~ Corporate Governance Committee

c/o Corporate Secretary

Lilly Corporate Center

Indianapolis, ~~Indiana 46285.~~ IN 46285

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

Board.

Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the ~~2013~~2016 annual meeting (i.e., to propose a candidate for election who is not otherwise nominated by the ~~board~~Board through the recommendation process described above) must give the company written notice by November ~~5, 2012~~23, 2015 and no earlier than September ~~6, 2012.~~24, 2015. The notice should be addressed to the corporate secretary at ~~Lilly Corporate Center, Indianapolis, Indiana 46285.~~the address provided above. The notice must contain prescribed information about the candidate and about the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online athttp://investor.lilly.com/~~governance.cfm~~.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~~

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

Ownership of Company Stock

Common Stock Ownership by Directors and Executive Officers

The following table sets forth the number of shares of company common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 20, 2015. None of the 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 rulesstock, stock options, or stock units owned by any of the ~~SEC.~~

~~Audit Committee Report~~

~~The audit committee (“we” or “the committee”) reviews the company’s financial reporting process on behalf of the board. Management~~listed individuals has ~~the primary responsibility~~been pledged as collateral 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. 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, 2011, for filing with the SEC. We have also appointed the company’s independent auditor, subject to shareholder ratification, for 2012.

~~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 annual~~~~audit services~~ ~~engagement and, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope, company structure,~~loan or other ~~matters. Audit services include internal controls attestation work under Section 404~~obligation.



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

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

²This column includes the number of ~~the Sarbanes-Oxley Act. The committee may also preapprove other audit services, which are those services that only the independent auditor reasonably can provide.~~

~~Audit-related services~~~~are assurance and related services that are reasonably related to the performance~~shares 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~~~~. The committee believes that, in appropriate cases, the independent auditor can provide tax compliance services, tax planning, and tax advice without impairing the auditor’s independence.~~

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

~~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~~common stock held individually as well as ~~any other engagements known at~~the number of

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


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

⁴ For the executive officers, this column reflects RSUs that ~~time. Management~~ will ~~also present at that time an estimate~~not vest within 60 days. For the independent directors, this column includes the number of ~~all fees for the upcoming audit year. As specific engagements are identified thereafter, they are brought forward~~stock units credited to the ~~committee~~directors' accounts in the Lilly Directors' Deferral Plan.

⁵ The shares shown for ~~approval. To the extent approvals~~Dr. Lechleiter include 51,588 shares that are ~~required between regularly scheduled committee meetings, preapproval authority~~owned by a family foundation for which he is ~~delegated to the committee chair.~~

~~For each engagement, management provides the committee with information about the services~~a director. Dr. Lechleiter has shared voting power 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.~~

~~Independent Auditor Fees~~

The following table shows the fees incurred for services rendered on a worldwide basis by the company’s independent auditor in 2011 and 2010. All such services were preapproved by the committee in accordance with the preapproval policy.

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

~~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~~shared investment power with respect to the shares held by the foundation. Also included are 2,672 shares held in family trusts. Pursuant to the terms of the trusts, Dr. Lechleiter has shared investment power and no voting power over the shares held in the trusts.

Principal Holders of Stock

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



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

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

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

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

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

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

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

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

Compensation

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

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

The ~~committee may delegate authority to company officers for day-to-day plan administration~~Compensation Committee 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~~Board of Directors believe that our executive compensation ~~can be found in the “Compensation Discussion and Analysis” section under “The Committee’s Processes and Analyses” below. Additional processes and procedures include:~~

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~~Meetings~~. The committee meets several times each year (7 times in 2011). Committee agendas are approved by the committee chair in consultation with the committee’s independent compensation consultant. The committee meets in executive session after each meeting.

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~~Role of independent consultant~~. The committee has retained Cimi B. Silverberg of Frederic W. Cook & Co., Inc., as its independent compensation consultant to assist the committee. Ms. Silverberg reports directly to the committee, and neither she nor her firm is permitted to perform any services for management. The consultant’s duties include the following:

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~~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~~

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~~review the company’s total compensation~~aligns well with our philosophy ~~peer group, and target competitive positioning for reasonableness and appropriateness~~

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~~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~~

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

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

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

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~~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~~corporate performance. Executive compensation is an important matter for our shareholders. We routinely review our compensation practices and ~~permission of the committee chair.~~

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~~Role of executive officers and management~~. With the oversight of the CEO and the senior vice president of human resources, the company’s global compensation group formulates recommendations on compensation philosophy, plan design, and the specific compensation recommendations for executive officers (other than the CEO, as noted below). The CEO gives the committee a performance assessment and compensation recommendation for each of the other executive officers. The committee considers those recommendations with the assistance of its 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~~engage in ~~the formulation or discussion of his pay recommendations; however, as he did for the past two years, Dr. Lechleiter requested that no increases be made~~ongoing dialog with our shareholders in order to ~~his base salary or incentive targets for 2012. The CEO has no prior knowledge of the recommendations that the consultant makes to the committee.~~

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~~Risk assessment~~. With the help of its compensation consultant, in 2011 the committee reviewed the company’s compensation policies and practices for all employees, including executive officers. The committee concluded that the company’s compensation programs will not have a material adverse effect on the company, after reviewing the business risks identified in the annual enterprise risk management assessment process. The committee noted several design features of the company’s cash and equity incentive programs that reduce the likelihood of inappropriate risk-taking:

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~~cash and equity and short-term and long-term incentive compensation are balanced~~

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~~incentive plans include a range of payout opportunities below and above target~~

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~~incentive payouts are capped at appropriate levels~~

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~~multiple measures/goals and different measurement periods are used across our incentive plans~~

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~~company performance targets and individual incentive payment targets are set using multiple inputs~~

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~~a blend of internal and external measures is used across multiple incentive plans~~

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~~the cost of incentive program payouts is included when determining payout results~~

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~~performance objectives are appropriately difficult~~

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~~the bonus program has a continuum of payout levels for individual performance~~

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~~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~~ensure our practices are aligned with stakeholder interests and ~~instead encourage behaviors that support sustainable value creation.~~

~~Compensation Committee Interlocks and Insider Participation~~

~~None~~reflect best practices.

We request shareholder approval, on an advisory basis, of the compensation ~~committee members:~~

~~has ever been an officer or employee~~ of the ~~company~~

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~~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)~~

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

Board Proposal on Item 2

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

Compensation Discussion and Analysis

This CD&A provides a detailed description of our executive ~~officers serves on~~compensation philosophy, the ~~board of directors.~~

Compensation ~~Discussion and Analysis~~

~~Summary~~

~~Executive~~Committee's process for setting executive compensation, ~~for 2011 aligned well with~~ the ~~objectives~~elements of our compensation ~~philosophy~~program, the factors the committee considered when setting executive compensation in 2014, and ~~with our performance, driven by these factors:~~

• ~~The company exceeded corporate goals for revenue and earnings per share (EPS) as well as pipeline progress~~.Strong revenues of $24.3 billion against a goal of $23.2 billion and adjusted non-GAAP earnings per share (EPS) of $4.36 against a goal of $4.31 demonstrated good operational performance, as the company entered a challenging era of significant patent expirations. The pipeline also progressed well, with approvals of Tradjenta^®~~, Bydureon~~^®~~, and Cialis~~^® for the treatment of benign prostatic hyperplasia, as well as several other milestones, five new molecular entities entered Phase III, and 61 percent of project milestones were met or accelerated. As a result, the annual cash incentive bonus paid out at 125 percent of target.

• ~~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 2010-2011 Performance Award (PA), the annual cumulative compounded EPS growth rate was 9.0 percent, resulting in a payout of 109 percent of target to all participants. The company’s 2009-2011 Shareholder Value Award (SVA) fell short of its target payout price of $39.50; as a result, awards granted to executive officers and all other participants paid at 80 percent of target.

~~Highlights:~~

• ~~With the expiration of the Zyprexa~~^® ~~patent, the company enters a period of patent expirations~~

• ~~Very strong performance in advancing the pipeline~~

• ~~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 2012~~

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~~A balanced program fosters employee achievement, retention, and engagement~~. We delivered a total compensation package composed of salary, performance-based cash and equity incentives, and a competitive employee benefits program. We implemented new bonus-plan metrics to drive innovation and retain and motivate employees during the next few years of patent expirations and business challenges. The new bonus metrics measure our revenue, EPS, and pipeline performance against internal goals. At the same time, we retained the external metrics of EPS growth versus our peers and stock price performance versus expected large-cap returns for our equity program. Together these elements reinforced pay-for-performance, provided balance between short- and long-term performance and between internal and external metrics, and encouraged employee retention and engagement.

how the company's results impacted incentive payouts for 2014.

Say on Pay Results for 2014

~~In addition:~~

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~~No increase in CEO target compensation since 2009~~. As he did for the past two years, and in light of the business challenges the company currently faces, Dr. Lechleiter requested, and the compensation committee approved, no increases to his 2012 salary or incentive targets.

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~~The compensation committee reviewed the connection between compensation and risk~~~~. The committee reviewed our compensation programs and policies for features that may encourage excessive risk taking and found the overall program to be sound.~~

~~The Committee’s Processes~~

At last year's annual meeting, in excess of 98 percent of the shares cast voted in favor of the company's Say on Pay proposal on executive compensation. Management and ~~Analyses~~

~~Linking Business Strategy and~~the Compensation ~~Program Design~~

Committee view this vote as supportive of the company's overall approach toward executive compensation.

Our Philosophy on Compensation

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

Objectives

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

~~Executive Compensation Philosophy:~~

• ~~Individual and company performance~~

• ~~Long-term focus~~

• ~~Consideration of both internal relativity and competitive pay~~

• ~~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 2011 incentive programs used a combination of corporate financial goals and a pipeline metric (annual bonus), relative EPS growth as measured against the performance of our peer companies (PA), and TSR growth as measured by stock price goals (SVA). We design our programs to be simple and clear, so that employees can understand how their efforts affect their pay.

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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.

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~~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.

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~~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 compete with these companies for talent.

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~~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 reflects differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefits programs should be broadly similar across the organization.

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~~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.

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~~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.

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

Attract and retain talented employees.Compensation opportunities should be competitive with our peer group and reflect the level of job impact and responsibilities. Retention of talent is an important factor in the design of our compensation and benefit programs.

Implement broad-based programs. While the amount of compensation paid to employees varies, the overall structure of our compensation and benefit programs is broadly similar across the organization to encourage and reward all employees who contribute to our success.

Consider shareholder input. Management and the Compensation Committee consider the results of our annual Say on Pay vote and other sources of shareholder feedback when designing compensation and benefit programs.

Compensation Committee's Processes and Analyses

Process for setting compensation

The ~~compensation committee uses several tools~~Compensation Committee considers the following in determining executive compensation:

Assessment of the executive's individual performance and contribution.

CEO: The independent directors, under the direction of the lead director, meet with the CEO at the beginning of each year to ~~set compensation targets that meet company objectives. Among those are:~~

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~~Assessment of individual performance.~~ ~~Individual performance has a strong impact on compensation.~~

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~~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~~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

~~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.~~

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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.

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

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In establishing total compensation ranges, the committee uses as a reference the performance of the company and the public companies in its peer group with respect to revenue, EPS, return on assets, and 1- and 5-year TSR.

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

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~~Peer-group analysis.~~ ~~The committee reviews peer-group data as a market check for compensation decisions, but does not base compensation targets on peer-group data only.~~


~~— Overall competitiveness. The committee uses aggregated market data as a~~ ~~reference point to ensure that executive compensation is competitive, meaning~~ ~~within the broad middle range of comparative pay at peer companies when the~~ ~~company achieves the targeted performance levels. The committee does not target~~ ~~a specific position within the range.~~ — ~~Individual competitiveness.~~ ~~The committee compares the overall pay of individual~~ ~~executives if the jobs are sufficiently similar to make the comparison meaningful.~~ ~~The individual’s pay is driven primarily by individual and company performance and~~ ~~internal relativity; the peer-group data is used as a market check to ensure that~~ ~~individual pay remains within the broad middle range of peer-group pay. The~~ ~~committee does not target a specific position within the range.~~		~~Compensation~~ ~~Considerations:~~ • ~~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 Takeda Pharmaceuticals Company. The committee reviews the peer group for appropriateness at least every three years, and the committee considered the current peer group at the end of ~~2010 when considering 2011~~each year, the independent directors meet to assess the CEO's achievement of those objectives along with other factors, including contribution to the company's performance and ethics and integrity. The year-end evaluation is used in setting the CEO's compensation ~~opportunities.~~for the next year.

Other Executive Officers ("EOs"): The committee receives individual performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the Board's knowledge and interactions with the EOs. As with the CEO, each EO's performance assessment is based on his or her achievement of objectives established between the EO and the CEO at the start of the year as well as other factors.

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

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

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

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

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

Competitive pay assessment

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

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~~CEO compensation~~. To provide further assurance of independence, the compensation recommendation for the CEO is developed by the committee’s independent consultant with limited support from company staff. The consultant prepares analyses showing competitive CEO compensation among the peer group for the individual elements of compensation and total direct compensation. Normally, the consultant develops a range of recommendations for any change in the CEO’s base salary, annual cash incentive target, equity grant value, and equity mix. The CEO has no prior knowledge of the recommendations and normally takes no part in the recommendations, committee discussions, or decisions. For 2011, no such recommendation was prepared, since Dr. Lechleiter requested that no increases be made to his base salary or incentive targets. He made the same request for 2012, as he had for 2010 and 2011, and the committee granted this request for all three years.

In the aggregate, the company’s total compensation to Named Executive Officers (NEOs) in 2014 was in the middle range of the peer group.

Components of Our Compensation ~~for 2011~~

~~Overview~~

~~In setting target~~

Our executive compensation ~~for 2011, the committee reviewed 2010 individual and~~has three components: (1) base salary; (2) an annual bonus, which is calculated based on company performance on revenue, EPS, and ~~peer-group data as discussed above, and also considered expected competitive trends in executive pay. That review included:~~

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~~Company performance~~. In 2010, the company performed in the upper tier of the peer group in revenue growth, in the middle tier in non-GAAP EPS growth and one-year TSR, and in the lower tier in five-year TSR. Company performance against corporate operating goals was at target for revenue growth, net cash flow, and pipeline progress. Growth in EPS, return on assets, and operating income per employee exceeded corporate goals.

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~~Individual performance~~~~. As described above under “Setting Compensation~~,” base salary increases were driven largely by individual performance assessments. In assessing the 2010 performance of executive officers, the independent directors (for the CEO) and the compensation committee (with regard to all executive officers) considered the company’s and the executive officer’s accomplishment of objectives established at the beginning of the year and their own subjective assessment of the executive officer’s performance.

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~~In assessing Dr. Lechleiter’s performance, the independent directors noted that under Dr. Lechleiter’s leadership in 2010, the company:~~

~~delivered strong revenue growth (6 percent actual vs. 2.5 percent expected industry growth) and earnings 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 goals of eliminating 5,500 positions and $1 billion in costs by the end of 2011~~

~~continued to demonstrate progress in the development of molecules in its late-stage pipeline, with 8 potential medicines in Phase III testing by the end~~ of the ~~year.~~

~~The committee also noted Dr. Lechleiter’s continued leadership in the implementation~~pipeline relative to internal targets; and (3) two different forms of the company’s Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services and his efforts to reinforce ethics and compliance across the company. Dr. Lechleiter was an active public advocate for the company and the industry. In addition, he strengthened key practices within the company for talent development and succession management.

~~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 2011.~~

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Dr. Lundberg had a strong first full year in his position. He demonstrated decisive leadership in moving the pipeline forward, simplifying LRL governance, prioritizing research projects, and closing or repurposing underutilized facilities, and he collaborated very effectively with the business units.

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~~Mr. Rice’s responsibilities expanded in 2010 to include IT and Six Sigma~~^®. He led the transformation of the financial component and the creation and implementation of the global services organization. He provided important contributions to the company’s strategic decision making and served effectively as CFO.

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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.

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Mr. Armitage provided outstanding support to his internal clients and continued industry leadership in external influence regarding intellectual property matters. The legal organization helped achieve positive outcomes in key patent litigation (wins for Alimta, Strattera, and Evista; a loss for Gemzar).

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~~Pay relative to peer group.~~ ~~The company’s total compensation to executive officers, in the aggregate, for 2010 was in the broad middle range of the peer group.~~

~~The committee determined the following:~~

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~~Program elements.~~The 2011 program consisted of base salary, a cash incentive bonus, and two forms of performance-based equity grants: PAs and SVAs. Executives also received the company employee benefits package. This total compensation program balances the mix of cash and equity compensation, the mix of current and longer-term compensation, the mix of financial and market goals, and the security of foundational benefits in a way that furthers the compensation objectives discussed above.

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~~Targets.~~The company generally maintained pay ranges and a balance of pay elements similar to 2010. The committee believes this overall program continues to provide cost-effective delivery of total compensation that:

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

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

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~~maintains appropriate internal pay relativity~~

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

~~The graph below shows the balance of fixed and~~equity incentives: (i) "Performance Awards" (PAs) - performance-based ~~target compensation~~equity awards determined by the ~~committee~~company's two-year growth in earnings per share (EPS) relative to the expected peer group growth followed by a service-vesting period; and actual compensation received for 2011. The target compensation reflects decisions made by the compensation committee for 2011. This includes the 2011-2012 PA and the 2011-2013 SVA. For comparison purposes, actual compensation includes base salary and cash incentive bonus earned in 2011 and the(ii) "Shareholder Value Awards" (SVAs) - performance-based equity awards that ~~completed their performance periods~~pay out based on company stock price growth over a three-year period. Executives also receive the company benefits package, described below under "Employee Benefits".

Adjustments to reported financial results

The Compensation Committee has authority to adjust the reported revenue and EPS on which incentive compensation payouts are determined in ~~2011:~~order to eliminate the ~~2010-2011 PA~~distorting effect of unusual income or expense items that may occur during a given year that impact year-over-year growth percentages or to improve comparability to peer companies. Further details on the adjustments for 2014 and the ~~2009-2011 SVA.~~

~~2011 Target~~rationale for making these adjustments are set forth in Appendix A, "Summary of Adjustments Related to the Annual Bonus and ~~Actual~~Performance Award." For ease of reference, throughout the CD&A and the other compensation disclosures we refer simply to "revenue" and "EPS" but we encourage you to review the information in Appendix A to understand the revenue and EPS adjustments that were approved.


1.	Base Salary

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

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


2.	Annual Bonus

The Eli Lilly and Company Bonus Plan ("Bonus Plan") is designed to align employees' individual goals with the company's financial plans and pipeline objectives for the year. The bonus is based on company performance in three areas over the course of the year, relative to internal targets: (1) revenue performance; (2) EPS performance; and (3) progress on advancing our product pipeline.

Individual bonus targets are set at the beginning of each year, and actual bonuses can range from 0 to 200% of each individual's bonus target. Company performance goals also are set at the beginning of each year. In establishing the goals, the Compensation Committee references the annual operating plan. Each year, the Compensation Committee reviews the relative weighting for each of the factors. The 2014 weightings remained unchanged from the prior year:



Goal	Weighting
Revenue performance	25%
EPS performance	50%
Pipeline progress	25%

Based on this weighting, the company bonus multiple is annually calculated as follows:

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

= company bonus multiple

For 2014, in order

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

company bonus multiple - 0.25 = adjusted bonus multiple

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

EOs are subject to the Executive Officer Incentive Plan ("EOIP"), which sets further limits on the allowable bonus ~~amounts are shown~~amounts. Under the EOIP, the maximum annual bonus allowable is calculated based on non-GAAP net income (as defined under "Adjustments to Reported Results" in ~~the “Summary Compensation Table.” The PA payout for 2010-2011 performance period paid out at 109 percent of target, as shown in the “Outstanding Equity Awards at December 31, 2011” table. The SVA payout for 2009-2011 performance was 80 percent of target for all participants as shown in the “Options Exercised and Stock Vested in 2011” table. Since Dr. Lundberg joined the company after the SVA award was granted, he was not eligible~~Appendix A to this proxy statement) for the ~~payout. The graph above includes~~year. For the ~~vesting of one-third of~~CEO, the maximum bonus award ~~of restricted stock units that Dr. Lundberg received upon joining the company.~~

~~Base Salary~~

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.

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

is 0.3 percent of non-GAAP net income. For other ~~executive officers,~~EOs, the maximum amount is 0.15 percent of non-GAAP net income. NoEOs will not receive any annual cash incentive payments ~~can be made~~ unless the company has a positive non-GAAP net income for the year. ~~The committee~~

Once the maximum payout for an EO is determined, the Compensation Committee has the discretion to reduce ~~but~~(but not ~~increase,~~increase) the ~~annual incentive bonus.~~

amount of the bonus to be paid. In exercising this discretion, the committee intends to generally to award ~~executive officers~~EOs the lesser of (i) the bonuses they would have received under the ~~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 achievement relative to performance-based goals (as described below) set by the committee in a manner consistent with the committee’s administration of the bonus plan. Accordingly, actual payouts under the EOIP are expected to be less than the EOIP maximum amounts. The committee retains further discretion to reduce the bonuses below the results that would have been yielded under the bonus plan.

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

~~The committee considered the following when establishing the 2011 awards:~~

•Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities, more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities, internal relativity, individual performance, and peer-group data. For each named executive officer, the committee maintained the same bonus targets as 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%

	•
3.		~~Company performance measures~~. A bonus program’s goals should be challenging, yet achievable, in order to motivate and retain employees. Beginning in 2011, performance goals under our bonus plan are tied directly to our internal annual operating goals. The committee established 2011 corporate goals with a 25 percent weighting on revenue growth, 50 percent weighting on non-GAAP EPS growth, and 25 percent weighting on our pipeline progress. These goals replace the prior years’ goals of 25 percent revenue growth versus peer expectations and 75 percent non-GAAP EPS growth versus peer expectations. Revenue and non-GAAP EPS goals that reflect anticipated median peer group year-on-year growth would likely not be achievable in years with patent losses, such as 2011, and would likely result in artificially-inflated payouts in subsequent near-term growth years. The new performance measures were designed to be achievable yet challenging, focusing employees appropriately on achieving or exceeding the company’s top-line sales and bottom-line earnings objectives in a difficult period for the company while delivering a robust pipeline of medicines at all stages of development, which is critical to our long-term success. Equity Incentives

In establishing the 2011 goals, the committee used the company’s 2011 annual operating plan to set goals of $23.2 billion in revenue and $4.31 in adjusted EPS and measures of both the output and sustainability of the pipeline. Payouts were determined by this formula:

~~(0.25 x revenue multiple) + (0.50 x adjusted EPS multiple) + (0.25 x pipeline multiple) = bonus multiple~~

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

~~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~~company has two ~~forms of~~ equity ~~incentives granted under the 2002 Lilly Stock Plan: performance awards~~incentive programs - Performance Awards (PAs) and ~~shareholder value awards~~Shareholder Value Awards (SVAs). ~~These incentives~~The PAs are designed to focus company leaders on multi-year operational performance relative to peer companies and the SVAs align compensation with long-term growth in shareholder value. ~~For~~The Compensation Committee has the discretion to adjust downward (but not upward) any executive ~~officers, SVAs have~~officer's equity award payout from the amount yielded by the applicable formula.

Performance Awards

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



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

The ~~following chart shows the performance and holding periods for PA and SVA grants over time:~~

~~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:~~

~~• Performance metrics of growth in non-GAAP EPS and share price are objective and align with shareholder interests~~

~~• Target grant values set based on internal relativity, performance, and peer data~~

~~Target Grant Values (thousands)~~

Name 2010-2011 PA 2011-2012 PA 2010-2012 SVA 2011-2013 SVA Percentage
Increase (total)
Dr. Lechleiter
$3,750    $3,750    $3,750    $3,750    0%
Mr. Rice
$1,500    $1,900    $1,500    $1,900    27%
Mr. Carmine
$1,500    $1,500    $1,500    $1,500    0%
Dr. Lundberg
$1,250    $1,375    $1,250    $1,375    10%
Mr. Armitage
$1,000    $1,000    $1,000    $1,000    0%


~~Equity Incentives—Performance Awards~~
PAs provide employees with shares of company stock if certain company performance goals are achieved. The awards are structured as a schedule of potential shares of company stock earned based on cumulative, compounded annual growth in non-GAAP EPS over a two-year period. In 2011, the company granted a two-year award to global management (approximately 15 percent of our employee population). Possible payouts for the 2011-2012 PA range from 0 to 150 percent of the target depending on non-GAAP EPS growth over the performance period. No dividends are accrued or paid on the awards during the performance period.		~~Performance Awards:~~ ~~• Target 2-year EPS growth was 4.6%, slightly above expected peer-group performance~~ ~~• Payout in restricted stock for executive officers~~

~~Company performance measure~~. ~~For the 2011 grants, the committee established the performance measure as non-GAAP EPS growth. The committee~~Compensation Committee believes ~~non-GAAP~~ EPS growth is an effective ~~motivator~~measure of performance because it is closely linked to shareholder value, is broadly communicated to the public, is easily understood by employees, and allows for objective comparisons to peer-group performance. The target compounded growth percentage of 4.6 percent per year slightly exceeded the median expected non-GAAP EPS of companies in our peer group, based on investment analysts’ published estimates. Accordingly, consistentConsistent with our compensation objectives, company performance exceeding the expected peer-group median will result in above-target payouts, while company performance lagging the expected peer-group median will result in below-target payouts. Possible payouts range from 0 to 150 percent of the target depending on the EPS growth over the performance period.

The measure of ~~non-GAAP~~ EPS used in the PA program differs from the ~~non-GAAP EPS~~ measure used in our annual bonus program in two ways. First, the ~~annual~~ bonus program measures EPS over a one-year period, while the PA program measures EPS over a two-year period. Second, the target EPS goal in the ~~annual~~ bonus program is set with reference to internal goals that align to our ~~internal~~annual operating plan for the year, while the target EPS goal in the PA program is set relative to expected growth rates ~~for other companies in~~among our ~~industry.~~

~~Payouts for 2011-2012 PAs are illustrated by the chart below:~~

~~2011-2012 PA~~

peer group.

~~Equity Incentives—~~

Shareholder Value Awards

~~In 2007, the company replaced its stock option program with the SVA program.~~

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



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

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

Pay for Performance

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

2014 Target Total Compensation

Performance Review Process

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

2013 Individual EO Performance

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

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

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

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

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

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

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

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

Resulting Compensation Targets

Base Salary

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

Annual Bonus Targets

Based on a review of internal relativity, peer data, and individual performance, the committee ~~has discretion~~decided to ~~adjust an award payout downward (but not upward) from~~maintain the ~~amount yielded by~~same bonus targets for the ~~formula. The SVA program delivers equity compensation that is strongly linked to 3-year TSR. It is more cost-effective than~~NEOs for 2014 as were in place for 2013, shown in the ~~stock option program it replaced because the SVA program delivers, at~~table below as a ~~lower cost to the company, an equity incentive that is equally or more effective in aligning employee interests with long-term shareholder returns.~~

percentage of base salary:



~~Shareholder Value Awards:~~ ~~•Three-year performance period~~ ~~•Target is determined by applying an expected three-year rate of return for large-cap companies~~ ~~•Shares earned by executive officers must be held one year~~ Name	2014 Bonus Target
Dr. Lechleiter	~~Company performance measure~~. For the 2011 grants, the SVA will pay above target if company stock outperforms an expected compounded annual rate of return for large-cap companies and below target if company stock underperforms that rate of return. The expected rate of return was determined considering total return that a reasonable investor would consider appropriate for investing in a large-cap U.S. company (based on input from external money managers). The resulting share price payout schedule was developed using this expected rate of return, less the company’s dividend yield applied to the starting share price. Executive officers receive no payout if the stock price, less three years of dividends at the current rate, does not grow over the three-year performance period—in other words, if total shareholder return for the three-year period is zero or negative. 140%
Mr. Rice	90%
Dr. Lundberg	90%
Mr. Harrington	75%
Mr. Conterno	75%

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

Total Equity Program - Target Grant Values

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



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

Performance Awards – 2014-2015 PA

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



			50% payout

						Target


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

Shareholder Value Awards – 2014-2016 SVA

The starting price ~~for the 2011-2013 SVAs is $34.81~~was $50.42 per share, representing the average of the closing prices of company stock for all trading days in November and December ~~2010, and~~2013. The target ending share price range was established based on the expected annual rate of return for large-cap companies (8 percent), less an assumed dividend yield of ~~5.6~~3.89 percent. The ending price to determine payouts will be the average of the closing prices of company stock for all trading days in November and December ~~2013.~~

2016. The ~~2011-2013 SVA will be paid out~~award is designed to ~~executive officers according~~deliver no

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



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

2014 Compensation Payouts

The information in ~~early 2014:~~

~~2011-2013 SVA~~

Ending Stock Price
Less than $28.94 $28.94-$33.02 $33.03-$37.09 $37.10-$39.59 $39.60-$42.09 $42.10-$44.59 Greater than $44.59
Compounded Annual Growth Rate (excluding dividends) Less than (6.0%) (6.0%)-(1.7%) (1.7%)-2.1% 2.1%-4.4% 4.4%-6.5% 6.5% -8.6% Greater than 8.6%
Percent of Target 0% 40% 60% 80% 100% 120% 140%

~~Restricted Stock Units~~

~~No one-time restricted stock units were awarded~~this section reflects the amounts paid to ~~any~~NEOs for the 2014 annual bonus and payouts from equity awards for which the relevant performance period ended in 2014.

2014 Company Performance

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

Bonus Award for 2014

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



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

The Science and Technology Committee assessed the company’s progress toward achieving product pipeline goals at 3.5 (on a scale of 1 to 5) as follows:

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

1 NME entering into Phase III versus a goal of 2

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

The Science and Technology Committee also performed a subjective assessment of the ~~named executive officers~~quality of the pipeline, considering many factors, and awarded a score of 5, recognizing a record-setting year for innovation. Based on the recommendation of the Science and Technology Committee, the Compensation Committee certified a pipeline score of 3.5, resulting in ~~2011.~~

~~Stock Options~~

a pipeline multiple of 1.25.

Combined, the revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.10. The company ~~stopped granting stock options~~bonus multiple was reduced by 0.25 for 2014 in 2007. All outstanding stock options are currently under water. The stock options granted in 2001 expired in 2011, and the named executive officers who held them forfeited the award having realized no value. These awards (and other expired stock options) were not replaced.

~~Non-GAAP Results~~

~~Consistent with past practice, the committee adjusted the results on which 2010-2011 PAs and the 2011 bonus were determined~~order to ~~eliminate the distorting effect of certain unusual income or expense items on year-over-year growth percentages. The adjustments are intended to:~~

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

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

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

~~To assure the integrity of the adjustments, the committee establishes adjustment guidelines at the beginning of the year. These guidelines are generally consistent with~~allow the company ~~guidelines~~to fully invest in launching the company's late stage pipeline assets.

(0.25 x 1.04) + (0.50 x 1.05) + (0.25 x 1.25) = 1.10 bonus multiple

1.10 bonus multiple - 0.25 = 0.85 adjusted bonus multiple

The bonus amounts paid to NEOs for ~~reporting non-GAAP earnings to~~2014 are reflected in the ~~investment community, which are reviewed by~~"Summary Compensation Table" below.

Equity Award Payouts in 2014

2013-2014 Performance Award

The target cumulative EPS for the ~~audit committee~~2013-2014 PA was set in January 2013 reflecting expected industry growth of ~~the board.~~7.78 percent each year. The adjustments apply equally to income and expense items. The compensation committee reviews all adjustments and retains downward discretion—i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.

~~When the committee set 2010-2011 PA goals for~~company's two-year EPS growth in 2010, U.S. health care reform legislation had not yet passed. Given the scope and uncertainty of the legislation, the committee decided not to include the potential impact of U.S. health care reform when the targets were set, and to adjust results based on the actual impact of U.S. health care reform in 2010 and 2011. The committee also adjusted 2011 EPS to eliminate the first-year impact of the company’s collaboration with Boehringer Ingelheim (BI) and the acquisition of Avid Radiopharmaceuticals (Avid), which were not contemplated when performance targets were set. These costs were not adjusted for the 2011 bonus. In addition, although the company excluded the impact of the Xigris^® ~~product withdrawal that occurred in 2011 in its published non-GAAP earnings, the committee chose to include the negative impact on sales and EPS for both the 2010-2011 PA and the 2011 bonus.~~

~~For the 2010-2011 PA payout calculations, the committee made the following adjustments to EPS:~~

~~For 2011: (i) Eliminated the first-year impact of the BI collaboration and the Avid acquisition; (ii) included~~was 1.4 percent, reflecting the negative impact of multiple patent expirations.

The company's performance compared to targets (and the ~~Xigris product withdrawal~~

~~For 2010 and 2011: Eliminated the impact of U.S. health care reform~~

~~For 2009, 2010, and 2011: Eliminated the impact of (i) significant asset impairments and restructuring charges and (ii) one-time accounting charges~~resulting multiple) for the ~~acquisition~~2013-2014 PA is reflected in the charts below.

For the NEOs, the number of ~~in-process research and development~~

shares awarded in RSUs subject to an additional 13-month service-vesting period under the 2013-2014 PA is reflected in the table below (this information is also included in footnote 5 to the "Outstanding Equity Awards" table in the "Executive Compensation" section below):

~~For 2009: Eliminated the impact~~



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

2012-2014 Shareholder Value Award

The target stock price of ~~special charges related to Zyprexa litigation.~~

The adjustments were intended to align award payments more closely with underlying business growth trends and eliminate volatile swings (up or down) caused by the unusual items. This is demonstrated by the 2009, 2010, and 2011 adjustments:

~~Reconciliations of these adjustments to our reported earnings per share are below. The shaded numbers are the growth percentages used to calculate the 2010-2011 PA payout.~~

   2011 2010 % Growth
2011 vs. 2010 2009 % Growth
2010 vs. 2009
EPS as reported
$ 3.90    $ 4.58    -14.8 % $ 3.94    16.2 %
Eliminate IPR&D charges for acquisitions and in-licensing transactions
$ 0.23    $ 0.03    $ 0.05
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal)
$ 0.29    $ 0.13    $ 0.42
Non-GAAP EPS*
$ 4.41    $ 4.74    -7.0 % $ 4.42    7.2 %
Health care reform adjustment
$ 0.45    $ 0.24    —
Acquisitions and collaboration first year impact adjustment
$ 0.28    —    —
Xigris withdrawal adjustment
($ 0.05 ) —    —
EPS—adjusted
$ 5.09    $ 4.98    2.2 % $ 4.42    12.7 %

*Numbers may not add due to rounding.

~~Similarly,~~$44.64 for the ~~2011 bonus-payout calculations,~~2012-2014 SVA was set in January 2012 based on a beginning stock price of $38.64, which was the ~~committee adjusted EPS~~average closing price for Lilly stock for all trading days in November and December 2011. The ending stock price of $69.13 represents stock price growth of approximately 79 percent over the relevant three-year period. The company's performance compared to ~~(i) eliminate~~target (and the ~~impact of significant asset impairments and restructuring charges, (ii) eliminate the impact of one-time accounting charges~~resulting payout multiple) for the ~~acquisition~~2012-2014 SVA is shown below.

The number of ~~in-process research and development, and (iii) include the negative impact of the Xigris product withdrawal.~~

~~Reconciliations of these adjustments~~shares paid to ~~our reported earnings per share are below. The shaded numbers are the growth percentages used to calculate the 2011 bonus payout.~~

   2011 2010 % Growth
2011
Revenue as reported ($ millions)
$24,286.5    $23,076.0    5.2 %
Impact of Xigris withdrawal
($32.9 ) —
Revenue—adjusted
$24,253.6    $23,076.0    5.1 %
EPS as reported
$3.90    $4.58    -14.8 %
Eliminate IPR&D charges for acquisitions and in-licensing transactions
$0.23    $0.03
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal in 2011)
$0.29    $0.13
Non-GAAP EPS*
$4.41    $4.74    -7.0 %
Xigris withdrawal adjustment
($0.05 ) —
EPS—adjusted
$4.36    $4.74    -8.0 %

*Numbers may not add due to rounding.

~~Equity Incentive Grant Mechanics and Timing~~

~~The committee approves target grant values for equity incentives prior to the grant date. On the grant date, those values are converted to shares based on:~~

~~the closing price of company stock on the grant date~~

~~the same valuation methodology the company uses to determine the accounting expense of the grants under Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718.~~

~~The committee’s procedure~~NEOs during 2014 for the timing of equity grants assures that grant timing is not being manipulated for employee gain. The annual equity grant date for all eligible employees is in the first half of February. The committee establishes this date in October. The February grant date timing is driven by these considerations:

2012-2014 SVA were as follows:

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



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

Other Compensation Practices and ~~performance.~~

Information

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

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

Employee ~~and Post-Employment~~ Benefits

The company offers core employee benefits coverage to:

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

provide post-retirement income; and

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

overall well-being.

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

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

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

Perquisites

The company provides very limited perquisites to executive officers. ~~Executive officers generally do~~The company does not ~~have access to~~allow personal use of the corporate aircraft ~~for personal use; however,~~except the aircraft is made available for the personal use of Dr. Lechleiter in very rare cases when the security and efficiency benefits to the company outweigh the expense. The company did not incur any expenses for personal use by Dr. Lechleiter ~~did not use the corporate~~of its aircraft ~~for personal flights during 2011,~~in 2014, nor did he receive any other perquisites. ~~Until March 2009, the company aircraft was made available to other executive officers for the limited purpose of travel to outside board meetings. However, the company no longer allows this use.~~ Depending on seat availability, family members and personal guests of executive officers may travel on the company aircraft to accompany executives who are traveling on business. ~~There is no incremental cost to the company for these trips.~~

The Lilly Deferred Compensation Plan

~~Executives~~

Members of senior management may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan (the deferred compensation plan), which allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded plan, amounts deferred by the executive are credited at an interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the “~~Nonqualified~~“Nonqualified Deferred Compensation in ~~2011~~”2014” table.

Severance Benefits

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

Compensation Committee.

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

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



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

involuntary loss of employment within two years thereafter. This is consistent with the purpose of the plan, which is to provide employees with financial protection upon loss of employment. A partial exception is made for outstanding PAs, a portion of which would be paid out upon a change in control on a pro-rated basis for time worked based on the forecasted payout level at the time of the change in control. The committee believes this partial payment is appropriate because of the difficulties in converting the company EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs is paid out on a pro-rated basis for time worked up to the change in control based on the merger price for company stock.

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

• Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits protection. These provisions assure employees a reasonable period of protection of their income and core employee benefits upon which they depend for financial security.

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

—~~Benefit continuation.~~ Basic employee benefits such as health and life insurance would be continued for 18 months following termination of employment, unless the individual becomes eligible for coverage with a new employer. All employees would receive an additional 2 years of both age and years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.

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

• ~~Excise tax~~. In some circumstances, the payments or other benefits received by the employee in connection with a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The employee would then be subject to an excise tax on top of normal federal income tax. Because of the way the excise tax is calculated, it can impose a large burden on some employees while similarly compensated employees will not be subject to the tax. The costs of this excise tax and associated gross-ups would be borne by the company. (Employees would pay income tax resulting from severance payments.) To avoid triggering the excise tax, payments that would otherwise be due under the plan that are up to 5 percent over the IRS limit will be cut back to the limit. Effective October 2012, this tax gross-up will be eliminated.

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

36Double trigger

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

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

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

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

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

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

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

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

and Pledging Shares

Share ownership and retention guidelines help to foster a focus on long-term growth. The ~~committee has adopted a guideline requiring the~~ CEO is required to own company stock valued at least six times ~~his or her~~ annual base salary. Other executive officers are required to own a fixed number of shares based on their position. ~~The fixed~~Until the required number of shares ~~eliminates volatility in the share ownership requirements that can occur with sharp movements in share price. Until the guideline level~~ is reached, the executive officer must retain ~~all existing holdings as well as~~ 50 percent of net shares ~~resulting~~received from new equity payouts. Our executives have a long history of maintaining extensive holdings in company ~~stock, and all named executive officers already meet or exceed the guideline. All new executive officers are on track to meet or exceed the guideline within the next few years.~~stock. As of February ~~1, 2012,~~20, 2015, Dr. Lechleiter held shares valued at approximately 1744 times his annual salary. The following table shows the ~~required~~ share ~~levels~~requirements for ~~the named executive officers:~~

each NEO:



Name		~~Revised~~ Share Requirement	~~Meets~~ ~~Requirement~~	Executive officers are also required to retain all shares received from the company equity programs, net of acquisition costs and taxes, for at least one year, even once share requirements have been met. For PAs, this requirement is met by paying the award in the form of restricted stock units. Employees are not permitted to hedge their economic exposures to company stock through short sales or derivative transactions. Owns Required Shares
Dr. Lechleiter		six times base salary	Yes
Mr. Rice		75,000	Yes
~~Mr. Carmine~~		~~Retired~~	—
Dr. Lundberg		75,000	Yes
Mr. ~~Armitage~~Harrington	55,000	~~60,000~~ No¹
Mr. Conterno	50,000	Yes

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

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

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

~~We have taken steps to qualify all incentive awards (bonuses, PAs, and SVAs) for full deductibility as performance-based compensation. The committee may make payments that~~program.

Employees are not ~~fully deductible if,~~permitted to hedge their economic exposures to company stock through short sales or derivative transactions. Effective in ~~its judgment, such payments are necessary to achieve~~2014, the ~~company’s compensation objectives~~committee adopted a formal policy prohibiting outside directors and ~~to protect shareholder interests. For 2011, the non-deductible compensation was approximately $400,000~~all members of senior management from pledging any company stock (i.e., using company stock as collateral for Dr. Lechleiter, less than the portion of his base salary that exceeded $1,000,000, and approximately $1,140,000 for Dr. Lundberg, primarily attributable to the vesting of restricted stock units received when he joined the company.

a loan or trading shares on margin).

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

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

Additionally, the company can recover incentive compensation (cash or equity) that was based on achievement of financial results that were subsequently the subject of a restatement if the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement and the effect of the wrongdoing was to increase the amount of bonus or incentive compensation. The company can also recover or “claw back” all or a portion of any incentive compensation in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful conduct. Recoveries under ~~this “no-fault” provision cannot~~the plan can extend back ~~more than two~~as far as three years.

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

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

The committee does not believe it is practical to apply a specific claw-back policy to SVAs in the event of misstated financial results since it is very difficult to isolate the amount, if any, by which the stock price might benefit from misstated financial results over a three-year performance period.

Looking Ahead to ~~2012~~2015 Compensation

~~Several changes~~

As we move beyond the recent period of patent expirations, we plan to resume our custom and practice of providing annual increases to base salaries and delivering bonuses reflective of company and individual performance, without reductions, to eligible employees.

Executive Compensation

Summary Compensation Table



Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($) ¹	Option Awards ($)	Non-Equity Incentive Plan Compensation ($) ²	Change in Pension Value ($) ³		All Other Compensation ($) ⁴	Total Compensation ($)
John C. Lechleiter, Ph.D.	2014	$1,500,000	$0	$6,750,000	$0	$1,785,000	$4,356,142		$90,000	$14,481,142
Chairman, President, and Chief Executive Officer	2013	$1,500,000	$0	$6,750,000	$0	$2,877,000	$0	⁵	$90,000	$11,217,000
Chairman, President, and Chief Executive Officer	2012	$1,500,000	$0	$5,625,000	$0	$2,982,000	$4,423,633		$90,000	$14,620,633
Derica W. Rice	2014	$1,019,700	$0	$2,850,000	$0	$780,071	$2,023,458		$61,182	$6,734,411
Executive Vice President, Global Services and Chief Financial Officer	2013	$1,014,750	$0	$2,850,000	$0	$1,251,187	$0	⁵	$60,885	$5,176,822
	2012	$990,000	$0	$2,850,000	$0	$1,265,220	$1,770,767		$59,400	$6,935,387
Jan M. Lundberg, Ph.D.	2014	$1,007,855	$0	$2,250,000	$0	$771,009	$517,761		$60,471	$4,607,096
Executive Vice President, Science and Technology and President, Lilly Research Laboratories	2013	$1,002,963	$0	$2,250,000	$0	$1,236,653	$224,741		$60,178	$4,774,535
	2012	$978,500	$0	$2,250,000	$0	$1,250,523	$307,275		$58,710	$4,845,008
Michael J. Harrington	2014	$765,000	$0	$1,425,000	$0	$487,688	$1,330,586		$45,900	$4,054,174
Senior Vice President and General Counsel	2013	$765,000	$0	$1,312,500	$0	$786,038	$264,784		$45,900	$3,174,222
Senior Vice President and General Counsel	2012	N/A	N/A	N/A	N/A	N/A	N/A		N/A	N/A
Enrique A. Conterno	2014	$682,890	$0	$1,500,000	$0	$435,342	$1,235,839		$40,973	$3,895,044
Senior Vice President and President, Lilly Diabetes	2013	$680,658	$0	$1,500,000	$0	$699,376	$88,167		$40,840	$3,009,041
Senior Vice President and President, Lilly Diabetes	2012	$669,500	$0	$1,500,000	$0	$713,018	$992,187		$40,170	$3,914,875

¹This column shows the ~~company’s executive compensation program will take effect~~grant date fair value of PAs and SVAs computed in ~~2012:~~

~~In light~~accordance with FASB ASC Topic 718. Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the ~~business challenges~~performance condition as of the ~~company faces, Dr. Lechleiter requested that he receive no increase~~grant date. A discussion of assumptions used in ~~base salary or incentive targets~~calculating award values may be found in ~~2012. The committee agreed~~Note 11 to ~~maintain his 2011 compensation package for 2012.~~

~~Similarly, employees in most countries worldwide, including the named executive officers, will not receive base pay increases in 2012.~~

~~Amendments to the change-in-control severance pay plans to eliminate tax gross-ups are effective October 2012.~~

~~All members of senior management (approximately 150 employees) are subject to share ownership requirements, correlated to their level of responsibility.~~

~~Compensation Committee Report~~

The compensation committee (“we” or “the committee”) evaluates and establishes compensation for executive officers and oversees the deferred compensation plan, the company’s management stock plans, and other management incentive, benefit, and perquisite programs. Management has the primary responsibility for the company’sour 2014 audited financial statements ~~and reporting process, including the disclosure of executive compensation. With this~~ in mind, we have reviewed and discussed with management the “Compensation Discussion and Analysis” above. The committee is satisfied that the “Compensation Discussion and Analysis” fairly and completely represents the philosophy, intent, and actions of the committee with regard to executive compensation. We recommended to the board of directors that the “Compensation Discussion and Analysis” be included in this proxy statement for filing with the SEC.

~~Compensation Committee~~our Form 10-K.

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

~~Michael L. Eskew~~

~~R. David Hoover~~

~~Ellen R. Marram~~

~~Kathi P. Seifert~~

~~Executive Compensation~~

~~Summary Compensation Table~~

Name and Principal Position Year Salary
($) Bonus
($) Stock
Awards
($)³ Option
Awards
($) Non-Equity
Incentive Plan
Compensation
($)⁴
Change
in Pension
Value
($)⁵
All Other
Compensation
   ($)⁶      Total
Compensation
($)
John C. Lechleiter, Ph.D.¹
2011 $ 1,500,000    $ 0    $ 5,625,000    $0    $2,625,000    $ 6,530,094    $90,000   $16,370,094
Chairman, President, and
Chief Executive Officer
2010 $ 1,500,000    $ 0    $ 8,175,000    $0    $2,982,000    $ 3,757,545    $90,000   $16,504,545
2009 $ 1,483,333    $ 0    $ 11,250,000    $0    $3,551,100    $ 4,553,125    $90,091   $20,927,649
Derica W. Rice
2011 $ 984,167    $ 0    $ 2,850,000    $0    $1,107,188    $ 940,589    $59,050   $5,940,993
Executive Vice President,
2010 $ 955,000    $ 0    $ 3,270,000    $0    $1,220,490    $ 996,723    $57,300   $6,499,513
Global Services and 2009 $ 892,500    $ 0    $ 4,500,000    $0    $1,220,940    $ 977,741    $54,838   $7,646,019
Chief Financial Officer

Bryce D. Carmine 2011 $ 951,700    $ 0    $ 2,250,000    $0    $1,070,663    $ 2,243,789    $57,102   $6,573,254
Retired Executive
2010 $ 947,083    $ 0    $ 3,270,000    $0    $1,210,373    $ 2,252,560    $56,825   $7,736,841
Vice President and President,
Lilly Bio-Medicines
2009 $ 916,667    $ 0    $ 4,500,000    $0    $1,410,750    $ 1,776,537    $57,001   $8,660,955

Jan M. Lundberg, Ph.D. 2011 $ 973,750    $ 0    $ 2,062,500    $0    $1,095,469    $ 232,128    $58,425   $4,422,272
Executive Vice President,
Science and Technology and
President, Lilly Research
Laboratories
2010 $ 946,401    $ 1,000,000 ² $ 6,225,000 ² $0    $1,209,501    $ 83,150    $87,833   $9,551,885
Robert A. Armitage
2011 $ 840,900    $ 0    $ 1,500,000    $0    $840,900    $ 595,293    $50,454   $3,827,547
Senior Vice President and General Counsel 2010 $ 836,817    $ 0    $ 2,180,000    $0    $950,624    $ 521,237    $50,209   $4,538,886
2009 $ 811,167    $ 0    $ 3,000,000    $0    $1,109,676    $ 775,287    $49,902   $5,746,032

~~Supplement to the Summary Compensation Table.~~ In 2009, we granted both a one-year and a two-year PA as part of our transition to a two-year award, which was implemented in response to shareholder feedback. The two grants in 2009 provided the opportunity for participants to receive~~one and only one~~ PA payout each year—without skipping a year. In 2010, we returned to our regular grant cycle and granted a single two-year PA. As a result, the amount in the “Stock Awards” column decreased. The 2010-2011 PA and the 2011-2012 PA grant values shown respectively in 2010 and 2011 in this column are based on the probable payout outcome anticipated at the time of grant. For purposes of comparison, the supplemental table below shows target compensation for Dr. Lechleiter (with one rather than two PA grants in 2009), approved by the compensation committee, given target company performance.

Name    Year    Annualized
Salary    Target Stock
Awards    Target Cash
Incentive Bonus       Total
John C. Lechleiter, Ph.D.
   2011       $ 1,500,000       $7,500,000       $2,100,000       $ 11,100,000
   2010       $ 1,500,000       $7,500,000       $2,100,000       $ 11,100,000
   2009       $ 1,500,000       $7,500,000       $2,100,000       $ 11,100,000

²	~~The one-time bonus compensation Dr. Lundberg received upon joining the company in January 2010 included a signing bonus and an award of restricted stock units.~~

This column shows the grant date fair value of awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the performance condition as of the grant date. (See the “~~Target Grant Values~~” table above for target grant values for the 2010 and 2011 equity awards.) A discussion of assumptions used in calculating award values may be found in Note 9 to our 2011 audited financial statements in our Form 10-K.

The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the ~~2011-2012~~2014-2015 PA grant included in this column of the Summary Compensation Table.

Name    Payout Date    Minimum Payout    Target Payout    Maximum Payout
Dr. Lechleiter
   January 2013       $0       $3,750,000       $5,625,000
Mr. Rice
   January 2013       $0       $1,900,000       $2,850,000
Mr. Carmine
   January 2013       $0       $1,500,000       $2,250,000
Dr. Lundberg
   January 2013       $0       $1,375,000       $2,062,500
Mr. Armitage
   January 2013       $0       $1,000,000       $1,500,000



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

39²

Payments for 2014 performance under the bonus plan. All bonuses paid to NEOs were part of a non-equity incentive plan.

³The amounts in this column reflect the change in pension value for each individual, calculated by our actuary, and are affected by additional service accruals and pay earned, as well as actuarial assumption changes. The

⁴	~~Payments for 2011 performance were made in March 2012 under the bonus plan. All bonuses paid to named executive officers were part of a non-equity incentive plan.~~

⁵

~~The amounts in this column are the change in pension value for each individual, calculated by our actuary.~~

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

⁶	The table below shows the components of the “All Other Compensation” column for 2009 through 2011, which includes the company match for each individual’s savings plan contributions, tax reimbursements, and perquisites.

Name Year Savings Plan
Match Tax
Reimbursements ¹ Perquisites Other Total “All Other
Compensation”
Dr. Lechleiter
2011    $90,000    $0    $0    $0    $90,000
2010    $90,000    $0    $0    $0    $90,000
2009    $89,000    $1,091    $0    $0    $90,091
Mr. Rice
2011    $59,050    $0    $0    $0    $59,050
2010    $57,300    $0    $0    $0    $57,300
2009    $53,550    $1,288    $0    $0    $54,838
Mr. Carmine
2011    $57,102    $0    $0    $0    $57,102
2010    $56,825    $0    $0    $0    $56,825
2009    $55,000    $2,001    $0    $0    $57,001
Dr. Lundberg
2011    $58,425    $0    $0    $0    $58,425
2010    $56,784    $12,876    $0    $18,173 ² $87,833
Mr. Armitage
2011    $50,454    $0    $0    $0    $50,454
2010    $50,209    $0    $0    $0    $50,209
2009    $48,670    $1,232    $0    $0    $49,902

These amounts reflect tax reimbursements for expenses for each executive’s spouse to attend certain company functions involving spouse participation. Beginning in 2010, the company no longer reimburses executive officers for these taxes. For Mr. Rice, these amounts include taxes on income imputed for use of the corporate aircraft to attend outside board meetings in 2009. For Dr. Lundberg, these amounts include taxes on income imputed for relocation expenses.

~~Relocation expenses reimbursed under a company policy available to any employee asked to relocate by the company.~~

~~We have no employment agreements with our~~ named executive ~~officers.~~

officer received preferential or above-market earnings on deferred compensation.

Karen N. Clay Robbins, president; Mary K. Lisher; Otis R. Bowen, emeritus director; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; and David N. Shane. Each of the directors is, either directly or indirectly, a shareholder of the company.

~~BlackRock, Inc. provides investment management services for various clients. It has sole voting and sole investment power with respect to its shares.~~

~~Items of Business To Be Acted Upon at the Meeting~~

~~Item 1. Election of Directors~~

Under the company’s articles of incorporation, the board is divided into three classes with approximately one-third of the directors standing for election each year. The term for directors elected this year will expire at the annual meeting of shareholders held in 2015. Each of the nominees listed below has agreed to serve that term. If any director is unable to stand for election, the board may, by resolution, provide for a lesser number of directors or designate a substitute. In the latter event, shares represented by proxy may be voted for a substitute director.

~~The board recommends that you vote FOR each of the following nominees:~~

~~Katherine Baicker,~~Horn, Ph.D.

, Chair

~~J. Erik Fyrwald~~

Ralph Alvarez

Ellen R. Marram

~~Douglas R. Oberhelman~~

Kathi P. Seifert

~~Biographical information about these nominees and a statement of their qualifications may be found in the “Director Biographies” section.~~

52

Audit Matters

Item 2.3. Proposal to Ratify the Appointment of Principal Independent Auditor

Audit Committee Oversight of Independent Auditor

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent external auditor, and oversees the process for selecting, reviewing, and evaluating the lead audit partner. Further information regarding the committee's oversight of the independent auditor can be found in the Audit Committee charter, available online at http://investor.lilly.com/governance.cfm, or upon request to the company's corporate secretary.

In connection with the decision regarding whether to re-appoint the independent auditor each year (subject to shareholder ratification), the committee conducts an annual assessment of the independent auditor's performance. This assessment examines three primary criteria: (1) the independent auditor's qualifications and experience; (2) the communication and interactions with the auditor over the course of the year; and (3) the auditor's independence, objectivity, and professional skepticism. These criteria are assessed against an internal and an external scorecard, and are discussed with management during a private session, as well as in executive session. The committee also periodically considers whether a rotation of the company's independent auditor is advisable.

Ernst & Young, LLP (EY) served as the principal independent auditor for the company in 2014. Based on this year's assessment of EY's performance, the Audit Committee believes that the continued retention of EY to serve as the company's principal independent auditor is in the best interests of the company and its investors, and has ~~appointed~~therefore reappointed the firm of ~~Ernst & Young LLP~~EY as principal independent auditor for the company for ~~the year 2012.~~2015. In accordance with the bylaws, this appointment is being submitted to the shareholders for ratification. ~~Ernst & Young served as the principal independent auditor for the company in 2011.~~

Representatives of ~~Ernst & Young~~EY are expected to be present at the annual meeting and will be available to respond to questions. Those representatives will have the opportunity to make a statement if they wish to do so.

Board Proposal on Item 3

The ~~board~~Board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal independent auditor for ~~2012.~~2015.

Audit Committee Report

~~Item 3. Advisory Vote on Compensation Paid to Named Executive Officers~~

Our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to create long-term shareholder value by achieving top-tier corporate performance while embracing

The Audit Committee reviews the company’s ~~values~~financial reporting process on behalf of ~~integrity, excellence, and respect~~the Board. Management has the primary responsibility for ~~people. Our programs seek to:~~

~~closely link compensation with company performance and individual performance~~

~~foster a long-term focus~~

~~reflect~~ the ~~market for pharmaceutical talent~~

~~be efficient and egalitarian~~

~~appropriately mitigate risk.~~

~~The compensation committee~~financial statements and the ~~board~~reporting process, including the systems of ~~directors believe~~internal controls and disclosure controls. In this context, the committee has met and held discussions with management and the independent auditor. Management represented to the committee that ~~our executive compensation aligns well~~the company’s consolidated financial statements were prepared in accordance with ~~our philosophy~~generally accepted accounting principles (GAAP), and the committee has reviewed and discussed the audited financial statements and related disclosures with ~~corporate performance. We urge shareholders~~management and the independent auditor, including a review of the significant management judgments underlying the financial statements and disclosures.

The independent auditor reports to ~~read~~ the “~~Compensation Discussion~~Audit Committee, which has sole authority to appoint and ~~Analysis” section~~to replace the independent auditor.

The committee has discussed with the independent auditor matters required to be discussed with the Audit Committee by the standards of ~~this proxy statement for a more detailed discussion~~the Public Accounting Oversight Board (PCAOB) and the NYSE, including the quality, not just the acceptability, of ~~our executive compensation programs~~the accounting principles, the reasonableness of significant judgments, and ~~how they reflect our philosophy and are linked to company performance.~~

~~Executive compensation is an important matter for our shareholders. We have a strong record~~the clarity of ~~engagement with shareholders on compensation matters and have made a number of changes to our programs and~~the disclosures in ~~response to shareholder input, including several enhancements discussed in~~ the “~~Compensation Discussion~~financial statements. In addition, the committee has received the

written disclosures and ~~Analysis~~.”

~~We request shareholder approval, on an advisory basis,~~the letter from the independent auditor required by applicable requirements of the ~~compensation~~PCAOB regarding communications with the Audit Committee concerning independence, and has discussed with the independent auditor the auditor’s independence from the company and its management. In concluding that the auditor is independent, the committee determined, among other things, that the nonaudit services provided by EY (as described below) were compatible with its independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the committee has adopted policies to ensure the independence of the independent auditor, such as prior committee approval of nonaudit services and required audit partner rotation.

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

In reliance on the reviews and discussions referred to above, the committee recommended to the Board (and the Board subsequently approved the recommendation) that the audited financial statements be included in the ~~“Compensation Discussion~~company’s annual report on Form 10-K for the year ended December 31, 2014, for filing with the SEC. The committee has also appointed the company’s independent auditor, subject to shareholder ratification, for 2015.

Audit Committee

Michael L. Eskew, Chair

Katherine Baicker, Ph.D.

Douglas R. Oberhelman

Kathi P. Seifert

Jackson P. Tai

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 ~~Analysis,”~~procedures are as follows:

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

Audit-related services are assurance and related ~~narratives. As an advisory vote, this proposal is not binding on~~services that are reasonably related to the ~~company. However, the compensation committee values input from shareholders and will consider the outcome~~performance of the ~~vote when making future executive compensation decisions.~~

audit, and that are traditionally performed by the independent auditor. The ~~board recommends~~committee believes that ~~you vote FOR~~ the ~~approval, on an advisory basis,~~provision of these services does not impair the independence of the ~~compensation paid~~auditor.

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

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

At the beginning of each audit year, management requests prior committee approval of the annual audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other services 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 ~~named executive officers, as disclosed pursuant~~committee for approval. To the extent approvals are required between regularly scheduled committee meetings, preapproval authority is delegated to ~~Item 402 of Regulation S-K, including~~ the ~~Compensation Discussion~~committee chair.

For each engagement, management provides the committee with information about the services and ~~Analysis,~~fees,

sufficiently detailed to allow the ~~compensation tables,~~committee to make an informed judgment about the nature and ~~related narratives in this proxy statement.~~

~~Item 4. Proposal to Amend the Company’s Articles of Incorporation to Provide for Annual Election of All Directors~~

~~The company’s articles of incorporation provide that the board of directors is divided into three classes, with each class elected every three years. On the recommendation~~scope of the ~~directors~~services and ~~corporate governance committee,~~ the ~~board has approved, and recommends that the shareholders approve, amendments to provide~~potential for the ~~annual election of all directors. This proposal was brought before shareholders at each~~services to impair the independence of the last five annual meetings, receiving the vote of more than 73 percent of the outstanding shares at each meeting; however, the proposal requires the vote of 80 percent of the outstanding shares to pass.

If approved, this proposal would become effective upon the filing of amended and restated articles of incorporation with the Secretary of State of Indiana, which the company would do promptly after shareholder approval is obtained. Directors elected prior to the effectiveness of the amendments would stand for election for one-year terms once their then-current terms expire. This means that directors whose terms expire at the 2013 and 2014 annual meetings of shareholders would be elected for one-year terms, and beginning with the 2015 annual meeting, all directors would be elected for one-year terms at each annual meeting. In the case of any vacancy on the board occurring after the 2012 annual meeting created by an increase in the number of directors, the vacancy would be filled through an interim election by the board with the new director to serve a term ending at the next annual meeting. Vacancies created by resignation, removal, or death would be filled by interim election of the board for a term untilauditor.

After the end of the ~~term~~audit year, management provides the committee with a summary of the ~~director being replaced. This proposal would not change~~actual fees incurred for the ~~present number of directors or~~completed audit year.

Independent Auditor Fees

The following table shows the ~~board’s authority to change that number~~fees incurred for services rendered on a worldwide basis by EY in 2014 and ~~to fill any vacancies or newly-created directorships.~~

~~Background of Proposal~~

~~As part of its ongoing review of corporate governance matters, the board, assisted~~2013. All such services were pre-approved by the ~~directors and corporate governance~~ committee ~~considered the advantages and disadvantages of maintaining the classified board structure and eliminating the supermajority voting provisions of the articles of incorporation (see “Item 5~~” below). The board considered the view of some shareholders who believe that classified boards have the effect of reducing the accountability of directors to shareholders because shareholders are unable to evaluate and elect all directors on an annual basis. The board gave considerable weight to the approval at the 2006 annual meeting of a shareholder proposal requesting that the board take all necessary steps to elect the directors annually, and to the favorable votes of over 73 percent of the outstanding shares for management’s proposals in ~~each of the following five years.~~

The board also considered benefits of retaining the classified board structure, which has a long history in corporate law. A classified structure may provide continuity and stability in the management of the business and affairs of the company because a majority of directors always have prior experience as directors of the company. In some circumstances classified boards may enhance shareholder value by forcing an entity seeking control of the company to initiate discussions at arm’s-lengthaccordance with the board of the company, because the entity cannot replace the entire board in a single election. The board also considered that even without a classified board (and without the supermajority voting requirements, which the board also recommends eliminating), the company has defenses that work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.

The board believes it is important to maintain appropriate defenses to inadequate takeover bids, but also important to retain shareholder confidence by demonstrating that it is accountable and responsive to shareholders. After balancing these interests, the board has decided to resubmit this proposal to eliminate the classified board structure.

~~Text of Amendments~~

~~Article 9(b) of the company’s amended articles of incorporation contains the provisions that will be affected if this proposal is adopted. This article, set forth in “Appendix A~~” to this proxy statement, shows the proposed changes with deletions indicated by strike-outs and additions indicated by underlining. The board has also adopted conforming amendments to the company’s bylaws, to be effective immediately upon the effectiveness of the amendments to the amended articles of incorporation.

~~Vote Required~~

~~The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.~~

~~The board recommends that you vote FOR amending the company’s articles of incorporation to provide for annual election of all directors.~~

pre-approval policy.

2014 ($ millions) 2013 ($ millions)
Audit Fees $10.3 $8.7
• Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation
• Reviews of quarterly financial statements
• Other services normally provided by the auditor in connection with statutory and regulatory filings
Audit-Related Fees $1.3 $0.7
• Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements
–
2014 and 2013: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions
Tax Fees $2.3 $1.3
• 2014 and 2013: primarily related to tax consulting and tax compliance services
All Other Fees $0.1 $0
• 2014: primarily related to compliance services outside the U.S.
Total $14.0 $10.7

~~Item 5. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting Requirements~~

Under the company’s articles of incorporation, nearly all matters submitted to a vote of shareholders can be adopted by a majority of the votes cast. However, our articles require a few fundamental corporate actions to be approved by the holders of 80 percent of the outstanding shares of common stock (a “supermajority vote”). Those actions are:

~~amending certain provisions of the articles of incorporation that relate to the number and terms of office of directors:~~

—

~~the company’s classified board structure (as described under Item 4)~~

—

~~a provision that the number of directors shall be specified solely by resolution of the board of directors~~

~~removing directors prior to the end of their elected term~~

Other Information

entering into mergers, consolidations, recapitalizations, or certain other business combinations with a “related person”—a party who has acquired at least five percent of the company’s stock (other than the Lilly Endowment or a company benefit plan) without the prior approval of the board of directors

~~modifying or eliminating any of the above supermajority voting requirements.~~

~~Background of Proposal~~

This proposal is the result of the board’s ongoing review of corporate governance matters. In 2007, 2008, and 2009, shareholder proposals requesting that the board take action to eliminate the supermajority voting provisions were supported by a majority of votes cast. In 2010 and 2011, the board responded by submitting proposals seeking shareholder approval to eliminate the provisions. In both years, the proposal received the votes of more than 72 percent of the outstanding shares, falling short of the required 80 percent.

Assisted by the directors and corporate governance committee, the board considered the advantages and disadvantages of maintaining the supermajority voting requirements. The board considered that under certain circumstances, supermajority voting provisions can provide benefits to the company. The provisions can make it more difficult for one or a few large shareholders to take over or restructure the company without negotiating with the board. In the event of an unsolicited bid to take over or restructure the company, supermajority voting provisions may encourage bidders to negotiate with the board and increase the board’s negotiating leverage on behalf of the shareholders. They can also give the board time to consider alternatives that might provide greater value for all shareholders.

The board also considered the potential adverse consequences of opposing elimination of the supermajority voting requirements. While it is important to the company’s long-term success for the board to maintain appropriate defenses against inadequate takeover bids, it is also important for the board to maintain shareholder confidence by demonstrating that it is responsive and accountable to shareholders and committed to strong corporate governance. This requires the board to carefully balance sometimes competing interests. In this regard, the board gave considerable weight to the fact that a substantial majority of shares voted have supported eliminating the supermajority voting provisions. Many shareholders believe that supermajority voting provisions impede accountability to shareholders and contribute to board and management entrenchment.

The board also considered that even without the supermajority vote (and without the classified board, which the board also recommends eliminating), the company has defenses that work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.

Therefore, the board believes the balance of interests is best served by recommending to shareholders that the articles of incorporation be amended to eliminate the supermajority voting provisions. By recommending these amendments, the board is demonstrating its accountability and willingness to take steps that address shareholder-expressed concerns.

~~Text of Amendments~~

~~Articles 9(c), 9(d), and 13 of the company’s amended articles of incorporation contain the provisions that will be affected if this proposal is adopted. These articles, set forth in “Appendix A” to this proxy statement, show the proposed changes with deletions indicated by strike-outs and additions indicated by underlining.~~

~~Vote Required~~

~~The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.~~

~~The board recommends that you vote FOR amending the company’s articles of incorporation to eliminate all supermajority voting requirements.~~

~~Item 6. Shareholder proposal on establishing a majority vote committee~~

~~Rebecca H. Brown, 3213 13~~^th ~~Avenue South, Seattle, Washington 98144, beneficial owner of approximately 100 shares, has submitted the following proposal:~~

~~Majority Vote Committee~~

RESOLVED, Shareholders request that our Board of Directors adopt a bylaw establishing an engagement process with proponents of shareholder proposals that are supported by a majority of the votes cast, excluding abstentions and broker non-votes, at any annual meeting.

This proposal requests our Board to take the following steps if a proposal, submitted by a shareholder for a vote according to Rule 14a-8 of the Securities and Exchange Commission, receives a majority of the votes cast:

Within four months after the annual meeting, an independent board committee will schedule a meeting (which may be held telephonically and which is coordinated with the timing of a regularly scheduled board meeting) with the proposal proponent, to obtain any additional information for our Board in its consideration of the proposal.

Following the proponent meeting, the independent board committee will present the proposal with the committee’s recommendation, and relevant information, to our full Board, for action consistent with the company’s charter and by-laws, which includes a consideration of the interest of shareholders.

This independent board committee would be able to recommend a budget of $25,000 or more to spend on special solicitations of shareholders to help adopt shareholder proposals that are supported by a majority of the votes cast.

~~In adopting such a policy, our Board can abolish the committee if our company adopts the proposal or the proponent agrees with abolishing the committee.~~

~~This proposal would address situations where we give overwhelming support to a proposal and the proposal is not adopted by our company.~~

~~Statement in Opposition to the Proposal~~

The directors and corporate governance committee of the board has reviewed this proposal and recommends that you vote against it because it is not in the best long-term interests of shareholders. It is unnecessary, is overly prescriptive, and could divert board members’ attention from other critical oversight duties.

~~Lilly is already responsive to shareholder majority votes~~. The shareholder proposal purports to address situations in which shareholders give overwhelming support to a proposal and the company thereafter fails to take the actions requested by shareholders. That is not the case at Lilly. In our history, we have received majority votes in favor of shareholder proposals concerning only two topics. In both cases, the Lilly board has responded by adopting the very actions requested by the shareholders:

•

~~Eliminate classified board~~. In 2006, a majority of shareholders recommended that the board take the necessary actions to seek shareholder approval of amendments to the articles of incorporation to eliminate the classified board and provide for annual election of directors. Beginning in 2007 and every year thereafter, the board has recommended shareholder approval of just such amendments. Despite the board’s recommendations, those proposals failed because they fell short of the necessary level of shareholder support (80 percent of the outstanding shares). The board is seeking shareholder approval again this year (see~~“Item 4”).~~

•

~~Eliminate supermajority voting provisions~~. In 2007, 2008, and 2009, a majority of shareholders recommended that the board take the necessary actions to seek shareholder approval of amendments to the articles of incorporation to eliminate the 80 percent supermajority voting provisions. In 2010 and 2011, after dialogue with shareholders, the board did exactly that, submitting management proposals to eliminate the provisions. As with the classified board proposal, the supermajority proposals fell short of the necessary 80 percent vote of the outstanding shares. And as with the classified board proposal, the board is seeking shareholder approval again this year (see~~“Item 5”).~~

~~Lilly already actively engages with shareholders on important matters irrespective of voting results~~. We do not need the artifice of a special board committee to encourage us to talk with our shareholders. In addition to our extensive investor relations efforts, we actively engage with shareholders on matters of importance, including corporate governance, company operations, and social issues affecting the company. We have had extensive dialogue with shareholders on the two governance issues noted above, and that dialogue continues. We also engage in shareholder dialogue on many other important issues whether or not they would receive substantial voting support.

~~In addition, shareholders can communicate directly with the board of directors by writing to them in care of the corporate secretary.~~

~~The independent directors already exercise oversight over shareholder issues~~. We do not need a special board committee to inform the board of shareholder concerns. The independent directors are kept advised of shareholder views and concerns through regular reports by management to the board and relevant committees, particularly the directors and corporate governance committee and the compensation committee. The board and committees also periodically receive advice from outside advisors on shareholder relations issues.

~~The proposal is too prescriptive and could divert the board’s attention from other oversight issues~~. Maintaining relations with shareholders is primarily a management function, subject to board oversight. In appropriate but limited circumstances, it can be beneficial for independent board members to meet directly with shareholders to discuss important issues. In fact, this has occurred at Lilly. However, involving board members in direct interactions should not be mandated in a one-size-fits-all fashion. If adopted, the shareholder proposal would require directors to engage unnecessarily in management tasks that could distract them from their primary role of providing oversight over company operations and strategy.

~~The board recommends that you vote AGAINST this proposal.~~

~~Item 7. Shareholder proposal on transparency in animal research~~

People for the Ethical Treatment of Animals (PeTA), 501 N. Front Street, Norfolk, Virginia 23510, on behalf of Meridith Page, beneficial owner of approximately 100 shares, has submitted the following proposal:

RESOLVED, to promote transparency and minimize the use of animals, the Board should issue an annual report to shareholders disclosing procedures to ensure proper animal care, including measures to improve the living conditions of all animals used in-house and at contract laboratories, as well as plans to promote alternatives to animal use.

~~Supporting Statement~~

~~As shown below, our Company has not been in compliance with its animal welfare policy.~~

In 2008, our Company’s in-house laboratories used more than 3,000 animals, including 300 primates and almost 800 dogs. More than two-thirds of these animals were used in painful experiments. Vast numbers of others were used who are not required to be counted. The U.S. government cited our Company for the death of a dog who strangled in his cage.

A comparison of these figures to 2010 numbers shows that our Company is outsourcing much of its animal experimentation to U.S. and overseas laboratories, including to China, where there are few animal protection laws and enforcement is near non-existent.

In one U.S. contract laboratory used by our Company, Covance, Inc., an undercover investigator videotaped workers striking primates and throwing them against cages. Primates circled frantically in their cages, pulled out their hair, and chewed at their own flesh.

At other Covance facilities, a primate became trapped in his cage bars, unable to reach food or water for days, while others suffered frostbite from inadequate weather protection. The government has cited and fined Covance for improper care and failure to provide pain relief to suffering animals.

Documentation of abusive conditions at another contract laboratory used by our Company, Professional Laboratory and Research Services (PLRS), resulted this year in 14 felony cruelty charges against its employees. The government issued a report confirming the appalling conditions at the facility and PLRS is now out of business. The abuses included:

~~Sick and injured animals—including dogs with ear and eye infections, diseased gums, facial lacerations, and inflamed feet—were routinely denied veterinary care;~~

~~An untrained worker used pliers to pull a tooth from a struggling, under-sedated dog;~~

~~Dogs and cats were slammed into cages, thrown, kicked and dragged;~~

~~Dogs and cats were pressure-hosed with a bleach solution;~~

~~A worker attempted to rip out a cat’s nails by forcing the cat to clutch a chain-link fence and then violently pulling her away.~~

~~According to Food and Drug Administration documentation, our Company contracted PLRS to conduct experiments on more than 100 dogs.~~

~~Given that 92% of drugs deemed safe and effective when tested on animals fail in human clinical trials, there is a also a clear scientific imperative for improving testing methods.~~

Shareholders cannot monitor what goes on behind the closed doors of animal testing laboratories, so the Company must. The Board must ensure that animal welfare and replacement measures are an integral part of our Company’s corporate stewardship. We urge shareholders to vote in favor of this socially and ethically important proposal.

~~Statement in Opposition to the Proposal Regarding Transparency in Animal Research~~

We share the concerns raised in this shareholder proposal. We abhor mistreatment of animals and we are committed to the appropriate treatment of animals in research. However, the public policy and compliance committee of the board has reviewed this proposal and recommends a vote against it.

We are committed to quality research-animal care and use, the responsible use of animals in medical research, and the use of alternative methods whenever possible and appropriate. We do not condone, in any form, the mistreatment of research animals, and we recognize our fundamental ethical and scientific obligation to ensure the appropriate treatment of animals used in research. We have processes and procedures in place to ensure humane treatment of animals, including programs for oversight by an Institutional Animal Care and Use Committee, or an equivalent ethical review board, as well as veterinary oversight at every site—both ours and contract laboratories.

We have been accredited by the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC). AAALAC accreditation rules and standards can be found on the AAALAC website (www.aaalac.org). This accreditation is a voluntary process that includes a detailed, comprehensive review of our research animal program including animal care and use policies and procedures, animal environment, housing and management, veterinary medical care, and physical plant operations. We currently publish our animal care and use principles on our website (www.lilly.com).

For safe and effective medicines to be available to patients, U.S. and foreign regulatory agencies have mandated that a defined amount of research be performed in animals. Where animals must be used, we take every measure to assure that the lowest number of animals is used and that discomfort and distress are either eliminated or minimized.

As a global company, we develop contractual relationships with select laboratory-animal research and animal-supply companies inside and outside the U.S. We seek to do business only with those companies that share our commitment to animal welfare. We require these companies to maintain a quality animal care and use program. To ensure animal welfare, we assess third-party organization adherence to these expectations. If events suggest a laboratory has failed to meet our standards, we promptly investigate and act upon the allegations. These actions may include termination of a business relationship.

~~Given the information on animal care and use already published on our website, we believe an annual report is unnecessary.~~

~~The board recommends that you vote AGAINST this proposal.~~

Meeting and Voting Logistics

In addition, unless you decline, your vote will apply to a proportionate number of other shares held by participants 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~~received (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 must so indicate when you vote. 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.

If you do not vote, 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.

Proxy cards and notices

If you received more than one proxy card, notice, or e-mail related to proxy materials, 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, notice, or e-mail you receive. If you do not receive a proxy card, you may have elected to receive your proxy statement electronically, in which case you should have received an e-mail 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~~.

317-433-5112.

Vote tabulation

Votes are tabulated by an independent inspector of election, IVS Associates, Inc.

Attending the annual meeting

Attendance at the meeting will be limited to shareholders, those holding proxies from shareholders, and invited guests from the media and financial community. 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.~~

317-433-5112 (prior to the annual meeting).

The ~~2013~~2016 annual meeting

The company’s ~~2013~~2016 annual meeting is currently scheduled for May ~~6, 2013.~~

2, 2016.

Other Matters

~~Shareholder proposals~~

If a shareholder wishes to have a proposal considered for inclusion in next year’s proxy statement, he or she must submit the proposal in writing so that we receive it by November 5, 2012. Proposals should be addressed toOther information regarding the company’s corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder wishing to propose any other business at the annual meeting must give the company written notice by November 5, 2012 and no earlier than September 6, 2012. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online at~~http://investor.lilly.com/governance.cfm~~ ~~or in paper form upon request to the company’s corporate secretary.~~proxy solicitation

~~Other Matters~~

~~Section 16(a) Beneficial Ownership Reporting Compliance~~

Under SEC rules, our directors and executive officers are required to file with the SEC reports of holdings and changes in beneficial ownership of company stock. We have reviewed copies of reports provided to the company, as well as other records and information. Based on that review, we concluded that all reports were timely filed, except that, due to administrative errors, Dr. Fionnuala Walsh was late in reporting the vesting of an equity award received by her husband; Ms. Anne Nobles was late in reporting a stock sale; and Mr. Hoover was late in reporting the deferral of one month’s compensation into the Lilly Directors’ Deferral Plan. Each filing was made promptly after the issue was discovered.

~~Other Information Regarding the Company’s Proxy Solicitation~~

We will pay all expenses in connection with our solicitation of proxies. We will pay brokers, nominees, fiduciaries, or other custodians their reasonable expenses for sending proxy material to and obtaining instructions from persons for whom they hold stock of the company. We expect to solicit proxies primarily by mail, but directors, officers, and other employees of the company may also solicit in person or by telephone, fax, or electronic mail. We have retained Georgeson Inc. to assist in the distribution and solicitation of proxies. Georgeson may solicit proxies by personal interview, telephone, fax, mail, and electronic mail. We expect that the fee for those services will not exceed $17,500 plus reimbursement of customary out-of-pocket expenses.

~~By order~~

Section 16 (a) beneficial ownership reporting compliance

Under SEC rules, our directors and executive officers are required to file with the SEC reports of ~~the board~~holdings and changes in beneficial ownership of ~~directors,~~

~~James B. Lootens~~

~~Secretary~~

~~March 5, 2012~~

~~Appendix A~~

~~Proposed Amendments~~company stock. We have reviewed copies of reports provided to the ~~Company’s Articles~~company, as well as other records and information. Based on that review, we concluded that all reports were timely filed, except that Jackson Tai amended his Form 3 in May 2014 to reflect his ownership of ~~Incorporation~~

~~Proposed changes to~~an additional 120 shares of company stock that were inadvertently excluded in the ~~company’s articles of incorporation are shown below related to Items 4 and 5, “Items of Business To Be Acted Upon at the Meeting.” The changes shown to Article 9(b) will be effective if “Item 4. Proposal to Amend the Company’s Articles of Incorporation to Provide for Annual Election of All Directors” receives the vote of at least 80 percent of the outstanding shares. The changes to Articles 9(c), 9(d), and 13 will be effective if “Item 5. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting Requirements” receives the vote of at least 80 percent of the outstanding shares. Additions are indicated by underlining and deletions are indicated by strike-outs.~~

~~. . . . .~~

9. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation or exclusion of the powers conferred by statute:

(a) The number of directors of the Corporation, exclusive of directors who may be elected by the holders of any one or more series of Preferred Stock pursuant to Article 7(b) (the “Preferred Stock Directors”), shall not be less than nine, the exact number to be fixed from time to time solely by resolutionoriginal filing.

By order of the Board of Directors, ~~acting by not less than a majority~~

James B. Lootens

Secretary

March 23, 2015

Appendix A - Summary of Adjustments Related to the Annual Bonus and Performance Award

Consistent with past practice, the Compensation Committee adjusted the reported financial results on which the 2014 annual bonus and the 2013-2014 Performance Awards were determined to eliminate the distorting effect of certain unusual items on year-over-year growth percentages. The adjustments are intended to:

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

avoid volatile, artificial inflation or deflation of awards due to unusual items in ~~office.~~

~~(b)~~~~ThePrior~~either the award year or the previous (comparator) year

To assure the integrity of the adjustments, the Compensation Committee establishes adjustment guidelines at the beginning of the year. These guidelines are generally consistent with the company guidelines for reporting non-GAAP financial measure to the ~~2013 annual meeting~~investment community, which are reviewed by the Audit Committee. The adjustments apply equally to income and expense items. The Compensation Committee reviews all adjustments and retains downward discretion, i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.

Adjustments for 2014 Bonus Plan

For the 2014 bonus calculations, the Compensation Committee made the following adjustments to reported EPS consistent with our reporting of ~~directors,~~non-GAAP financial measures:

Eliminated the ~~Board of Directors (exclusive of Preferred Stock Directors) shall be divided into three classes, with the term of office of one class expiring each year.~~~~At the annual meeting of shareholders in 1985, five directors~~ impact of the ~~first class shall be elected to hold office~~charge for ~~a term expiring at the 1986 annual meeting, five directors~~an extra year of the ~~second class shall be elected to hold office for a term expiring at~~U.S. Branded Prescription Drug Fee.

Eliminated the ~~1987 annual meeting, and six directors~~impact of the ~~third class shall be elected~~charges recognized for acquired in-process research and development related to ~~hold office for a term expiring at~~collaboration agreements with Adocia, AstraZeneca UK Limited, Boehringer Ingelheim, and Immunocore Limited.

~~Eliminated the ~~1988 annual meeting~~. Commencing with~~impact of significant asset impairments, restructuring and other special charges.

Eliminated the ~~annual meeting~~impact of ~~shareholders~~gain related to transfer of our linagliptin and empagliflozin commercial rights in~~19862013, each class of directors whose term shall then expire shall be elected~~ certain countries to ~~hold office for a~~~~threeone-year term~~ ~~expiring at~~Boehringer Ingelheim.

Additionally, when the ~~next annual meeting of shareholders. In~~Compensation Committee set 2014 bonus targets, the ~~case of any vacancy on~~Lohmann Animal Health acquisition (which occurred in April 2014) was not contemplated. Accordingly, the ~~Board of Directors,~~~~including a vacancy created by an increase in~~committee adjusted the ~~number of directors,~~2014 results to neutralize the ~~vacancy shall be filled by election~~expected revenue and EPS impact of the ~~Board~~acquisition.

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



(Dollars in millions)	2014
Revenue as reported	$19,616
Lohmann Animal Health acquisition adjustment	$(86)
Adjusted Non-GAAP Revenue	$19,530

Reconciliations of these adjustments to our reported EPS are below.



	2014
EPS as reported	$2.23
Eliminate additional U.S. Drug Fee	$0.11
Eliminate IPR&D charges for acquisition and in-licensing transactions	$0.12
Eliminate asset impairments, restructuring and other special charges	$0.38
Eliminate gain related to transfer of commercial rights to Boehringer Ingelheim	$(0.06)
Non-GAAP EPS	$2.78
Lohmann Animal Health acquisition adjustment	$0.05
Adjusted Non-GAAP EPS	$2.83

Adjustments for 2013-2014 PA

For the 2013-2014 PA payout calculations, the Compensation Committee made the following adjustments to reported EPS consistent with our reporting of non-GAAP financial measures:

2014: Eliminated the ~~director so elected to serve for the remainder~~impact of the ~~term~~charge for an extra year of the ~~director being replaced or, in~~U.S. Branded Prescription Drug Fee.

2014 and 2013: Eliminated the ~~case of an additional director,~~for the remainder~~impact of the ~~term~~charges recognized for acquired in-process research and development related to acquisitions and in-licensing transactions.~~

~~2014, 2013, and 2012: Eliminated the impact of significant asset impairments, restructuring and other special charges.~~

~~2014: Eliminated the impact of gain related to transfer of our linagliptin and empagliflozin commercial rights in certain countries to Boehringer Ingelheim.~~

~~2013 and 2012: Eliminated the impact of income received related to the termination of the ~~class~~exenatide collaboration with Amylin.~~

Additionally, when the Compensation Committee set 2013-2014 PA targets, the Lohmann Animal Health acquisition was not contemplated. Accordingly, the committee adjusted the 2014 results to ~~which~~neutralize the ~~director has been assigned~~.~~until the next annual meeting of shareholders.~~ ~~All directors shall continue in office until the election and qualification of their respective successors in office.~~~~When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so assigned among the classes by a majority~~expected EPS impact of the ~~directors then in office, though less than a quorum, as to make all classes as nearly equal in number as possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Election of directors need not be by written ballot unless the By-laws so provide.~~

acquisition.

~~(c) Any director or directors (exclusive of Preferred Stock Directors) may be removed from office at any time, but only for cause and only by the affirmative vote of~~~~at least 80%a majority of~~~~the~~ ~~votes~~~~entitled to be~~ ~~cast by the holders~~~~of all the outstanding shares~~ ~~of Voting Stock (as defined in Article 13 hereof), voting together as a single class.~~

~~(d) Notwithstanding any other provision~~Reconciliations of these ~~Amended Articles of Incorporation or of law which might otherwise permit a lesser vote or no vote, but in addition~~adjustments to any affirmative vote of the holders of any particular class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of at least 80% of the votes entitled to be cast by holders of all the outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article 9.

~~. . . . .~~

~~13. In addition to all other requirements imposed by law and these Amended Articles~~~~and except as otherwise expressly provided in paragraph (c) of this Article 13, none of the actions or transactions listedin paragraph (a)~~below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-owned subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to vote thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of paragraphs (b), (c), (d),(e~~), and (~~fe~~) of this Article 13~~our reported EPS are ~~satisfied.~~below.

~~(a) The actions or transactions within the scope of this Article 13 are as follows:~~

~~(i) any merger or consolidation of the Corporation or any of its subsidiaries into or with such Related Person;~~

~~(ii) any sale, lease, exchange, or other disposition of all or any substantial part of the assets of the Corporation or any of its majority-owned subsidiaries to or with such Related Person;~~

(iii) the issuance or delivery of any Voting Stock (as hereinafter defined) or of voting securities of any of the Corporation’s majority-owned subsidiaries to such Related Person in exchange for cash, other assets or securities, or a combination thereof;

~~(iv) any voluntary dissolution or liquidation of the Corporation;~~

(v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its subsidiaries, or any other transaction (whether or not with or otherwise involving a Related Person) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of capital stock of the Corporation, or any securities convertible into capital stock of the Corporation or into equity securities of any subsidiary, that is beneficially owned by any Related Person; or

~~(vi) any agreement, contract, or other arrangement providing for any one or more of the actions specified in the foregoing clauses (i) through (v).~~

~~(b) The actions and transactions described in paragraph (a) of this Article 13 shall have been authorized by the affirmative vote of~~~~at least 80% of alla majorityof the votes entitled to be cast by holders of~~ ~~all~~ ~~the outstanding shares of Voting Stock, voting together as a single class.~~

(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting requirement shall not be applicable if any action or transaction specified in paragraph (a) is approved by the Corporation’s Board of Directors and by a majority of the Continuing Directors (as hereinafter defined).

(dc~~) Unless approved by a majority of the Continuing Directors, after becoming a Related Person and prior to consummation of such action or transaction.~~:

(i) the Related Person shall not have acquired from the Corporation or any of its subsidiaries any newly issued or treasury shares of capital stock or any newly issued securities convertible into capital stock of the Corporation or any of its majority-owned subsidiaries, directly or indirectly (except upon conversion of convertible securities acquired by it prior to becoming a Related Person or as a result of a pro rata stock dividend or stock split or other distribution of stock to all shareholders pro rata);

(ii) such Related Person shall not have received the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges, or other financial assistance or tax credits provided by the Corporation or any of its majority-owned subsidiaries, or made any major changes in the Corporation’s or any of its majority-owned subsidiaries’ businesses or capital structures or reduced the current rate of dividends payable on the Corporation’s capital stock below the rate in effect immediately prior to the time such Related Person became a Related Person; and

(iii) such Related Person shall have taken all required actions within its power to ensure that the Corporation’s Board of Directors included representation by Continuing Directors at least proportionate to the voting power of the shareholdings of Voting Stock of the Corporation’s Remaining Public Shareholders (as hereinafter defined), with a Continuing Director to occupy an additional Board position if a fractional right to a director results and, in any event, with at least one Continuing Director to serve on the Board so long as there are any Remaining Public Shareholders.

(ed) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of the Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability or inadvisability of the action or transaction which the Continuing Directors may choose to state and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Direc-



	2014	2013	% Growth 2014 vs. 2013	2012	% Growth 2013 vs. 2012
EPS as reported	$2.23	$4.32	(48.4)%	$3.66	18.0%
Eliminate IPR&D charges for acquisitions and in-licensing transactions	$0.12	$0.03		—
Eliminate asset impairments, restructuring and other special charges	$0.38	$0.08		$0.16
Eliminate additional U.S. Drug Fee	$0.11	_—_		—
Eliminate gain related to transfer of commercial rights to Boehringer Ingelheim	$(0.06)	—		—
Eliminate income from the termination of the exenatide collaboration with Amylin	—	$(0.29)		$(0.43)
Non-GAAP EPS	$2.78	$4.15	(33.0)%	$3.39	22.4%
Lohmann Animal Health Acquisition Adjustment	$0.05	—		—
Adjusted Non-GAAP EPS	$2.83	$4.15	(31.8)%	$3.39	22.4%
Numbers do not add due to rounding

tors as to the fairness (or not) of the terms of the action or transaction from a financial point of view to the Remaining Public Shareholders, such investment banking firm to be paid a reasonable fee for its services by the Corporation. The requirements of this paragraph (ed~~) shall not apply to any such action or transaction which is approved by a majority of the Continuing Directors.~~

(fe~~) For the purpose of this Article 13~~

(i) the term “Related Person” shall mean any other corporation, person, or entity which beneficially owns or controls, directly or indirectly, 5% or more of the outstanding shares of Voting Stock, and any Affiliate or Associate (as those terms are defined in the General Rules and Regulations under the Securities Exchange Act of 1934) of a Related Person;~~provided, however,~~ that the term Related Person shall not include (a) the Corporation or any of its subsidiaries, (b) any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan when acting in such capacity, or (c) Lilly Endowment, Inc.; and~~further provided,~~ ~~that no corporation, person, or entity shall be deemed to be a Related Person solely by reason of being an Affiliate or Associate of Lilly Endowment, Inc.;~~

(ii) a Related Person shall be deemed to own or control, directly or indirectly, any outstanding shares of Voting Stock owned by it or any Affiliate or Associate of record or beneficially, including without limitation shares

~~a. which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, or options, or otherwise or~~

b. which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause a. above), by any other corporation, person, or other entity with which it or its Affiliate or Associate has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of Voting Stock, or which is its Affiliate (other than the Corporation) or Associate (other than the Corporation);

~~(iii) the term “Voting Stock” shall mean all shares of any class of capital stock of the Corporation which are entitled to vote generally in the election of directors;~~

(iv) the term “Continuing Director” shall mean a director who is not an Affiliate or Associate or representative of a Related Person and who was a member of the Board of Directors of the Corporation immediately prior to the time that any Related Person involved in the proposed action or transaction became a Related Person or a director who is not an Affiliate or Associate or representative of a Related Person and who was nominated by a majority of the remaining Continuing Directors; and

~~(v) the term “Remaining Public Shareholders” shall mean the holders of the Corporation’s capital stock other than the Related Person.~~

(gf) A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purposes of this Article 13, on the basis of information then known to the Continuing Directors, whether (i) any Related Person exists or is an Affiliate or an Associate of another and (ii) any proposed sale, lease, exchange, or other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a substantial part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Continuing Directors shall be conclusive and binding for all purposes.

(hg~~) Nothing contained in this Article 13 shall be construed to relieve any Related Person or any Affiliate or Associate of any Related Person from any fiduciary obligation imposed by law.~~

(ih) The fact that any action or transaction complies with the provisions of this Article 13 shall not be construed to waive or satisfy any other requirement of law or these Amended Articles of Incorporation or to impose any fiduciary duty, obligation, or responsibility on the Board of Directors or any member thereof, to approve such action or transaction or recommend its adoption or approval to the shareholders of the Corporation, nor shall such compliance limit, prohibit, or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such action or transaction. The Board of Directors of the Corporation, when evaluating any actions or transactions described in paragraph (a) of this Article 13, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the employees, customers, suppliers, and other constituents of the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located.

(j) Notwithstanding any other provision of these Amended Articles of Incorporation or of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of the holders of at least 80% of the votes entitled to be cast by holders of all the outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend, or repeal this Article 13.

Annual Meeting Admission Ticket

Eli Lilly and Company ~~2012~~2015 Annual Meeting of Shareholders

Monday, ~~April 16, 2012~~

May 4, 2015

11:00 a.m. EDT

Lilly Center Auditorium

Lilly Corporate Center

Indianapolis, Indiana 46285

The top portion of this page will be required for admission to the meeting.

Please write your name and address in the space provided below and present this ticket when you enter the Lilly Center.

Doors open at 10:15 a.m.

~~Name~~

~~Address~~

~~City, State, and Zip Code~~

Name

Address

City, State, and Zip Code

Parking Pass

Directions and Parking

From I-70 take Exit 79B; follow signs to McCarty Street. Turn right (east) on McCarty Street; go straight into Lilly Corporate Center. You will be directed to parking.Be sure to take the admission ticket (the top portion of this page) with you to the meeting and leave this parking pass on your dashboard.

Take the top portion of this page with you to the meeting.




Detach here

Eli Lilly and Company

Annual Meeting of Shareholders

~~April 16, 2012~~

May 4, 2015

Please place this identifier on the dashboard of your car as you enter Lilly Corporate Center so it can be clearly seen by security and parking personnel.

mportant notice regarding the availability of proxy material for the shareholder meeting to be held May 4, 2015:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2014.pdf

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

M83311-P60947

The undersigned hereby appoints Messrs. M. J. Harrington, J. C. Lechleiter, and D. W. Rice, and each of them, as proxies, each with full power to act without the others and with full power of substitution, to vote as indicated on the reverse side of this card all the shares of common stock of ELI LILLY AND COMPANY in this account held in the name of the undersigned at the close of business on February 27, 2015, at the annual meeting of shareholders to be held on May 4, 2015, at 11:00 a.m. EDT, and at any adjournment thereof, with all the powers the undersigned would have if personally present.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly. If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

This proxy is solicited on behalf of the board of directors.

PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.



ELI LILLY AND COMPANY C/O IVS, P.O. BOX 17149 WILMINGTON, DE 19885-9801	VOTE BY INTERNET – www.proxyvote.com Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday, May 3, 2015. Have your proxy card in hand when you access the website and follow the instructions. VOTE BY PHONE – (1-800-690-6903) Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday, May 3, 2015. Have your proxy card in hand when you call and follow the instructions. VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return to Eli Lilly and Company, c/o IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801. Important notice regarding the availability of proxy material for the shareholder meeting to be held May 4, 2015: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2014.pdf. THANK YOU FOR VOTING



TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:	M83310-P60947	KEEP THIS PORTION FOR YOUR RECORDS
THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.		DETACH AND RETURN THIS PORTION ONLY

ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items 1-3:



(1)	Election of directors, each for a three-year term.	For	Against	Abstain

	1a) K. Baicker	q	q	q

	1b) J. E. Fyrwald	q	q	q

	1c) E. R. Marram	q	q	q

	1d) J. P. Tai	q	q	q	For	Against	Abstain

(2)	Approve advisory vote on compensation paid to the company’s named executive officers.				q	q	q
(3)	Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2015.				q	q	q



Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity.





Signature (PLEASE SIGN WITHIN BOX)	Date	Signature (Joint Owners)	Date

Important notice regarding the availability of proxy material for the shareholder meeting to be held ~~April 16, 2012:~~

May 4, 2015:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/~~lillyar2011.pdf.~~

lillyar2014.pdf

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~~- -~~

~~M40836-P19243~~



ESOP	M83313-P60947

The ~~undersigned hereby appoints Messrs. R. A. Armitage, J. C. Lechleiter, and D. W. Rice, and each of them, as proxies, each with full power to act without~~Lilly Employee 401(k) Plan

Confidential Voting Instructions

To Northern Trust, Trustee

By signing on the ~~others and with full power of substitution,~~reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, ~~all~~ the number of shares of ~~common stock of ELI LILLY AND COMPANY in~~Eli Lilly and Company Common Stock credited to this account ~~held in the name of the undersigned~~under The Lilly Employee 401(k) Plan or an affiliated plan at the close of business on February ~~15, 2012,~~27, 2015, at the ~~annual meeting~~Annual Meeting of ~~shareholders~~Shareholders to be held on ~~April 16, 2012,~~May 4, 2015 at 11:00 a.m. EDT, and at any adjournment ~~thereof, with all the powers the undersigned would have if personally present.~~

thereof.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

~~This proxy is solicited on behalf~~Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instruction pro rata (along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the ~~board~~participants to whose accounts the shares are credited. For more information on the voting of ~~directors.~~the undirected shares, see the Proxy Statement.



	Yes	No
Question 1: Check “no” only if you decline to have your vote applied pro rata to the undirected shares.	q	q

These confidential voting instructions will be seen only by authorized representatives of the Trustee.

PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.

~~ELI LILLY AND COMPANY~~

NORTHERN TRUST, TRUSTEE

C/O IVS, P.O. BOX 17149

WILMINGTON, DE 19885-9801

VOTE BY INTERNET – www.proxyvote.com

Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on ~~Sunday,~~Tuesday, April ~~15, 2012.~~28, 2015. Have your proxy card in hand when you access the ~~web site~~website and follow the instructions.

VOTE BY PHONE –(1-800-690-6903)

Transmit your voting instructions by telephone until 11:59 p.m. EDT on ~~Sunday,~~Tuesday, April ~~15, 2012.~~28, 2015. Have your proxy card in hand when you call and follow the instructions.

VOTE BY MAIL

Mark, sign, and date ~~your proxy~~this card and return it in the postage-paid envelope we have provided or return to ~~Eli Lilly and Company, c/o~~ IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801.

Card must be received by April 28, 2015.

Important notice regarding the availability of proxy material for the shareholder meeting to be held ~~April 16, 2012:~~May 4, 2015: The annual report and proxy statement are available at http://www.lilly.com/pdf/~~lillyar2011.pdf.~~

lillyar2014.pdf.

THANK YOU FOR VOTING

~~TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK,~~

~~RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE. M40835-P19243 KEEP THIS PORTION FOR YOUR RECORDS~~

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

~~THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.~~



TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:	M83312-P60947	KEEP THIS PORTION FOR YOUR RECORDS

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -



ESOP	THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.	DETACH AND RETURN THIS PORTION ONLY

ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items ~~1-5:~~

1-3:

(1)

Election of directors, each for a three-year term.

For

~~For~~ Against

Abstain

~~Against~~

~~Abstain~~

1a) K. Baicker

1b) J. E. Fyrwald

1c) E. R. Marram

1d) ~~D. R. Oberhelman~~

J. P. Tai

qFor

Against

Abstain

(2)

Approve advisory vote on compensation paid to the company’s named executive officers.

(3)

Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for ~~2012.~~

2015.

~~(3)~~

~~Approve, by non-binding vote, compensation paid to the company’s named executive officers.~~


		~~For~~	~~Against~~	~~Abstain~~

~~(4)~~	~~Approve amendments to the articles of incorporation to provide for annual election of all directors.~~	q	q	q

~~(5)~~	~~Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements.~~	q	q	q

~~The board of directors recommends you vote AGAINST the following proposals (6 and 7):~~

~~(6)~~	~~Proposal by shareholders requesting that the company establish a majority vote committee.~~	q	q	q

~~(7)~~	~~Proposal by shareholders on transparency in animal research.~~	q	q	q

Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity.





Signature (PLEASE SIGN WITHIN BOX)	Date	~~Date~~	Signature (Joint Owners)	Date

Important notice regarding the availability of proxy material for the shareholder meeting to be held ~~April 16, 2012:~~

May 4, 2015:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/~~lillyar2011.pdf.~~

lillyar2014.pdf

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~~- - - - -~~



~~ESOP~~PAYSOP		~~M40838-P19243~~M83315-P60947

The Lilly Employee ~~401(K)~~401(k) Plan

Confidential Voting Instructions

To ~~PNC Bank N.A., Indiana,~~Northern Trust, Trustee

By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee ~~Savings~~401(k) Plan or an affiliated plan at the close of business on February ~~15, 2012,~~27, 2015, at the Annual Meeting of Shareholders to be held on ~~April 16, 2012~~May 4, 2015 at 11:00 a.m. EDT, and at any adjournment thereof.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instructionpro rata(along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.

These confidential voting instructions will be seen only by authorized representatives of the Trustee.

PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.



*~~PNC BANK N.A., INDIANA,~~* *NORTHERN TRUST, TRUSTEE* *C/O IVS, P.O. BOX 17149* *WILMINGTON, DE 19885-9801*		VOTE BY INTERNET – www.proxyvote.com Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on ~~Sunday,~~Tuesday, April ~~15, 2012.~~28, 2015. Have your proxy card in hand when you access the ~~web site~~website and follow the instructions. VOTE BY PHONE –*(1-800-690-6903)* Transmit your voting instructions by telephone until 11:59 p.m. EDT on ~~Sunday,~~Tuesday, April ~~15, 2012.~~28, 2015. Have your proxy card in hand when you call and follow the instructions. VOTE BY MAIL Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801. Card must be received by April 28, 2015. Important notice regarding the availability of proxy material for the shareholder meeting to be held ~~April 16, 2012:~~May 4, 2015: The annual report and proxy statement are available at http://www.lilly.com/pdf/~~lillyar2011.pdf.~~ lillyar2014.pdf. THANK YOU FOR VOTING



TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK ~~RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE.~~AS FOLLOWS:
	~~M40837-P19243~~	M83314-P60947	KEEP THIS PORTION FOR YOUR RECORDS

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~~- - - -~~



~~ESOP~~PAYSOP	THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.	DETACH AND RETURN THIS PORTION ONLY

ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items ~~1-5:~~

1-3:

(1)

Election of directors, each for a three-year term.

For

~~For~~ Against

Abstain

~~Against~~

~~Abstain~~

1a) K. Baicker

1b) J. E. Fyrwald

1c) E. R. Marram

1d) ~~D. R. Oberhelman~~J. P. Tai

qFor

Against

Abstain

(2)

Approve advisory vote on compensation paid to the company’s named executive officers.

(3)

Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for ~~2012.~~

2015.

~~(3)~~

~~Approve, by non-binding vote, compensation paid to the company’s named executive officers.~~


		~~For~~	~~Against~~	~~Abstain~~

~~(4)~~	~~Approve amendments to the articles of incorporation to provide for annual election of all directors.~~	q	q	q

~~(5)~~	~~Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements.~~	q	q	q

~~The board of directors recommends you vote AGAINST the following proposals (6 and 7):~~

~~(6)~~	~~Proposal by shareholders requesting that the company establish a majority vote committee.~~	q	q	q

~~(7)~~	~~Proposal by shareholders on transparency in animal research.~~	q	q	q

Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity.

~~Signature [PLEASE SIGN WITHIN BOX]~~

~~Date~~

~~Signature (Joint Owners)~~

~~Date~~

~~Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:~~

~~The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.~~

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


~~PAYSOP~~		~~M40840-P19243~~

~~Lilly Employee 401(K) Plan~~

~~Confidential Voting Instructions~~

~~To PNC Bank N.A., Indiana, Trustee~~

By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee Savings Plan or an affiliated plan at the close of business on February 15, 2012, at the Annual Meeting of Shareholders to be held on April 16, 2012 at 11:00 a.m. EDT, and at any adjournment thereof.

~~If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.~~If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

~~Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instruction~~~~pro rata~~(along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.


	~~Yes~~	No
~~Question 1: Check “no” only if you declineto have your vote applied~~~~pro rata~~ ~~to the undirected shares.~~	q	q

~~These confidential voting instructions will be seen only by authorized representatives of the Trustee.~~

~~PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.~~

~~PNC BANK N.A., INDIANA, TRUSTEE~~

~~C/O IVS, P.O. BOX 17149~~

~~WILMINGTON, DE 19885-9801~~

~~VOTE BY INTERNET – www.proxyvote.com~~

~~Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday, April 15, 2012. Have your proxy card in hand when you access the web site and follow the instructions.~~

~~VOTE BY PHONE –~~~~(1-800-690-6903)~~

~~Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday, April 15, 2012. Have your proxy card in hand when you call and follow the instructions.~~

~~VOTE BY MAIL~~

~~Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801.~~

Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

~~THANK YOU FOR VOTING~~

~~TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK,~~

~~RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE.~~

~~M40839-P19243~~

~~KEEP THIS PORTION FOR YOUR RECORDS~~

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


~~PAYSOP~~		~~THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.~~

~~ELI LILLY AND COMPANY~~

~~The board of directors recommends you vote FOR items 1-5:~~


~~(1)~~	~~Election of directors, each for a three-year term.~~	~~For~~	~~Against~~	~~Abstain~~

	~~1a) K. Baicker~~	q	q	q

	~~1b) J. E. Fyrwald~~	q	q	q

	~~1c) E. R. Marram~~	q	q	q

	~~1d) D. R. Oberhelman~~	q	q	q

~~(2)~~	~~Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2012.~~	q	q	q

~~(3)~~	~~Approve, by non-binding vote, compensation paid to the company’s named executive officers.~~	q	q	q


		~~For~~	~~Against~~	~~Abstain~~

~~(4)~~	~~Approve amendments to the articles of incorporation to provide for annual election of all directors.~~	q	q	q

~~(5)~~	~~Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements.~~	q	q	q

~~The board of directors recommends you vote AGAINST the following proposals (6 and 7):~~

~~(6)~~	~~Proposal by shareholders requesting that the company establish a majority vote committee.~~	q	q	q

~~(7)~~	~~Proposal by shareholders on transparency in animal research.~~	q	q	q

~~Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity.~~

Signature (PLEASE SIGN WITHIN BOX)

Date

Signature ~~[PLEASE SIGN WITHIN BOX]~~

(Joint Owners)

Date

~~Signature (Joint Owners)~~

~~Date~~



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


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



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



Name and principal occupation	Joined the Board	Age	Public boards	Management recommendation	Vote required to pass
Katherine Baicker, Ph.D.	2011	43	None	Vote FOR	Majority of votes cast
Professor of Health Economics - Harvard University

J. Erik Fyrwald	2005	55	None	Vote FOR	Majority of votes cast
President and CEO - Univar, Inc.
Ellen R. Marram	2002	68	Ford Motor Company	Vote FOR	Majority of votes cast
President - The Barnegat Group LLC			The New York Times Company
Jackson P. Tai	2013	64	The Bank of China, Limited	Vote FOR	Majority of votes cast
Former Vice Chairman and CEO - DBS Group Holdings and DBS Bank			MasterCard Incorporated
			Royal Philips NV



Katherine Baicker, Ph.D.,				~~Age 40~~	~~Director~~ age 43, director since 2011
~~Professor of Health Economics at the~~ Board Committees: Audit; Public Policy and Compliance
Career Highlights		Industry Memberships
Harvard University School of Public Health, Department of Health Policy and ~~Management; and Research Associate at~~Management		•	Commissioner of the ~~National Bureau of Economic Research~~ ~~Dr. Baicker has been a professor~~Medicare Payment Advisory Commission
•	Professor of health economics at(2007 - present)	•	Chair of the ~~Department~~Group Insurance Commission of Massachusetts
•	C. Boyden Gray Professor and Acting Chair, department of health economics (2014 - present)	•	Panel 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 economistAdvisers to the Congressional Budget Office
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		•	Editorial boards of Health ~~Advisers to~~Affairs; the ~~Congressional Budget Office. She is a member of the editorial boards of~~~~Health Affairs~~ ~~and the~~Journal of Health Economics~~, chair of the board of directors of AcademyHealth, editor of the~~~~Forum for Health Economics and Policy~~~~, and associate editor of the~~~~Journal of Economic Perspectives~~~~. She is an elected member~~
•	Member (2005 - 2007)	•	Member of the Institute of ~~Medicine. Dr. Baicker has been serving under interim election since December 2011.~~Medicine
•	Senior Economist (2001 - 2002)
Qualifications ~~Qualifications:~~: Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued ~~advisor~~adviser to numerous health care-related commissions and committees, her expertise in health care policy and health care delivery is recognized by both academia and government. ~~Board committee:~~ ~~public policy and compliance~~


J. Erik Fyrwald,				~~Age 52~~	~~Director~~ age 55, director since 2005
~~President~~Board Committees: Public Policy and Compliance (chair); Science and Technology
Career Highlights		E.I. duPont de Nemours and Company, a global chemical company
Univar, Inc.,a leading distributor of ~~Ecolab Inc.~~ ~~J. Erik Fyrwald is president~~industrial and specialty chemicals and provider 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 therelated services
		•	Group Vice President, agriculture and nutrition ~~division at DuPont. From 2000 until 2003, he was vice president~~(2003 - 2008)
•	President and ~~general manager~~Chief Executive Officer (2012 - present)
Nalco Company, a provider of ~~DuPont’s nutrition~~integrated water treatment 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~~process improvement services, chemicals and ~~Asia. Mr. Fyrwald serves as a director of the~~equipment programs for industrial and institutional applications		Other Board Service
		•	Non-profit boards: Society of Chemical ~~Industry, the American Chemistry Council, and the~~Industry; Amsted Industries; The Chicago Public Education ~~Fund, and is a trustee of the~~Fund; Field Museum of ~~Chicago.~~ Chicago, Trustee
•	Chairman and Chief Executive Officer (2008 - 2011)
~~Qualifications:~~Qualifications: Mr. Fyrwald has a strong record of operational and ~~strategy~~strategic leadership in ~~two~~three complex worldwide businesses with a focus on technology and innovation. AnHe is an engineer by training heand has ~~extensive senior executive~~CEO experience ~~at DuPont, a multinational chemical company, where he led the agriculture~~with Univar 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.Nalco. ~~Board committees:~~ ~~public policy and compliance; science and technology~~



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		(1)		Title of each class of securities to which transaction applies:


		(2)		Aggregate number of securities to which transaction applies:


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



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



Ellen R. Marram				~~Age 65~~	~~Director~~, age 68, director since 2002, Lead director since 2012
~~President,~~ Board Committees: Compensation; Directors and Corporate Governance (chair)
Career Highlights		Other Board Service
The Barnegat Group LLC ~~Ms. Marram will serve as the board’s lead director beginning April 2012. Ms. Marram is the president~~, provider 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 ofservices		•	Public boards: Ford Motor Company, ~~and~~ The New York Times Company ~~as well as several private companies. She previously served on the~~
•	President (2006 - present)	•	Prior public board ofservice: Cadbury ~~plc. She also serves on the~~plc
North Castle Partners, LLC		•	Private boards: Newman's Own, Inc.
•	Managing Director (2000 - 2006)	•	Non-profit boards of: Wellesley ~~College,~~College; Institute for the ~~Future,~~Future; New York-Presbyterian ~~Hospital,~~Hospital; Lincoln Center ~~Theater,~~Theater; and Families and Work ~~Institute.~~ Institute
Tropicana Beverage Group
•	President and Chief Executive Officer (1993 - 1998)
~~Qualifications:~~Nabisco Biscuit Company, a unit of Nabisco, Inc.
•	President and Chief Executive Officer (1988 - 1993)
Qualifications: Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her nonprofit and private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has extensive corporate governance experience through service on other public company boards in a variety of industries. ~~Board committees:~~ ~~compensation; directors and corporate governance (chair)~~



Douglas R. Oberhelman,				~~Age 59~~	~~Director~~age 62, director since 2008
Board Committees: Audit; Finance
Career Highlights		Other Board Service
Caterpillar Inc.		•	Public boards: Caterpillar Inc.
•	Chairman and Chief Executive Officer ~~Caterpillar Inc.~~(2010 - present)	•	Prior public board service ~~Mr. Oberhelman has been chairman~~: Ameren Corporation
•	Group President (2001 - 2010)	•	Non-profit boards: Wetlands America Trust; Easter Seals Foundation of ~~the board of Caterpillar Inc. since November 2010~~Central Illinois
•	Chief Financial Officer (1995 - 1998)
Memberships 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 Other Organizations
•	Business Roundtable, Executive Committee
•	Business Council
•	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.~~ Chairman
~~Qualifications:~~Qualifications: Mr. Oberhelman has a strong strategic and operational background as ~~a senior executive (and currently as chairman and CEO)~~the CEO of Caterpillar, a leading manufacturing company with worldwide operations and a special focus on emerging markets. He is an audit committee financial expert as a result of his prior experience as CFO of Caterpillar and as a member and chairman of the audit committee of another U.S. public company. ~~Board committees:~~ ~~audit; finance~~


		(4)		Proposed maximum aggregate value of transaction:


		(5)		Total fee paid:


		(1)		Amount Previously Paid:


		(2)		Form, Schedule or Registration Statement No.:



~~Ralph Alvarez~~Jackson P. Tai, age 64, director since 2013
~~Age 56~~ Board Committees: Audit; Finance
~~Director since 2009~~Career Highlights		Other Board Service
~~Retired~~ DBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial services groups in Asia		•	Public boards: The Bank of China Limited, MasterCard Incorporated, Royal Philips NV

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



Ralph Alvarez, age 59, director since 2009
Board Committees: Compensation; Science and Technology
Career Highlights		Other Board Service
Skylark Co., Ltd., a leading restaurant operator in Japan		•	Public boards: Skylark Co., Ltd.; Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.; Realogy Holdings Corp.
•	Executive Chairman (2013 - present)
McDonald's Corporation
•	President and Chief Operating Officer (2006 - 2009)	•	Prior public board service: McDonald's Corporation; KeyCorp
Memberships and Other Organizations
•	University of Miami: President's Council; School of Business Administration Board of ~~Overseers, and the~~Overseers; International Advisory Board ~~of the University of Miami. He was previously a member of the boards of McDonald’s Corporation and KeyCorp.~~
~~Qualifications:~~Qualifications: Through his senior executive positions at Skylark Co., Ltd. and McDonald’s Corporation, ~~and~~as well as with other global restaurant businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and strategic planning. His international experience includes a special focus on emerging markets. ~~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 69, director since 2009
Board Committees: Finance; Public Policy and Compliance
Career Highlights		Other Board Service
Ball Corporation, a provider of packaging products and other technologies and services to commercial and governmental customers		•	Public boards: Ball Corporation; Energizer Holdings, Inc.; Steelcase, Inc.

•	Chairman (2002 - 2013)	•	Non-profit boards: Boulder Community Hospital; Children's Hospital Colorado
•	President and Chief Executive Officer (2001 - 2010)
•	Chief Operating Officer (2000 - 2001)	•	Prior public board service: Irwin Financial Corporation; Qwest International, Inc.
•	Chief Financial Officer (1998 - 2000)
Memberships and Other Organizations			~~Age 66~~
•	Board of Trustees of DePauw University		~~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.~~ Dean's Council
~~Qualifications:~~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~~has deep financial ~~expert~~expertise as a result of his experience as CEO and CFO of Ball. He also has extensive corporate governance experience through his service on other public company boards. ~~Board committees:~~ ~~audit; compensation~~



Franklyn G. Prendergast, M.D., Ph.D.,				~~Age 66~~	~~Director~~age 70, director since 1995
Board Committees: Public Policy and Compliance; Science and Technology
Career Highlights		Other Board Service
Mayo Medical School		•	Public boards: Cancer Genetics Incorporated
•	Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology ~~and~~ (1986 - 2014)
•	Professor of Molecular Pharmacology and Experimental Therapeutics ~~Mayo Medical School; and Director,~~ (1987 - 2014)
•	Mayo Clinic Center for Individualized Medicine, Director Emeritus (2006 - 2012)
Qualifications 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 retired from Mayo at the end of 2014. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he brings an important practicing-physician perspective to the ~~board’s~~Board’s deliberations. ~~Board committees:~~ ~~public policy and compliance; science and technology~~



Kathi P. Seifert,				~~Age 62~~	~~Director~~ age 65, director since 1995
~~Retired Executive Vice President,~~ Board Committees: Audit; Compensation
Career Highlights		Other Board Service
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.;, a global consumer products company		•	Public companies: Revlon Consumer Products Corporation; Lexmark International, Inc.
•	Executive Vice President (1999 - 2004)
Katapult, LLC, a provider of pro bono mentoring and consulting services to non-profit organizations		•	Private boards: Appvion, Inc.
		•	Prior public board service: Supervalu Inc.; Appleton Papers, Inc.~~; the U.S. Fund~~
•	Chairman (2004 - present)
		•	Non-profit boards: Community Foundation for ~~UNICEF; and~~ the Fox Valley Region; Fox Cities ~~Performing Arts Center.~~ Building for the Arts; Fox Cities Chamber of Commerce

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



Michael L. Eskew				~~Age 62~~	~~Director~~, age 65, director since 2008
~~Former~~ Board Committees: Audit (chair); Finance
Career Highlights		Other Board Service
United Parcel Service, Inc.		•	Public boards: 3M Corporation; IBM Corporation; Allstate Insurance Company
•	Chairman and Chief Executive Officer ~~United Parcel Service, Inc.~~ ~~Mr. Eskew served as chairman and chief executive officer~~(2002 - 2007)
•	UPS Board 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 chairmanDirectors (1998 - 2014)	•	Non-profit boards: 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.~~ Foundation
•	Vice Chairman (2000 - 2002)
~~Qualifications:~~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~~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 committees:~~ ~~audit (chair); compensation~~



~~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 committees:~~ ~~public policy and compliance; science and technology (chair)~~

Karen N. Horn, Ph.D.,		Age 68		71, Director since 1987
~~Retired President, Private Client Services,~~Board Committees: Compensation (chair); Directors and ~~Managing Director, Marsh, Inc.~~Corporate Governance ~~Ms. Horn will serve as the board’s lead director until April 2012. She served as president~~
Career Highlights		Other Board Service
Brock Capital Group, a provider of ~~private client~~financial advising and consulting services and managing director of Marsh, Inc. from 1999 until her retirement in 2003. Prior to joining Marsh, she was senior managing director and head of international private banking at Bankers Trust Company; chairman and chief executive officer of Bank One, Cleveland, N.A.; president of the Federal Reserve Bank of Cleveland; treasurer of Bell Telephone Company of Pennsylvania; and vice president of First National Bank of Boston. Ms. Horn serves as director of		•	Public boards: T. Rowe Price Mutual Funds; Simon Property Group, Inc.; ~~and~~ Norfolk Southern Corporation
•	Senior Managing Director (2004 - present)	•	Prior public board service: Fannie Mae; Georgia-Pacific Corporation
Marsh, Inc., a global provider of risk and ~~vice chairman~~insurance services
•	President, Private Client Services and Managing Director (1999 - 2003)	•	Non-profit boards: The National Bureau of ~~the U.S. Russia Foundation. She previously served on the board of Fannie Mae~~Economic Research; The Florence Griswold Museum
Bank One, Cleveland, N.A.
•	Chairman and ~~Georgia-Pacific Corporation. Ms. Horn has been senior managing director of Brock Capital Group since 2004.~~ chief executive officer (1982 - 1987)
~~Qualifications:~~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 committees:~~ ~~compensation (chair); directors and corporate governance~~



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



John C. Lechleiter, ~~Ph.D.~~Ph.D., age 61, director since 2005
Board Committees: none
~~Age 58~~Career Highlights				~~Director since 2005~~Industry Memberships
~~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 Company		•	American Chemical ~~Society and the~~Society; Business ~~Roundtable. Dr. Lechleiter serves as chairman-elect of~~Roundtable; Pharmaceutical Research and Manufacturers of ~~America (PhRMA),~~America; U.S. - Japan Business Council, chairman
•	President and onCEO (2008 - present)
•	Chairman of the Board (2009 - present)
Honors		Other Board Service
•	Honorary doctorates: Marian University, University of Indianapolis, the National University of Ireland, Indiana University, and Franklin College	•	Public boards of: Ford Motor Company; Nike, Inc.
		•	Non-profit boards: United Way Worldwide, ~~Xavier University (Cincinnati, Ohio),~~chairman; Life Sciences ~~Foundation,~~Foundation; and the Central Indiana Corporate ~~Partnership. He also serves on the board of Nike, Inc.~~ Partnership
~~Qualifications:~~Qualifications: 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.~~A Ph.D. chemist by training, Dr. Lechleiter ~~a Ph.D. chemist,~~ has over 3035 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. ~~Board committees:~~ ~~none~~



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



~~Name~~CEO Experience:			7
Financial Expertise:		6
Relevant Scientific/Academic Expertise:		6
Healthcare Experience:	4
Operational/Strategic Expertise:			7
International Experience:		6
Marketing and Sales Expertise:	4
Gender/Ethnic Diversity:			7



2 Years Tenure or Less:	2				~~Independent~~
3-5 Years:			4			~~Transactions/Relationships/Arrangements~~
~~Mr. Alvarez~~ 6-10 Years:			4
~~Yes~~More than 10 Years:			4			~~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~~		~~Payments to Harvard University totalling approximately $2.3 million (less than 0.1 percent of Harvard’s consolidated gross revenue), primarily for medical research~~
~~Mr. Fyrwald~~		~~Yes~~		~~Purchases of products and services from Ecolab totalling approximately $1.0 million (less than 0.1 percent of Ecolab’s consolidated gross revenue)~~
~~Dr. Gilman~~		~~Yes~~		~~None~~
~~Mr. Hoover~~		~~Yes~~		~~None~~
~~Ms. Horn~~		~~Yes~~		~~None~~
~~Ms. Marram~~		~~Yes~~		~~None~~
~~Mr. Oberhelman~~		~~Yes~~		~~None~~
~~Dr. Prendergast~~		~~Yes~~		~~Payments to the Mayo Clinic and the Mayo Foundation totalling approximately $2.2 million (less than 0.1 percent of Mayo’s consolidated gross revenue), primarily for medical research~~
~~Ms. Seifert~~		~~Yes~~		~~None~~


Name	Fees Earned or Paid in Cash ($) ¹	Stock Awards ($) ²	All Other Compensation and Payments ($) ³	Total ($)⁴
Mr. Alvarez	$107,500	$145,000	$0	$252,500
Dr. Baicker	$8,333	—	$0	$8,333
Sir Winfried Bischoff	$112,000	$145,000	$0	$257,000
Mr. Eskew	$121,000	$145,000	$0	$266,000
Dr. Feldstein	$115,000	$145,000	$18,000	$278,000
Mr. Fyrwald	$103,000	$145,000	$15,000	$263,000
Dr. Gilman	$118,000	$145,000	$12,000	$275,000
Mr. Hoover	$107,500	$145,000	$30,000	$282,500
Ms. Horn	$142,000	$145,000	$6,575	$293,575
Ms. Marram	$112,000	$145,000	$30,000	$287,000
Mr. Oberhelman	$107,500	$145,000	$25,000	$277,500
Dr. Prendergast	$103,000	$145,000	$0	$248,000
Ms. Seifert	$103,000	$145,000	$4,150	$252,150


Name	Outstanding Stock Options (Exercisable)		Weighted Average Exercise Price
Mr. Alvarez		—		—
Dr. Baicker		—		—
Sir Winfried Bischoff		8,400		$68.96
Mr. Eskew		—		—
Dr. Feldstein		8,400		$68.96
Mr. Fyrwald		—		—
Dr. Gilman		8,400		$68.96
Mr. Hoover		—		—
Ms. Horn		8,400		$68.96
Ms. Marram		5,600		$65.48
Mr. Oberhelman		—		—
Dr. Prendergast		8,400		$68.96
Ms. Seifert		8,400		$68.96


	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


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.
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


•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%


Name	2010-2011 PA		2011-2012 PA		2010-2012 SVA		2011-2013 SVA		Percentage Increase (total)
Dr. Lechleiter		$3,750		$3,750		$3,750		$3,750	0%
Mr. Rice		$1,500		$1,900		$1,500		$1,900	27%
Mr. Carmine		$1,500		$1,500		$1,500		$1,500	0%
Dr. Lundberg		$1,250		$1,375		$1,250		$1,375	10%
Mr. Armitage		$1,000		$1,000		$1,000		$1,000	0%


Ending Stock Price	Less than $28.94	$28.94-$33.02	$33.03-$37.09	$37.10-$39.59	$39.60-$42.09	$42.10-$44.59	Greater than $44.59
Compounded Annual Growth Rate (excluding dividends)	Less than (6.0%)	(6.0%)-(1.7%)	(1.7%)-2.1%	2.1%-4.4%	4.4%-6.5%	6.5% -8.6%	Greater than 8.6%
Percent of Target	0%	40%	60%	80%	100%	120%	140%


	2011			2010		% Growth 2011 vs. 2010			2009		% Growth 2010 vs. 2009
EPS as reported	$	3.90		$	4.58		-14.8	%	$	3.94		16.2	%
Eliminate IPR&D charges for acquisitions and in-licensing transactions	$	0.23		$	0.03				$	0.05
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal)	$	0.29		$	0.13				$	0.42
Non-GAAP EPS*	$	4.41		$	4.74		-7.0	%	$	4.42		7.2	%
Health care reform adjustment	$	0.45		$	0.24					—
Acquisitions and collaboration first year impact adjustment	$	0.28			—					—
Xigris withdrawal adjustment	($	0.05	)		—					—
EPS—adjusted	$	5.09		$	4.98		2.2	%	$	4.42		12.7	%

Question 1: Check “no” only if you declineto have your vote appliedpro rata to the undirected shares.